Supplier Risk and Compliance Management in Practice

Author: Bill McBeath

Published on: May 25, 2012

Abstract

Most companies today are heavily outsourced and have suppliers spread out across the globe. This has introduced substantially more risk in global businesses. At the same time, regulatory and legal compliance has become increasingly more complex and important. The enormous challenges and vital importance of managing supplier risk and compliance have been made even more evident by the global financial crisis and recent natural disasters, as well as lean business practices. This paper looks at a number of facets of managing risk and compliance, including the financial impact, what risk factors companies are facing and managing, and how to do an effective job on tight budgets with limited resources.

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Supplier Risk and Compliance: Increasingly Important but Under-Recognized

Managing supplier risk and compliance is very important, but unfortunately, that importance is often under-recognized. When a marketing executive or engineer does a great job, everyone sees the increase in sales or a great new hit product launched with a big bang … and with those successes, the bonuses and praise flow. When a supplier risk and compliance manager does a great job, then what happens is … nothing goes wrong. Everything goes smoothly. And most of the time, nobody notices. Of course, if they mess up, all hell breaks loose.

It is not so surprising then that our research found that most companies under-invest in managing supplier risk. This is at a time when the need for stronger capabilities to manage risk and compliance are greater than ever. The supply base of most companies has become more global, outsourced, and interconnected than ever before. Volatility in the economy, fluctuating commodity prices, and exchange rates add additional risks. The range of risks goes way beyond just the financial stability of the suppliers.

Furthermore, compliance requirements have been steadily increasing over the decades. Corporations have more and more internal compliance requirements. Companies are becoming much more prescriptive and detailed in their supplier mandates in order to run their supply chain and operations more efficiently and smoothly. Compliance manuals for suppliers used to be just a few pages. Now they can be literally hundreds of pages with everything from routing guides, labeling and packaging requirements, shipping and packing, to environmental requirements and more. More companies have supplier codes of conduct, recognizing that the court of public opinion holds them responsible for what happens in their supply chain.

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