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Making the most of supplier information to manage risk

Monday, March 14, 2022 - 07:50
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What was once “nice to have” information has been defined by law. As social and environmental concerns grow, governments and related third parties are demanding, with regulatory backing, that businesses operate ethical supply chains.

To manage the risk and value that suppliers present, organisations need to know what’s happening in their supply chains. It’s essential that they receive the best possible information from suppliers, to achieve this. So, how can large manufacturers with complex supply chains make the most of their supplier data?

Know what’s at stake

The regulatory environment demands that organisations not only provide certain supplier information, but also fully understand it. Getting this wrong can result in penalties ranging from fines running into millions of pounds, to exclusion from bidding for government contracts.

It can also lead to reputational damage, with a recent Deloitte study revealing that 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns. As this stakeholder pressure continues, so does reputational risk for companies that don’t comply.

Equally, there is an opportunity to appeal to stakeholders by ensuring clean and conscientious sourcing and production, which is at the heart of many marketing strategies. For example, brands may make moral commitments, such as exclusively using biodegradable packaging.

A more internally focused opportunity is managing the value that suppliers generate, for the lifetime of the relationship. To achieve this, organisations must have good supplier management practices in place that help them to receive relevant information and recognise where more may be required.

Risk Management imageGather the right information

Supplier master data, the foundation on which all supplier related information can be built, must be well managed. It’s crucial that organisations gather the right information at the beginning of the relationship, before keeping it updated. This must be done in a structured controlled manner.

The three types of supplier information that are subject to this closer scrutiny are basic business, performance and risk management material. Mostly collected before they start collaborating, the first category relates to what the supplier does and items they supply, as well as contact and payment details. It also includes prices, references, certifications and the signed contract.

Performance information is collected throughout the partnership. As the name suggests, it applies to production and output information, as well as factors like KPIs, customer satisfaction, service-level information, delivery, quality, contract compliance and progress reports.

Lastly, risk management information covers both the supplier’s financial situation and their business beliefs. This includes information on their stance and practices around issues such as modern slavery, the environment, health and safety and human rights issues.

The goal is to receive and capture superior quality information, so that it can be assessed and put to good use.

Step into the supplier’s shoes

Considering that organisations are dependent upon suppliers for this information, having healthy supplier partnerships in place is an absolute necessity. Being more supplier-centric begins with prioritising a single source of truth in supplier data, and then removing all relationship friction.

One such point of friction for suppliers, is indeed the process of providing information. The way in which these requests are communicated at the outset, is often counterproductive. It’s not unusual for suppliers to be inundated with a steady stream of requests that are complicated to complete.

In most cases, information must be maintained across multiple portals, each with unique login details. The systems and processes suppliers use to respond, are rarely designed with their experience in mind. Nor are the questionnaires, which don’t always marry certain details about the supplier with the information being mined.

In reality, suppliers simply want to get paid and renew their contracts. So, when providing information is not an easy process, they’re likely to treat it as a tick-box exercise. Rather, the way to mutual success is for organisations to treat their suppliers like partners. This empowers suppliers to work towards a common goal and provide the best information.

Request information by segments

To achieve this, organisations can use a single source of truth in supplier data, to segment suppliers into groups. Once clustered – for example, by country, category or spend – organisations can drive efficient workflows to generate the right information from each recipient group. When managing risk, this is crucial.

Incidentally, it also helps to craft a better supplier experience. By removing communication bugbears, suppliers can provide better information more often, in addition to doing great work. This information further drives a healthy supplier experience, and so the cycle continues.

While managing suppliers by segments is not new in procurement, there’s an opportunity for the tactic to be deployed in a modern context. In recent years, the mandate of the function has progressed from being purely transactional, to more strategic. As the function evolves, it’s also becoming more digital. Encouragingly, procurement teams in leading organisations are starting to embrace contemporary technology that supports more agile and resilient supplier management.

The requirement for buyers to manage their supplier information is likely to continue growing, as are the associated regulatory and reputational exposures. But with the right mindsets, processes and platforms in place, organisations can obtain robust supplier information. It is from this foundation that the risk and value suppliers present, can be managed.


Author: Costas Xyloyiannis, CEO of HICX, the supplier experience management platform

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