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Supplier risk management: More than a one-time or periodic event

Richard Leslie, Business Development Manager, Proactis

In today’s complex world, supplier risk management is just as critical to your organisation’s financial health and competitive performance as your efforts to produce cost savings. We have seen that supplier risk management cannot be seen as just a one-time or periodic event, it must be built into your organisation’s ongoing supplier interaction in order to be effective.

As either a Finance or Procurement Executive, you undoubtedly spend much of your time looking for ways to reduce operational costs, produce cost savings, and generally “do more with less” – that’s the way the world is today.

But the other big part of your responsibility is to manage risk. The negative impact of a single event on your organisation’s financial position or reputation is potentially huge, even devastating. Risk simply cannot be ignored, even while you work to reduce costs.

The day-to-day financial benefits of risk management activities are harder to measure, and investments to reduce risk may be harder to get approved but the entire management team should be aware of the risks involved.

When it comes to the supply side of your operations, risk management clearly involves managing the risk of serious problems that could be caused directly by the actions or inactions of your suppliers.

The only way to minimise supplier risk is to maintain a high level of visibility of the information that acts as key indicators of each supplier’s ability to perform, and the likelihood of a problem. Information such as:
  • Demonstrated qualifications and capabilities.
  • Quality and safety assurance processes.
  • Certifications and regulatory compliances.
  • Insurance and disaster recovery plans.
  • Key executives and changes to the management team.
  • Mergers, acquisitions, and other important organisational changes.
  • Actual performance history and internal satisfaction levels.
  • The list goes on…
In many organisations, the challenge to maintaining the necessary level of visibility comes from the way in which supplier information is collected, stored, and managed:
  • A reliance on paper information and documents that cannot be easily analysed.
  • Multiple, dispersed systems containing different types of supplier information; sometimes conflicting where they overlap.
  • Certifications and regulatory compliances.
  • Manual and disconnected processes that don’t use or contribute to a single view of suppliers.
  • Information that may have been accurate at one time, but is now out of date.
True visibility of supplier risk can only be maintained through consistent, consolidated, and on-going management of supplier information throughout the supplier relationship lifecycle. The situation surrounding and within a given supplier is constantly changing in both expected and unexpected ways.

The fact is it requires a variety of integrated tools and processes in order to maintain the necessary level of supplier visibility needed to effectively identify and manage risk.

It would be great to hear about your experiences of supplier risk, and how you have managed it. Drop me a line – [email protected]. You can also learn about the key elements of an effective supplier risk management system in our Supplier Risk Management white paper.