In an increasingly interconnected and globalized economy, the COVID-19 pandemic ruthlessly exposed the vulnerability of modern supply chains. Before the pandemic, many companies viewed risk management as time-consuming with unclear benefits. However, the pandemic drastically demonstrated the cost of lacking prevention and risk management. Production disruptions, supply shortages, and border closures led to operational disruptions and significant losses worldwide.

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Our whitepaper "Risk Management in Mid-Size Industrial Companies" shows how businesses can proactively address crises through strategic and resource-efficient risk management, and which methods have proven most effective.

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Status Quo and Challenges for Mid-Size Companies

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Many mid-size companies are aware of the importance of risk management, but implementation often requires significant resources — time, data, and capital — which are particularly limited for SMBs. As a result, risk management is frequently deprioritized in favor of other priorities. Yet as the pandemic showed, this short-term thinking can have costly consequences and jeopardize businesses in the long run.

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Traditional Approaches: ABC Analysis and Its Limitations

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A commonly used approach in risk management is ABC analysis, which categorizes risks by their significance (A: very important, B: moderately important, C: less important). This method is widely used but often too broad and one-dimensional, since only price and quantity are considered. This can result in critical but low-volume components being overlooked.

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A New Approach: IPR Analysis (Integrated Procurement Risk)

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An alternative to ABC analysis is the IPR analysis. This approach focuses on the actual impact of a risk factor on business success and prioritizes elements that are strategically important regardless of price and quantity. The IPR approach provides a more targeted methodology by incorporating not only economic but also qualitative factors.

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The Three Steps of IPR Analysis:

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1. Identification: A cross-functional team identifies success-critical risks along the supply chain.
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2. Assessment: Based on company data such as bills of materials, risk-relevant parts and sub-components are identified.
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3. Implementation: The insights gained are applied and risk mitigation measures are implemented.

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External and Internal Risk Factors: A Differentiated View

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Risk management requires consideration of both external and internal factors. External factors such as natural disasters, political decisions, or economic fluctuations can unpredictably impact the supply chain. Internal factors, over which companies have more control, include internal processes, finances, and human resources. Effective risk management considers both dimensions and develops preventive and reactive strategies for each scenario.

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Conclusion: Risk Management as a Competitive Advantage

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The pandemic taught companies that risk management is not a luxury but a necessity. Strategic and well-designed risk management strengthens a company's resilience and ensures supply security, which in turn creates long-term competitive advantages. For mid-size companies in particular, it is crucial to leverage efficient and targeted approaches like IPR analysis to establish effective risk management with limited resources.

To learn more about how you can make your supply chain resilient and future-proof, download our whitepaper "Risk Management in Mid-Size Industrial Companies."

Discover in our whitepaper "Risk Management in Mid-Size Industrial Companies" how you can establish a resource-efficient risk management approach focused on real business impact.