Calculating Financial Business Risk to Identify Supply Chain Vulnerabilities

Abstract

The COVID-19 pandemic has highlighted the vulnerabilities of supply chain systems, and companies must take Supply Chain Risk Management seriously to build resilience against future unknown disruptions. However, measuring risk and its impact is challenging due to data availability, interpretation of different types of risks, and complex product-supplier networks. Xylem, a global water technology company, posed a challenge to the capstone team to quantify the impact of risk using revenue as a measure. The team developed a Python program to quantify the impact of risk by suppliers, called Business Risk value, which is based on mapping parts, suppliers, models, and revenue in a structured and objective manner. In contrast, Xylem's previous approach lacked transparency and standardization. The team found that procurement spending is not simply correlated with the revenue impact of the company. The new Business Risk value can capture suppliers whose actual Business Risk value is high but went un detected in the old method because their procurement spending was low. The old method prioritized suppliers with high procurement spend, which may not add up to the actual revenue impact and creates unnecessary redundancy in the supply chain. The team suggests that Xylem expands the global database to include smaller suppliers to focus on mapping at least the Business Risk value throughout the supply chain to build resilience. Additionally, the team recommends mapping Time-to-Survive (TTS) to include as an indicator for the duration of impact time, which has not been factored in until now.