27 February 2003 | David Arminas
As purchasers try to get the best out of major contracts, they should not forget the necessity of basic information on suppliers.
Peter Smith, director of smart sourcing at consultancy Shreeveport and CIPS president, warned delegates to a London conference that purchasers were in danger of taking strategic decisions without in-depth knowledge of their suppliers.
"One of the hottest issues now is multi-year contracts and how to manage them," he said.
"This is the great white space of supply management - how do we get the best from suppliers in these deals. But a surprising number of companies still do not have meaningful spend data."
Smith said that an area often skimmed over "and generally under-appreciated" was the risk of supplier failure.
Lessons from the surprise collapse of Enron last year should not be forgotten, and he urged purchasers to pay more attention to suppliers' financial health, especially if they are critical to the supply chain.
Colin Gibbs, manager of procurement analysis at Lloyds TSB, agreed that purchasers still faced what he called "an information challenge" and often overlooked a supplier's "family tree" - how companies are connected through subsidiaries.
"If purchasers can understand this, they can better aggregate their spend through their ultimate parent company."
But Gibbs warned that a financial risk assessment of suppliers could mean a procurement department feels guilty for dealing with unstable suppliers.
Aileen Lennon, director of marketing supply management solutions at analysts Dun & Bradstreet, said that collecting data was likely to be a lengthy effort.
"Most purchasers know they should do it, but sometimes the task is so immense that it is put on hold," she said. "The people issue is getting stakeholders to believe it is a useful exercise."