How effectively and efficiently is your risk management program helping you manage supplier risk?
Supplier risk management is normally a top priority in most organizations.
The initial challenge is typically identifying the risks.
In my experience, determining the best method of continuously monitoring your suppliers can be a much bigger challenge.
If I can offer one primary goal it would be this:
- Reduce vulnerability so the organization can operate continuously in a profitable manner
Here are some of the key areas of supplier risk assessment for your consideration:
- Financial stability
- Insurance management
- Regulatory compliance
- Health and safety record
- Document management
If this is your initial classification of your vendors, these questions should help you start to determine their strategic importance to your organization:
- The type of service or product provided (i.e. is it critical to you or not)
- Five-year purchase data (dependence?)
- Length of time they have been a supplier
- Nature and sensitivity of internal data they need to access to effectively meet your standards
- Financial data for a predetermined time period – for example: five years to spot positive or negative trends
- Their headquarters location and geographic areas serviced – some countries and locations have higher risks for bribery and corruption
In addition, there are other questions you should consider:
- How important is this supplier to your organization? (strategic or non-strategic)
- If something goes wrong, like filing for bankruptcy, what is the worst-case scenario?
- What happens if the supplier doesn’t have adequate insurance to protect your company?
- Have there been any red flags in the past including being sued for nonperformance?
- Could they qualify as our supplier if they were fully vetted again including compliance with global government regulations?
The information gathered should incorporate all available data from internal and third-parties.
Your risk management solution should enable you to seamlessly collect and aggregate all data regardless of the source.
Ideally, the data collected should be cleaned and then stored in a central repository where it can be accessed for analysis and reporting.
The analysis should provide you with an initial classification and basic risk assessment for each supplier.
Successfully setting up your central repository is an important first step that many organizations have been able to complete.
As I mentioned in the beginning, continuously monitoring data and documents to keep them updated can be overwhelming.
Common supplier risk issues that complicate the task include:
- Monitoring financial stability
- Ensuring suppliers maintain required insurance coverage
- Compliance with the US Patriot Act and the UK Modern Slavery Act and other government regulations
- Verification of diversity status
- Document verification and management
Most organizations have realized that attempting to effectively manage this internally is not realistic because of limited resources.
Here are some of the components I would recommend be part of any solution you select to allow you to continuously monitor your suppliers:
- Ability to classify each supplier on geography, risk and spend
- Real-time monitoring and verification of data
- Consistent measurement standards
- Push notifications and alerts
- Change notifications to data or documents
- Collection and validation of all documents
- Contract management with query of all key metadata
If your platform has all these features, you will be taking a significant step to minimizing your organization’s vulnerability.
Ask better questions, make changes now and 2019 will be your best year ever.
Action Step: Every organization can get better. Finding and creating success is often a matter of taking the first step. If you are uncertain where to start, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to explore a purchasing or procurement topic in greater detail, I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that my recommendations will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
Organizations of all sizes are reducing costs and increasing efficiency, without changing the way they conduct business. If you would like to know how, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life