Supplier Risk Management Doesn’t Have to Be Hard

Michael Levin of Integrity Interactive is right … risk assessment doesn’t have to be complicated. Many companies put off risk assessment, management, and mitigation because they think it is too time intensive, hard, expensive, etc. … when in reality it usually isn’t. The vast majority of what you buy doesn’t have to be single sourced from a single factory or be made of a single raw material only found in one place in the world. As a result, it’s usually not too hard to define risks (we’re single sourcing oranges from the coast of Florida or RAM chips from a factory on the Shanxi Border in China) or come up with mitigations (buy Oranges from Florida and California and RAM from the Shanxi border factory as well as a factory in Korea).

Furthermore, the six-point approach to risk minimization he outlines in when the CPO gets a request for quote is a great way to kick-start a risk management program:

  1. Ensure the initial supplier selection process is comprehensive, repeatable, and documented.

    This must include inquiries into ethical standards and history.

  2. Establish ethical standards and expectations for suppliers.

    Include labour, environmental and anti-corruption standards. SI’s series on the John Lewis Partnership Responsible Sourcing Supplier Workbook has a lot of good standards you can start with.

  3. Publish and actively communicate those standards to suppliers on a persistent basis.

    Not simply at the initiation of the supplier relationship. Regular newsletters and reminders when they log into your system as well as educational pieces about how to be more socially responsible. (You don’t just want to nag them, you want to inform and better them.)

  4. Perform routine audits of suppliers.

    This is to ensure they continue to meet your ethical standards. Make sure that your contract states that you can do at least one surprise audit annually. (While you shouldn’t do it unless you expect your supplier is not being ethical or socially responsible, as it’s a big drain on you and your supplier, if you get wind of shenanigans, you want to be able to check them out.)

  5. Perform risk assessments of your supply chain.

    Identify suppliers as high risk, low risk, minimal risk and no risk. (Yes, you do have no risk suppliers. For example, if your office suppliers vendor goes out of business, you just go down the street to the next one.)

  6. Establish in advance a remedial action plan in the event trouble is discovered.

    Make sure it’s one you can act on quickly. Otherwise, your brand and reputation will be on the line. After all, by institutionalizing an approach, a company at the centre of an ethics scandal in its supply chain will fare much better with the public and potentially avoid the media storm that is inevitable. It’s a matter of enduring six weeks of pain rather than six months or more of media pain.

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