As the UK deals with the widespread impact of Covid-19, it has never been more important for companies to apply robust processes to vet suppliers to assess the risk of them not fulfilling new and existing contracts – especially with so many companies facing financial hardship.
In response, data and analytics can enable organisations to make informed, fair and consistent decisions on a supplier that help protect against risks.
Types of risk
While it’s important to remember that the majority of suppliers are honest, procurement fraud – where companies or their representatives deliberately deceive an organisation to make a financial gain – remains a significant issue. Procurement fraud can be committed at any point within a contract lifecycle and in many different ways, either by genuine companies manipulating their details to win the contract, or through the creation of ‘shell’ or ‘phantom’ companies.
However, there are other consequences resulting from procurement fraud than just financial loss, including the risk of reputational damage or operational impact from the loss of supply of goods and services. And even when procurement fraud is not the issue, suppliers facing financial difficulty can pose a significant risk to an organisation and its continued operation.
What checks are available to enable supplier vetting?
Performing supplier vetting can be time-consuming, resource-intensive and expensive. In order to ensure an optimal balance between operational efficiency, cost and the need for robust checks, a risk-based approach can be used that is proportionate to the size and duration of the contract. However, in all cases, such checks should:
• Have the buy-in of all key stakeholders and senior management within the organisation
• Be transparent, verified, and fully audited so that a comprehensive record of all checks performed is retained
• Be regularly reviewed to ensure they remain fit for purpose.
The benefits of proactive monitoring
Proactive monitoring offers a complementary service that can enhance supplier vetting by providing immediate notification of key changes in a supplier, such as its directors, its financial status, any new CCJs, high court action / legal data etc. This ensures that procurement teams always have the latest information about a supplier, enabling them to take appropriate action at the earliest opportunity, as well as highlighting potential fraud.
Proactive monitoring services enable organisations to maintain a list of suppliers that they want to monitor, and most can be tailored to meet the specific requirements of an organisation so that they are only notified of changes that they have expressed an interest in.
Supplier management – as valuable as customer management
In the credit risk sector businesses are encouraged to carry out regular customer management reviews to understand the financial stability of their clients. The benefits are often clear: better understand your customers so that you know where your revenue is coming from and where your exposure lies. There should be an equivalent level of due diligence applied to suppliers.
The use of vetting and monitoring of suppliers could save an organisation from being exposed to the loss of a key supplier, or to new risks relating to their supply chain. Initial supplier vetting, followed by regular checks either on a cycle or by using a proactive monitoring service, can provide that extra level of protection against procurement fraud and wider supplier risks.
☛ Andrew Fielder is product manager at Equifax UK