How is the action priority determined?

The action priority is an important indicator in Prewave for decision making when it comes to mitigation planning. But how is it determined.

The action priority is an indicative marker to help your organisation prioritise suppliers for your measures and actions. It is a value assigned to suppliers and displays where actions and measure will create the greatest value. Both for sustainability and disruption perspectives the underlying principle is the same. High risk and/or high impact lead increased action priority. Low risk and/or low impact lead to decreased action priority.

Let's look at a negative example to illustrate this relation. In sample B, the considered suppliers have a high to critical risk, however their action priority remains in the low action priority field. Mitigating risks of these suppliers won't yield the appropriate gains, as their impact is too minor for prioritisation, thus the respective action priority.

This relation goes two ways. In sample A the opposite is the case. The suppliers have no risk, but there is a high impact, briefly put: "No risk, no action needed."

Then there are also the evident cases: Sample C showcases suppliers with no risk detected and no impact. One can confidently say these suppliers should not be prioritised.

With sample D we see two suppliers with very high risk and very high impact. Mitigating those risks will be very beneficial for your company because failure is probable and the impact could be very important.

Why does the increase of the impact result in an increase of the action priority?

Taking the sustainability perspective a high impact signifies a high responsibility towards the actions and processes of your supplier. It also means that your actions and measures have a high likelihood of being implemented by the supplier because the supplier is dependent on your organisation (typically measured by relative purchase volume to overall sales of your supplier). Responsibility and power are drivers for significant action and thus determine the action priority. Compliance laws like the LkSG explicitly state that actions should be taken at suppliers where organisations have an high impact

Looking at the supplier from a disruption perspective different parameters apply but the logic remains the same. Here we look at the impact a supplier can have on your business. To assess the impact we need to answer the question: How dependant is my organisation on the supplier? A typical way to measure this is via Sales figures. How much sales could we loose if a supplier would suddenly stop delivering their product? The bigger your dependancy, or put differently, the higher the impact of the supplier on your organisation, naturally the higher your action priority should be, as your actions will have a significant impact on reducing your risk of being significantly disrupted.

Impact thresholds

The action priority is also dependant on risk and impact thresholds. This means that impact values like purchase volume at supplier over gross sales of supplier are categorised on a scale and assigned impact categories from NO to CRITICAL. In standard perspectives like the LkSG or the Disruption perspective the thresholds are preset by Prewave based on expert advice.

 Example: LkSG impact thresholds

In customer specific perspectives you can define what can be considered a critical impact. From a sustainabiltiy perspective for instance your could ask yourself the following question: Should an impact of above 20% relative purchase volume over gross sales at my supplier be the threshold for a critical impact or maybe already 10%? This decision should be based on your experience in procurement and your industry knowledge. Gather information with your colleagues on when suppliers are most likely to implement your actions and measures and define those values empirically. They are not set in stone and very dependant on your specific relations with your suppliers.

Risk thresholds

Defining the threshold of when a risk score should be considered critical will impact the action priority. In standard perspectives like the LkSG or the Disruption perspective the thresholds are preset by Prewave based on expert advice.

Perspectives like the LkSG perspective follow the risk thresholds of all due diligence act perspectives