Handling Supplier Risk Management basics

What constitutes Supplier Risk? Simply put supplier risk constitutes any threat originating out of the supply chain that jeopardises or potentially can jeapodarise an organisations earning’s, image and operational capacity.

Obviously there are many software companies out there doing the” hard-sell” on Risk Management Programmes and I agree that these do certainly have their place. However, the fundamentals of risk management are old fashion human intuition coupled with good Procurement based Intelligence (as covered by a prior article of mine).

 

I have successfully followed a management strategy for many years that is basic 101 of good purchasing governance. This strategy is simplified format consists of the following constituents:

 

  • Buyer Responsibility

Each buyer wanting to on-board a supplier takes direct on-boarding answerability for that supplier, which includes pre-on-boarding due diligence and should further include long term vendor management responsibility. Effective performance and incentive programmes coupled with penalty defaults for buying team members promotes the creation of very experienced, skilled, savvy and highly effective procurement operators in the long term.

 

  • Supplier Due Diligence/Procurement Intelligence

Do the pre-screen due diligence that includes; Asking for and checking references– Strive to discover what other companies (not given as references) are clients, give them a shout and ask their experiences (you may be surprised at the results), Do company financial checks– Easy enough to accomplish.If needs be also check on the backgrounds of prominent role players within that supplier, Verify any information or certifications presented by any rep of any potential supplier. Compliance- One needs to be obviously aware of compliance aspects such as legislation, safety, health, anti –bribery policies, and to include them in this pre-screening process. Supplier Development Programmes-Be very informed of what the associated risks to Supplier Development Programmes entail- In South Africa and elsewhere, we have a supply chain based corporate social responsibility based programme (Enterprise and Supplier Development) which encourages corporates to help develop their supplier businesses. Fair enough, but remember, you ultimately pay the price!!! If you need to help your supplier directly develop his business, trust me, you don’t want to be dealing with him from the get go anyway, as that contradicts most fundamentals of risk mitigation, common business sense and common logic.

 

  • Vendor Performance Assessments and Appraisals

I can’t over-stress the importance of regular all -encompassing vendor performance assessments and appraisals. This should be ONGOING and all performance and pricing deviances should be recorded in real time by the buyers experiencing such deviances. Naturally all issues should be addressed as they unfold, and the results so recorded. Excellent or exceptional performance should also be recorded. Every two to three months the vendor should be assessed on this accumulated performance information. The vendor assessment programme should be aligned with a reward/penalty programme that is implemented accordingly

 

  • Multi Tiering

Another 101 of supply chain but often not done-Multi -tier your vendor base wherever possible. Flit between two or three similar suppliers regularly and compare. Ensure very effective SLA’s are properly created, emplaced and managed. With new suppliers ensure a probationary period is requisite (official or unofficial). Believe me it works!!!

 

  • Relations Management

Always manage vendor relationships well. Get to know the other party and connect with them on an inter-personal level.  However don’t get too “pally” as that certainly may lead to long term “liberty” issues you don’t need, when you have to execute certain responsibilities of your job.

 

  • Legislation, Corporate Goals and Internal Stakeholder Relations

Always ensure that you and your team are up to date regards your knowledge of Legislation, Compliance, what the overall goals of your organisation are, and what is the role of Procurement in achieving these goals. Similarly know the roles of your other internal stakeholders and build a collaborative relations management programme around these internal customers.

 

  • Professional Networking

Even though not always possible due to the obvious reasons, but I strongly advocate the need for senior procurement professionals to network amongst each other, specifically in certain industries.  Sometimes it is even advantageous to collaborate to achieve mutual goals and objectives within a particular industry. There are a number of obvious and not so obvious ways to accomplish this.

 

As above outlined , you need a good amount of common sense, rather than spending bundles of cash on complicated software to achieve many of the same ends regarding supply chain risk mitigation.

Should you have any enquiries regarding Strategic Procurement or Tactical Purchasing strategies, job descriptions or Skills Requirement assessments and audits within Procurement and Purchasing, review www.furrutterandassociates.co.za, or contact Karl Furrutter telephonically on 27 82 393-3685.

Karl Furrutter is a consulting procurement specialist and managing associate at Furrutter & Associates, who works nationally (South Africa) and internationally