Supply chains provide rich assets, such as consumables, components, raw materials, machinery, assemblies, expertise and services that can reduce cost, boost efficiency and improve quality. But the flip side is that they can also bring liability in the guise of delays, problems, waste, extra cost and adverse PR.
Every manager who is contracting out business must ask: how much risk am I buying-in?
Minimising such liability is a challenge for supply chain managers, but by making use of technology and differentiating suppliers by basing assessment and compliance strategies on risk and spend, managers can simplify the task and minimise the cost of compliance management.
To avoid supply chain blindness and ensure managers can focus on adding value, it is crucial to replace old fashioned, cumbersome spreadsheets with modern software systems that can keep pace with supply chain growth, be used collaboratively and integrated with other back office systems to retrieve audit evidence and generate quick management reports.
Robust management processes are required to assess, manage and monitor risk. This requires a three-step compliance process:
1. Assess capability
a. Supplier information is the critical starting point, but there's little point in gathering the same information for each supplier. It must be pertinent to the service they are providing or goods they are supplying.
b. Verify the supplier information. This evidence shouldn't just be checked once a year, it should always be live, up to date and instantly retrievable.
c. Authorise the information. Once a supplier is thoroughly checked and approved for any given product or service, ensure suppliers from this list are used by all departments. All too often the reality is that different departments stray from the approved suppliers list to appoint non-approved suppliers based on cheaper price. This can prove very costly if that decision also 'buys-in' risk.
2. Manage supply contracts
a. Set clear policies and rules, so suppliers are very clear of what is expected.
b. Contracts and specification. Formalise your requirements so that nothing is left to chance.
c. Controls and restraints. Ensure suppliers understand any control processes that need to be followed, for exampe site access control on construction sites or railway lines, or exposure to heat, radiation, etc.
3. Monitor suppliers
a. Behaviour. Don't let the robustness of your monitoring lull your suppliers into complacency and remove their sense of responsibility for their own compliance and performance. It's important to be clear about where accountability lies.
b. Audit. While physical audits have their place, technology can be used at lower cost to provide an audit trail. This can replace sprawling spreadsheets, minimising timescales and maximising efficiency.
c. Key performance indicators (KPIs). It's often said what doesn't get measured doesn't get done. It's important to gather, measure and analyse statistics that illustrate whether the desired outcomes and objectives were achieved, for example percentage delivered on time, percentage fixed first time, percentage call outs achieved within target time.
☛ Gary Plant is managing director for Altius