Six vital steps to cut supplier risk

A survey of CPOs has revealed supplier risk is a major concern. Some 45 per cent of procurement chiefs responding to the Global Procurement & Strategic Sourcing Data Survey, named vendor threats as their biggest worry.

Here are six suggestions how CPOs can reduce supplier risk and relieve their anxiety.

1. 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.

2. 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 subcontractors firmly in your sights? If not, it might be time to swap the spreadsheets for a more up to date system of compliance management.

3. Make sure robust compliance systems are in place to combat cyber threats.
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.

4. Get a grip on contractors and subcontractors.
Implement a robust system of standards and pre-qualification checks for any contractors employed on company sites. In addition, you must ensure any subcontractors 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 subcontractors. 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 supplier will rightly point out that you said the lower tier vendor was OK. With the best intentions, you’ve taken away their responsibility and accountability to manage their suppliers.

5. 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 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.

6. Remember ignorance is never bliss.
Claiming ignorance of your client responsibilities when things go wrong is no defence. It is 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.

Gary Plant is managing director at Altius Compliance

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