Supplier management has moved beyond just ensuring contracts support business needs. The most effective organisations today focus on building stronger relationships and deeper collaboration across the whole supplier ecosystem. Regardless of the organisation size or sector, supplier management is a vital part of a company’s capability – how you onboard, manage, measure and talk to your suppliers is important in reducing supply chain complexity, building productive relationships whilst removing unpredictability from supplier behaviour.
In today’s connected multinational supply chains, we see organisations just focusing on a handful of more “strategic” suppliers, but this can just expose your organisation to greater risk. Here are some of the risks we see occurring now or on the horizon:
- Reliable supply chains can have hidden risks – and we can all give examples from the last 18 months! Without sound due diligence and a full understanding of the supply chain ecosystem supporting your business product and services, operational risks go undetected. This doesn’t just apply to physical supply chains – people, services and software all have hidden risks. Inefficient or unreliable suppliers can become costly in terms of revenue,
time and potentially reputation – identifying these suppliers quickly will mitigate any risk exposure.
- Legislative & Regulatory compliance in the Financial Services market has seen the demand for increased governance and management of suppliers. Outsourced arrangements are of particular focus by the Prudential Regulation Authority (PRA) with new rules to apply from March 2022 driving new banking compliance requirements. In order to comply a regulated organisation will, amongst other demands, need to make sure their supplier governance processes encompass…
- regular materiality assessments as to the impact of the outsourced services to the business
- increased due diligence surrounding audit, rights of access and cybersecurity
- enhanced oversight of sub-contractors
- enhanced business continuity
- a structured approach to Exit Management, Exit Plans, potentially extending to knowledge of suitable alternative suppliers
- ESG considerations – News from COP26 (Nov 2021) included a commitment in the UK for companies to show how they will hit net zero carbon,. To be compliant will extend beyond a company’s own footprint into their supply chain. Putting a provision in the contract isn’t enough – managing, monitoring and proactively measuring compliance will be required
- Supplier Relationships are critical and build long-term trustful relationships that bring mutual beneficial results. Going beyond transactional performance measurement should be the norm. Ineffective communications, or lack of clarity on terms and conditions can lead to a break down in relationship unless handled tactfully and openly.
For ESG commitment, conducting contract landscape reviews, and providing in-depth supply chain analysis should help you to identify opportunities and risks, to strengthen not only your progress towards your sustainability obligations and commitments, but also that of your entire supply ecosystem. Proactively managing suppliers will result not only in an increased return on investment (through improving the longevity of suppliers capabilities), but also improve the triple bottom line (Profit, People, Planet). COP26 has reinforced our need to focus on ethical obligations ahead of short-term gains and to ensure a sustainable future
So, in summary we would like to leave you with some food for thought: actively ensuring your supply chain is mirroring your own risk, regulatory and ESG commitments will protect you and continuously improve your supplier management practices. From this foundation will grow a more engaged, reliable and proactive supplier ecosystem as well as an uplift in your own organisation’s brand value.