The rewards of managing supplier risk: part three

Posted on 23 Apr 2014 by The Manufacturer

Daniel Ball, co-founder of Wax Digital, looks at technology as an effective tool for managing supplier risk.

Daniel Ball
Daniel Ball, co-founder of Wax Digital

Effective suppler risk management requires a data and detail driven approach flowing through both your analysis of suppliers as well as day-to-day processes. Technology has a key role to play in this, alongside maintaining valuable dialogue and relationships with suppliers.

From a technology perspective Source-to-Pay software provides a single, audited and end-to-end sourcing and procurement process – all the way from supplier selection, sourcing and negotiation, through to on-boarding, catalogue and contract management, purchase order processing, e-invoicing and supplier management.

Having a synchronised Source-to-Pay process in place helps to make controlling supplier risk easier, from reducing the effort required to review and ensure that all risk factors are considered within the selection process to ensuring that rigor is applied to all aspects of engagement with suppliers.

Process such as this is absolutely vital, but procurement people should not lose sight of the need for regular interaction and relationships too. Engaging and communicating with suppliers is equally important to ensure both organisations are working together to manage risk. And don’t forget about relationships with potential suppliers outside the current supply chain. Investing in pre-vetting and communication with them could enable faster mobilisation of alternatives if the need arises.

Without careful balance, introducing formal process and technology into supplier relationships can often tip the scales away from achieving strong relationships. As John Martin, independent procurement consultant, confirms, “Although rightly designed to ensure that appropriate checks and balances are in place, over-formality can lead to putting distance between you and the supplier, which can make controlling risk harder to do in the long term.

Exacerbating factors include regulatory compliance, structured multi-tier supply chains and once again increased globalisation. Minimising supplier risk requires a balance between formal technology driven process and an open and personalised approach. There should exist a ‘healthy tension’ between buyer and supplier as in all business relationships.”

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Working with your key suppliers to ensure risk is managed should be introduced as a joint responsibility from the outset, when tenders are being agreed and contracts being put in place. A formal risk review, including assessment of suppliers’ continuity plans, should be part of sealing the relationship; it highlights what measures may need to be implemented and how risks are going to be monitored and evaluated.

Considerations should extend beyond the usual suspects such as insurance and standard terms, to defining processes, people, compliance, SLAs and reporting. This collaborative approach should also extend through the relationship. If something goes awry your open dialogue about risk ensures a far greater chance of working together in solving many issues.

I work regularly with procurement professionals in manufacturing and other supply chain scenarios and see their increased focus on and role in managing supplier risk. Over these three blogs I have highlighted some of the key tenets of that job – namely the importance of granularity, process, analysis, technology and relationships. The final piece of the jigsaw is responsibility, which must be shared equally between you and your suppliers.