Dynamics to Consider When Managing Supplier Risk and Performance
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End-to-end supply chain visibility is among the many challenges facing procurement organizations. One area in particular stands out: supplier risk and performance management (SRPM).
A white paper by source-to-contract software provider Scanmarket defines SRPM as “the ability to assess and monitor supplier risk by tracking suppliers’ financial history, geopolitical risks, news sentiments, judicial filings and regulatory compliance.”
According to How Current Events Are Shaping Supplier Risk and Performance Management, SRPM can help companies predict potential supplier issues — so they can have solutions at the ready to avoid supply chain disruption and reputational risk.
When working with suppliers, whether new or long-term, the white paper recommends that organizations consider such factors as:
- Financial performance. Are there financial issues that could impact their ability to meet your needs?
- Judicial involvement. Are they involved in lawsuits and/or litigation matters that affect their production capabilities or make them risky to work with?
- News sentiment. Have they received negative press pertaining to their environmental, social and governance (ESG) performance or other performance?
Other considerations impacting supplier performance are geopolitical issues and regulatory compliance.
Today’s supply chains are dependent on the global economy, but are subject to such disruptions as tariffs, embargoes and conflicts like the Ukraine-Russia war. Measures such as moving production to other countries can help, the white paper states. Additionally, it notes that finding alternate suppliers that are “free from ties to geopolitical foes” can facilitate supply chain continuity as organizations disband relationships with suppliers in contentious nations.
Regulatory compliance has become an imperative for supply chain organizations “as both public and private entities influence the way many businesses operate,” the white paper states. “These standards aim to shape the entire global supply chain, and companies must be ready to prove they are working within legal parameters.”
ESG scores are among the regulatory considerations for suppliers, according to the report. Risks to consider include whether suppliers adhere to workplace safety standards, make efforts to prevent human rights abuses, and follow environmental standards.
“As global markets become more dependent on each other and consumer consciousness is at an all-time high, the best product is no longer the sole objective,” the white paper says. “The value chain is under a microscope and impacted by both private and public influence.”
Therefore, according to the report, developing a supplier risk-management strategy — with such measures as a defined selection process, contractual standards, due diligence and ongoing monitoring, and audit and reporting processes — is key for supply chain organizations.
“Risk mitigation is no longer an option,” the white paper states. “It is essential.”
(Photo credit: Getty Images/Sarote Pruksachat)
