Don’t be fooled by your suppliers

Dec 9 2022, 9:39 AM4 min read

Every Procurement professional needs to be a Risk professional – but even so, are your suppliers still putting you at risk? Use ProcessUnity’s diagnostic guide

If the last few years have taught us anything, it’s that there’s risk hiding everywhere, and it often catches us by surprise.

Regardless of whether you like it or not, as a procurement professional, you also need to be a risk professional, and sharpening your risk management skills needs to be on your agenda constantly.

With that in mind, are you effectively managing risk when it comes to your suppliers?

In a Procurious webcast, brought to you in conjunction with ProcessUnity, we asked the critical but sometimes uncomfortable question: Are your suppliers putting you at risk?

Through discussions with our panel of experts, including Todd Boehler, Senior Vice President of Strategy at ProcessUnity, and Karen Sutton, former CPO at Commonwealth Australia Bank, we deep dived into the many ways that suppliers can put your organisation at risk, and how to best manage this.

From a management perspective, the panel recommended addressing nine categories of due diligence – four for internal review, and five for external review.

Here are four they recommend for internal review (you can discover the other five in the webcast).

4 categories of due diligence for internal review:

Category 1: Identity

Has your potential new supplier answered all the questions on your RFQ meticulously? Check.
Did the initial meeting go swimmingly? Check.
Have any initial product or service passed your quality review? Check.

What could possibly go wrong?

Unfortunately, a lot.

One area that many organisations fail to address when it comes to risk management is a supplier’s identity.

Important questions to ask include:

Is the potential supplier who they say they are?
Is the picture they create consistent with the underlying reality – or are they posting a false front?

As difficult as it may be to imagine a gold star supplier turning out to be anything but, it certainly happens.

One recent case is the world-famous blood-testing startup Theranos, who claimed their technology could perform multiple blood tests on a single pin-prick of blood. Many high-profile companies believed their claims.

Their technology, as it turned out, never worked and the company collapsed, with its founders now both facing jail time for fraud.

Category 2: Financial

If a supplier is super confident taking a large order for you, you always assume that they can fill it. But what state are your supplier’s financials really in?

It’s something you ought to know.

Thorough risk management is needed when it comes to financials, and important questions to ask include:

Does your supplier have any outstanding debts, and if so, are they able to service them effectively?
Does your supplier have any weak revenue streams that call their viability into question?

Remember, even companies that are seemingly untouchable and experience rapid growth can, in both the long and short term, run into financial trouble.

Take, for example, the fintech giant, Afterpay. After posting years of incredible growth, recently the company posted a huge (and some say insurmountable) loss as costs and bad debts begin to mount.

Category 3: Reputation

When it comes to suppliers, it’s easy to assume that the company is simply watertight in every way, shape or form, especially if they are a large supplier.

However, regardless of how well-known or successful a company may seem, it’s always important to ask critical risk-related questions about their reputation.

Questions you might want to ask include:

How is this company regarded by others?
How are they regarded by the media?
Do they have any skeletons in their closet that could fall and rattle your brand?
Are they worthy of your confidence and your trust?

While it may be easy to question the reputation of new suppliers, often, especially with brands that have been around for a long time, it’s more difficult, as they have built up considerable trust and brand equity.

Category 4: Geographic

When it comes to suppliers, there are many things that you can change, but one thing that is difficult is their location. For this reason, one critical risk management consideration is geography.

When it comes to this risk category, it’s important to ask:

Is my supplier located in an area that’s prone to violence and disruption?
Are there any relevant sanctions in their location that I need to worry about?
How easily can my supplier access alternate trade routes if required?

In just the last couple of years, there have been multiple instances of geographic issues when it comes to suppliers.

First and foremost, the pandemic causes all manner of disruptions, and continues to do so, especially with one of China’s major ports, Shanghai, in lockdown.

Similarly, there’s also recently been the issues with the Suez canal, not to mention the extreme disruptions caused by the Ukraine-Russian war.

By nature, and especially now, all procurement professionals need to be risk management experts. Don’t let your supplier fool you, learn more about how they might put you at risk in our webcast.

This article was originally posted on April 21, 2022

Find more Supplier Relationship Management news, insights, and best practises at Procurious.com.