"Fraud has hit 70% of companies in the past 12 months and the sharpest increase is in supplier or procurement scams," according to official CIPS Magazine -Supply Management - and the 2013 Kroll Global Fraud Report. "Of those falling victim to procurement fraud, a third experienced wrongdoing perpetrated by suppliers".
PROACTIS advises organisations to take immediate action and establish an early warning system to mitigate the risk of serious problems that could be caused deliberately or accidentally by the actions or inactions of suppliers, as well as supplier failure.
Prudent management teams are taking note of the rising trend of supplier or procurement related scams and in response are initiating actions to assess and mitigate potential risks - financial, legal and operational. This includes a framework necessary to:
- Collect and maintain accurate and complete supplier information
- Gain a thorough qualification of suppliers' capabilities, certifications, policies and procedures
- Evaluate suppliers' ability to deliver a set of products, or perform a project or service
- Monitor all of the possible changes, required actions, and actual performance KPIs of suppliers
- Enable suppliers to maintain controlled sections of their profile information themselves
In many organisations, the challenge to maintaining the necessary level of visibility comes from the way in which supplier information is collected, stored, managed, reviewed and challenged.
"Organisations must eliminate the reliance on paper information and documents that cannot be easily analysed," said Simon Dadswell, Marketing Director of PROACTIS. "Organisations are exposed to supplier or procurement scams and potential supply chain failure if they have: multiple, dispersed systems containing different types of information; manual and disconnected processes that don't use or contribute to a single view of suppliers; and information that may have been accurate at one time, but is now out of date."
Now - against a backdrop of a rising global incidence of fraud - is the time to put in place a true supplier risk management framework. It should be a natural part of everyone's daily activity, and a natural part of your initial and ongoing engagement with suppliers. To be truly effective, risk management processes must be thorough, consistent, continuous, and cover all of your suppliers in the following ways:
- Supplier qualification for specific and general categories
- Supplier selection for a specific purchase, project, or contract
- Monitoring of initial and ongoing supplier performance and compliance
- Rapid access to alternative suppliers if/when a replacement is needed
- Thorough supplier engagement information if/when a problem needs to be addressed
"You can put in place a supplier risk management system that will also significantly enhance your procurement processes and get started in a matter of weeks," continued Dadswell.