Lack of supply knowledge poses risk to firms

4 October 2005
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05 October 2005 | Rebecca Ellinor

UK businesses are at risk because they do not know enough about many of their suppliers. And, according to new research, one of the main reasons for this is that there aren't enough purchasers in procurement departments to manage supplier-relationships.

The findings appear in What Lies Beneath, a survey of more than 300 UK firms, conducted by research consultancy Grasp.

It reported that the average organisation had 700 suppliers managed by about eight purchasers and that buyers were responsible for around 37 suppliers each. In some cases, the survey said, purchasers would each have to manage an additional 181 suppliers to address the shortfall or take on around 10 more staff.

Andy Brown, chief executive of TiVA (which commissioned the report) and former senior procurement executive at Asda and BSkyB, said: "Purchasing teams are stretched in their personal coverage and management of organisations' large supply bases. Very few businesses appear to be able to actively manage all their suppliers." However, the majority of organisations said they were not planning to hire more purchasers.

Despite this, most of those surveyed acknowledged there were risks - including financial, health and safety and threats to the firm's reputation - in dealing with suppliers they knew little or nothing about.

Brown told SM that changes to governance rules, for example the US's 2002 Sarbanes-Oxley Act, means businesses have to disclose any "weaknesses", such as risky suppliers which could affect their share value.

He said that not scrutinising suppliers at the 'tail' of the chain was an accident waiting to happen. He added: "The environment is changing. Corporate buying organisations cannot just use the 80/20 rule anymore, they need to look at all of their suppliers. If I was still running a supply chain, then I would be rather worried."

Interviews conducted with finance and purchasing managers in the same firms found some disagreed on the size of their supply base. Some identified more than double the number acknowledged by colleagues in purchasing.

SMoct2005

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