How to avoid buying in supply chain risk
In an article first published on the Supply Management blog, Altius Managing Director Gary Plant advises on six vital steps procurement managers can take to cut supplier risk.
A survey of Chief Procurement Officers (CPOs) has revealed that supplier risk is a major concern. 45% of CPOs responding to the Global Procurement & Strategic Sourcing Data Survey conducted by Consero Group, named vendor threats as their biggest worry.
Consero chief executive Paul Mandell, highlighted the need for CPOs to ensure supply chain compliance. He said: “CPOs will need to lead their organisations in thoroughly vetting new suppliers and improving supplier relations, both of which are essential to the efficient sourcing of goods and services for today’s global businesses”.
Here’s six suggestions of how CPOs can reduce supplier risk and relieve their anxiety.
Give suppliers a thorough financial health check and maintain scrutiny
Scrutinise a potential supplier’s published accounts and examine their economic health over a number of years. It’s also wise to get in touch with the supplier’s existing customers and use the web to seek a broader picture of the health of their finances. You can also use a financial health check service, like Company Watch, which uses mathematical modelling to score a company’s overall financial strength.
Increase your supply chain visibility
Many CPOs are drowning in data and feel overwhelmed by spreadsheets that don’t quite integrate with other back office systems, and which can’t be used collaboratively. This often requires hours of work and manual processing to turn the information into useful management reports. The real danger is that by not organising supplier information properly you can lose sight of what is important. Supply chain blindness can affect any CPO and not being able to map historical data can lead to a failure to spot trends and predict weaknesses. Ask yourself: Do you have contractors and sub-contractors firmly in your sights? If not, it might be time to swap the spreadsheets for a more up to date system of compliance management.
Make sure that robust compliance systems are in place to combat the cyber threat
One of the newest threats to your supply chain is going to get bigger and more sinister in years to come. Failing to ensure that your suppliers are cyber-compliant can leave your business open to catastrophic breaches of data and large associated fines. Make sure a comprehensive cyber defence strategy is in place and regularly update it to combat the latest threats.
Get a grip on contractors and sub-contractors
Implement a robust system of standards and pre-qualification checks for any contractors employed on company sites. In addition, you must ensure that any sub-contractors meet the pre-requisite standards. Key health and safety checks should include: are workers insured? Do they have suitable asbestos-safety training? Are they qualified to work with or in close proximity to electricity? There is often confusion over who is responsible for checking sub contractors. Conscientious supply chain managers sometimes start the process of getting to know who the sub-suppliers are and begin checking them, but the process is long and complex so it isn’t always completed. Sometimes they will insist sub-suppliers are chosen from an approved list. But when things go wrong, the first tier supply will rightly point out that you, the client, said that the sub-supplier was OK. With the best intentions, you’ve taken away their responsibility and accountability to manage their suppliers.
Always keep reputation at the forefront of your mind
Reputational damage should be a top concern for all CPOs. The recent boycotting of several multinational brands in the UK demonstrates that reputational damage can be more of a burden on companies than one-off fines. As far as is possible, you should be ensuring that supply partners are operating in a safe and ethical way – avoiding suppliers who fail to adhere to the high standards you set.
Remember that ignorance is never bliss
Claiming ignorance of your client responsibilities when things go wrong is no defence. It’s shocking how many times a response to a problem is: “Nobody told me I was supposed to check my supplier. I thought he was responsible for working safely.” This won’t wash in the courts so make sure you face up to your responsibilities and have robust systems in place to check and continually monitor suppliers.