In my experience, organizations tend to have relatively detailed assessments to determine the IT and security risks of a given supplier, but in terms of general risk, the questions tend to be more high-level with a focus on legal issues, e.g. open lawsuits and known conflicts of interest. Assessing the riskiness of a supplier is part of the sourcing process that Procurement must take on to avoid problems down the road. There are certain areas that are top of mind when developing a supplier risk assessment or checklist (e.g. financial stability, insurance levels, compliance with laws, subcontractor relationships, assurance of supply), but what are some aspects of risk evaluation that may not always be considered? Take a look at some areas that can have a real impact on your business.
- Technological advancement: How are you and your suppliers investing in technology to ensure your systems, network, and consumer facing tools remain relevant and effective? If a supplier is not keeping in step with technology advances, consider how this will affect the end product you receive or the disruption that could occur when you or your suppliers eventually have to update and upgrade those systems. Also, if you are sourcing IT directly, look at the longevity of the current system or technology and work with your suppliers and internal IT department to ensure you are making a choice that is sustainable for the foreseeable future.
- Billing efficiency and transparency: How can a supplier integrate into your systems and accommodate your needs for billing? Although it can often be an afterthought, billing and administrative issues can take up a large portion of time. Add in the time needed to review and audit invoices and the time spent on billing can grow exponentially. Working with a supplier who cannot offer any integration into your A/P system or is insistent on a billing method that does not ease your review/audit burden can lead to a real loss of productivity and transparency.
- Ease of doing business: How are decisions being made by management at your suppliers and how can they accommodate your particular needs? Working with heavily silo-ed or hierarchical companies can make it difficult to ensure the efficiency and flexibility that companies often need. Some of these issues may be solved by having a solid account team that has insight into multiple work streams, but don’t assume that business units or subsidiaries will work together seamlessly.
- Enhancement/Degradation of your brand: How could working with a particular supplier alter the brand your company is creating or building? Having insight into your suppliers’ downstream supply chain and any potential risks is part of the due diligence process that Procurement should take on. Any backlash from customers against your suppliers’ practices could have an impact on your organization. Refer back to the “front page test”: how would you or your customers feel about your suppliers if they were announced on the front page of a newspaper or blog?
- Opportunity cost: By not sourcing something at a given time or from a given supplier, what are you giving up? While this may not be a part of a supplier review, it should be a part of the business justification of the project in general. Organizations sometimes change the priority of sourcing initiatives mid-stream, but Procurement should work with stakeholders to determine how foregoing a particular product, technology, or solution will affect the business. Consider whether you can risk going without a certain product or service and how your competition may be moving forward in that space, e.g. consumer facing platforms and solutions. Organizations can sometimes lose sight of this when looking at the price of a product or service; cutting the expenditure may help the budget, but can hurt the business in the long run.