Category Archives: Supplier Management

Technology for Supplier Onboarding is the NOW, not the Future!

In fact, for any company that hasn’t been in a cave for the last TWO (2) decades, it’s the past!

Needless to say, the doctor was shocked to see this recent headline in Supply Chain Digital that purported to answer why technology is the future for supplier onboarding because either you’re using technology for supplier onboarding today, or you’re not going to be around much longer as a company.

Without a good solution, the time it takes to collect and evaluate enough data to even determine if the supplier is legit, in your industry, appropriately certified, not on any banned lists, financially stable, with real customers, etc. is days, sometimes weeks. And then the time to evaluate the supplier to supply even a single product can be weeks, especially in direct, when you have to trace the product components down to the raw material source to make sure there are no conflict diamonds, no Congolese cobalt, and no indentured / kafala / slave labour in the mines your metals come from.

Even though the article headline is, well, wrong, there are some good points in the article.

Having a strategic approach to supplier onboarding is a key component of supply chain risk management. Most definitely. You don’t want to hook up with a supplier that’s just going to increase your risk, stop your production lines, bring regulatory and compliance investigations your way, and possibly get your CFO or CEO in hot water because you had them sign off on a supplier as being safe when, in fact, it was the business equivalent of a landmine.

With a properly configured supplier management solution, you can check that a supplier meets all of the basic regulatory requirements, financial requirements, and baseline operational requirements in a minute. Literally. You plug in the name and ONE governmental ID code and it pulls in every single piece of information in government systems, third party finance / ESG / Risk databases, insurance and compliance databases, and community intelligence gathered in its systems and indicates if the supplier:

  • failed any registration checks
  • failed any denied party checks
  • has any owners, directors, investors, or connected parties that failed a check
  • has filed its financial reports and is not rated as a going concern
  • has reasonable ESG ratings
  • has any reports of, or known connections to, forced/child/slave labour
  • has valid insurance
  • has valid regulatory compliance certificates
  • any other requirement that can be looked up from a public database

And you know if there are any alerts or failures within minutes, not hours, days, or weeks.

Which lets you dive into evaluating whether or not they can supply the product you need at the quality and quantity, and in a manner that is not quixotic to your business environment.

You can then define additional requirements for automatic lookup, ask for tier 2 suppliers, do the same automatic checks on those, specific to the component or raw material they are providing, and if all that passes, which you will know in minutes, then you can begin the real research in minutes, not hours, days, or weeks. And the real research can take days, or weeks (and sometimes more) in real time when you need to look deep into the production capabilities, the labour that is used, the materials that are used, and the quality of the finished good (which you may need to see a sample of). But the last thing you want to do is waste weeks trying to get to this point only to find out three weeks in that the supplier is on a banned list for one of your main marketplaces, the tier 3 uses cobalt from the Congo (and if you don’t know why that is bad, do ONE minute of web research [unless, of course, you are a psychopath or sociopath with no regard for human rights or even welfare]), or is facing multiple lawsuits for unsafe products in multiple countries.

It is imperative that C-suiters “act with urgency around risk”. Nothing could be truer. It seems that risk is doubling every day. You need to be ready, and while you can’t be ready for everything, you can minimize the chances of risk by ensuring that your suppliers are not adding risk and, in fact, as dedicated as you in minimizing their risk profile. Moreover, if you have a good supply base, they can work with you to mitigate the impact of disruptions when those disruptions rear their ugly head.

“This year we expect to see increased ESG regulation”. It’s coming, and the best way to be prepared for it is with systems that can run checks, collect the required data, flag potential issues, and make sure you keep on top of whatever you need to in order to comply with those regulations.

“Invest in your processes, to ensure you can do more with the same, or fewer, resources. This usually means automating your supply chain data, so you’re finding new suppliers or managing existing suppliers.” Definitely.

Technology has a vital role to play in supplier onboarding. Most definitely. Except you should have been using it for the past two decades, not looking for a solution today. Why do you think there are 100+ vendors offering supplier management solutions? Because they’ve worked wonders (relative to not having any solution) since they were first introduced two decades ago. And, most importantly, they’ve went from simple information management solutions to advanced data collection, validation, and risk assessment solutions where you can quickly validate, analyze, and decide if you want to even consider engaging with a supplier in minutes. You can also collaborate, develop, and implement supplier programs. And you can even orchestrate supply networks with modern solutions.

So if your solution doesn’t solve your CORNED QUIP mash of supplier management problems, maybe it’s time you found a new one. You can’t wait for the future to solve your supplier management problems, you need to solve them today!

10 Great Questions to Pre-Qualify a Vendor Before Onboarding for a Deep Dive, Courtesy of Certa

A recent article in the SCMR by Jag Lamba, the CEO of Certa, a Third Party Risk Management (TPRM) vendor headquartered in California and focussed on compliance, risk, and ESG had some very good questions to ask before engaging with a US vendor, but some of them were very US-centric and others took a platform based approach. (You certainly need a platform, but certain areas, like security, go beyond the platform.)

But if we generalize these questions, they are relevant for everyone, and make it clear why you need a Third Party Risk Management (TPRM) platform that goes just beyond key suppliers/vendors, and beyond product and service needs. (And if you’re wondering what you need a TPRM, check out Part 4A and Part 4B of our new Source-to-Pay+ series where we are currently focussing on Risk Management.) They’re also industry independent and can allow you to short circuit a time-consuming industry (product/service) specific diligence because if the third party fails any of these questions, why would you bother going deeper? Just move on to the next contender!

  1. Does the vendor meet the needs of its customer base?: Any major negative news headlines? Any drops in financial performance? Any grumblings on Glass Door? Any of your counterparts in local groups or associations using them and bad mouthing them?
  2. Does the vendor have the operational capability AND capacity to serve you?: If you need a modern machining process or a vendor who can produce a minimum of a million units, don’t bother with any vendors that don’t have the process or can’t produce a million units.
  3. What financial and sustainability reporting process are they subject to? : The best way to ascertain their ability to stay compliant with financial and other regulatory (like ESG) requirements is to review the government reports. (They may [white] lie in their marketing, and then claim you misinterpreted, but they’re not as likely to lie to the government who could fine them, criminally charge them [in some countries], or shut them down.)
  4. How do they approach security?: Not just cyber security, but facility security, personnel security, and information security. Over half the attacks come from the cloud because it’s easy when you leave a security hole, hackers don’t have to leave their basement, they can attack you half a world away, and face no repercussions because there are no extradition treaties and the local authorities just don’t give a f*ck if they aren’t doing any criminal activity in their country. But when that fails, their local counterparts try to break into the facilities — if the vendor stores unsecured physical copies of critical IP, local backups of sensitive IP on unsecured USB/Zip/Thumb drives, or a lot of money on site — all someone has to do is walk in with a workman’s uniform, enter the backroom to check the wiring when no one’s in it, stuff something in their workbag or pocket, and, buh-bye. If your personnel are not trained to detect social engineering attempts, then someone’s going to have a little chat with them, something like “Hi, what do you do? Oh, is that your doggie in the picture, what’s your doggie’s name? My doggie’s name was Scooter. You know it’s my birthday tomorrow. I’m a Scorpio. What about you? So you were born in 1979 and you’re a goat like me in the Chinese zodiac? Cool! Hey, you know that I was just reading that most people use their birthday and pet’s name as a password. I thought it was only me. What, you do too? Aww, so cute. Well, nice meeting you.” Network access granted! And then if you’re not ensuring all personal, confidential, or sensitive IP is clearly marked, only stored in locked filing cabinets, always encrypted, and those files only on secure, encrypted, network drives, hackers are going to easily find those files accessible from limited access accounts with weak-passwords accessible by brute force.
  5. Do they do business with any entities sanctioned in your country?: If so, they are probably a no-go. You don’t want to be only one degree of separation removed from a sanctioned entity. (And, of course, they shouldn’t be sanctioned — because you shouldn’t be considering them at all if they are!)
  6. Would you have a backup plan if their suppliers or partners they relied on got sanctioned?: i.e. if you need to locate a complete production line in one geography, and there is only supplier of a key raw material or part in that geography, maybe you’re looking in the wrong geography
  7. What is their viewpoint on diversity?: great suppliers encourage diversity and look for good people that represent the entire cross-section of humanity in the area in which they operate; they don’t have arbitrary goals or the one Token black in the C-suite to check a box; they hire all races, cultures, religions, ages, etc., train them all, and then promote the best (and, over time, they build a diverse management team)
  8. Are their objectives aligned with your objectives?: If your objective is quality and distinction for the wealthy, and their objective is cut costs no matter what, they are probably not the supplier for you.
  9. Do they have a sustainability program. And is it sensible?: In some jurisdictions, they not only have to report down to “Scope 3”, but stay within a limit for overall emissions, or get in (financial) trouble (with fines, etc.). And if you have to report as well for doing business with them, or to satisfy the regulatory requirements of a region you operate in, and they can’t report to you, that’s not good. Not good at all.
  10. What level of risk will they add to your business?: If you’re happy with the answers to the first 9 questions, before you dive deep into certifying their products and services, their production lines and capacities, etc., ask this first. If the risk is too great in general, it might be a no-go before you start. And this is why you need a comprehensive TPRM platform to do a preliminary assessment.

And yes, Certa is one platform that might be able to help you, and one you should add to your RFP invite list if you don’t have a TPRM. We will note that they’re not the only one (and this could be relevant if you are in the EU and need a local provider), and that we’ll list others in Part 10 of our Source-to-Pay+ series, but close by stating that you should not overlook Certa. They’ve been around for a decade, have raised over 50M, likely integrate into whatever you’re already using in your Source-to-Pay process (with integrations to 100+ platforms and data feeds), have pre-built solutions for Compliance / Risk / ESG, and have a number of Fortune 500 clients.

Source-to-Pay+ Part 5: Supply Chain Risk (Generic)

In Part 1 we noted that Risk Management went much beyond Supplier Risk, and the primitive Supplier “Risk” (or should we say “Uncertainty”) Management application that is bundled in many S2P suites. Then, in Part 2, we noted that there are risks in every supply chain entity; with the people and materials used; and with the locales they operate in. In Part 3 we moved onto an overview of Corporate Risk and then in Part 4 we took on Third Party Risk (in Part 4A and 4B).

But there’s much more to risk than just the (internally focused) corporate risks and the third party (supplier) risks. There are also supply chain risks. Today we are going to discuss the basic supply chain risks that an organization can expect to keep track of with a generic supply chain risk management application.

Capability Description
Multi-tier Mapping A good supply chain risk management system will map the organization’s known supply chain and allow them to track what facilities are located where, at least to the extent that they supply a higher tier that eventually leads to a good or service being delivered to a company location. This will include the tier 1 suppliers, the tier 2 suppliers they use, the known locations of the suppliers they use, all the way down to the raw materials. It will include intermediate warehouses, ports, (cross)-docks, rail yards, and FTZs used by the organization.

The organization will be able to search by product, and see the known supply chain. Search by location, see the suppliers who are there, and then see all the products that flow through those suppliers at that location.
Geo-Political Tracking For ever region the organization does business in, the platform tracks news and events related to the geo-political climate. Government decisions, labour unrest, increases in crime, terrorist activity, man-made disasters and other, related, events will be tracked. Government stances on issues, local business preferences, likely election outcomes, and anything that could cause a change in the political climate will also be tracked.

For each government decision, labour unrest, terrorist activity, man-made disaster, closure, etc, the platform will associate it with all affected suppliers and supply chain network nodes (warehouses, ports, etc.) in the network. In addition, any news or events that may turn into an event of interest will also be referenced.
Economic Tracking For every region the organization does business in, the platform will track the local economics. How is the currency trading against the primary currencies used by the organization and is it increasing or decreasing in value. How is the local job market, is unemployment decreasing or increasing? How is local consumer spending?

All of the above are indicators of the local economy. The organization is interested in not only how much it will cost for the goods now and tomorrow, but, if they are selling in the local economy, how likely it is the local market will (continue to) be able to afford the products, and how likely the supplier will be able to attract and retain the workforce it needs to serve the organization.
Natural Disasters For every region, and every region between every region the company sources from and every region they sell in, the organization tracks natural disasters, their impacts, and, if recovery is necessary, the state of recovery. It also tracks natural disaster risk, and any nearby (weather) events that could turn into a disaster (hurricanes forming over the ocean, tremors that could signal an earthquake, lava flows that could signal a volcanic eruption, etc.).

In addition to tracking the disasters that have happened, might happen, and will happen again, it also tracks the impact a disaster will have for every day a supplier’s operation is disrupted. The platform will contain the ability to model the cost of a disruption at every tier 1 node and propagate that down the chain.
Disruption Tracking The platform will also contain the ability to track arbitrary disruptions, track the recovery status, model the potential impact, and track the actual impact.

This will normally form the foundation of a control centre, which will be integrated with the analytics and monitoring capability (which, as we noted in our last three parts, will be covered in a separate article), and allow the organization to centrally track, manage, and mitigate organizational risks.
Transport Mapping & Tracking As noted above, the platform will track every region, and every region between every region, that the company operates in and use this information to map and track the organization’s transport networks. Every node used by every carrier will be tracked, every lane will be mapped, and every route monitored to the extent possible by the application.

This normally won’t be a full fledged transport risk management platform, which will be something we cover in another article, but will provide enough foundations that a third party application can be linked in or data feeds imported.

Moreover, a Generic Supply Chain Risk Management Application will also contain a host of generic analytics/planning/monitoring capabilities, but since many of these are common, and since stand alone risk-focussed analytics applications are also part of the plethora of offerings out there, instead of discussing these generic features in this and every other article, as we noted in our coverage of Corporate Risk, we will instead discuss these capabilities in an article dedicated to Risk Analytics and Monitoring.

Source-to-Pay+ Part 4B: Third Party Risk, Part 2

In Part 1 of this series we noted that Risk Management went much beyond Supplier Risk, and the primitive Supplier “Risk” Management application that is bundled in many S2P suites (which is really more of a Supplier “Uncertainty” Management module). Then, in Part 2 of this series, we noted that there are risks in every supply chain entity; with the people and materials used; and with the locales they operate in. Then in Part 3 of this series we discussed inwardly focussed Corporate Risk Management, which some companies offer partial solutions to in the form of GRC (Governance, Risk, and Compliance) solutions.

Then, yesterday in Part 4A, we began our discussion of third party risks and outlined some of the specific baseline capabilities that such a solution should possess. Today we complete our discussion of third party risk and outline the remainder of baseline capabilities that we believe such a solution should possess.

Sustainability An organization needs to be sustainable, which it can only be if the suppliers it uses are sustainable as well. As such, a TPRM solution needs to monitor the sustainability of its suppliers. Their carbon footprint, or at least the footprint of the products/services they provide, associated GHG emissions, and (fresh)water utilization, especially if significant or beyond the norm (and reducable).

This part of the application should integrate with third party data feeds and assessments on sustainability as well as the integrated assessment module.
Commodity Markets Sudden, unexpected, price increases represent a great risk to the organization, no matter where they occur in the chain. Since it’s usually the supplier (or the supplier’s supplier) who buys the raw materials from the commodity markets, the organization often doesn’t know about the price increase until it’s too late. Thus, it’s critical that an organization monitor the commodity markets for any raw materials it needs in considerable quantity that can have a significant impact on its financials.

Thus, a good TPRM system will integrate with commodity market feeds and track the raw materials used in the relevant Bill of Materials of the organization. As such, the system should also integrate with the ERP and be able to pull in the raw materials the organization’s suppliers need to acquire in large quantities on a regular basis.
Location Considerations There’s a lot of risk associated with a location. Geopolitical, economic, natural disaster, and so on. The system should track all of the locations associated with each third party, the risks associated with the location, the likelihood, and, if possible, the potential impact.

This part of the solution should tie into the event monitoring, sentiment monitoring, third party feeds, and any other indicators that could indicate a location-based risk. When one is detected, all of the (potentially) impacted suppliers should be identified, and the potential severity of the event also identified.
Certificates The solution must track all appropriate certificates / certifications for third parties that the organization needs to verify that the organizations are compliant with regulations, have the appropriate insurance, and so on.

A good solution will also integrate with third parties that can verify the existence/issuance of the certificate, the dates of validity, and other key meta-data.
Industrial Accidents It’s important to keep track of any industrial accidents in the third parties you do business with, whether they have been cleaned up, what the impacts were, and whether or not the third parties have taken steps to prevent similar accidents from happening again. A supplier that could be shut down at any time due to an accident which has more than a negligible chance of occurring is not a reliable supplier. Plus, this can also impact reputation / brand.

Thus, the application needs to tap into organizational filings and disclosures to identify past accidents, event monitoring to identify accidents as they happen, assessments to get updates from suppliers as they clean up / recover, action plans that capture what the supplier/third party plans to do, and monitoring.
Recalls Just like its important to keep track of industrial accidents, it’s also important to keep track of recalls. For what, how often, and how severe. A supplier that has to regularly do recalls has quality (management) issues and is not a supplier you want to be relying on.

It’s important that the application track recalls, track any updates on those recalls, and track any news stories that led to those recalls. You also want to know how often a supplier has had to do a recall in the past.
Related Parties We’ve more-or-less stated this in many of the sections above, but it’s critical that you track the parties related with a supplier/third-party of interest. Those that supply, service, or invest in the third parties you rely on should also be tracked. In addition to tracking these, it’s critical to maintain the relevant relationships between the parties and keep this up to date.

The system should integrate with third party corporate registries that track ownership and relationship information and update the relationships in the TPRM as necessary.
Action Plans / Development Goals As we hinted at in our discussion of Industrial Accidents, it’s not enough to just track the risks, the likelihood, and indicators they are materializing / have materialized, an organization has to work with suppliers to minimize the likelihood and, should they materialize, minimize the recovery time and the impact on the organization.

The application must support the definition of a multi-stage plan, with multiple tasks per stage, collaborative development of the plan, approval workflows, and when the plan is instantiated, execution and tracking of the progress made by the third party. Basically, it’s customizable development program management for a third party.
Maturity Model The platform should support the definition of maturity models by third party (supplier) organization type, the mapping of third parties to these models, default action plans that can be instantiated to help a third party progress up the maturity model, and associated metrics to measure the aptitude of a third party at each level.

In other words, it’s not just point-based program management for the development of select capabilities in a third party, it’s integrated multi-faceted organizational management of a third party with monitoring, management, and reporting over time.

Moreover, a Third Party Risk Management (TPRM) will also contain a host of generic analytics/planning/monitoring capabilities, but since many of these are common, and since stand alone risk-focussed analytics applications are also part of the plethora of offerings out there, instead of discussing these generic features in this and every other article, as we noted in our coverage of Corporate Risk, we will instead discuss these capabilities in an article dedicated to Risk Analytics and Monitoring.

Source-to-Pay+ Part 4A: Third Party Risk, Part 1

In Part 1 we noted that Risk Management went much beyond Supplier Risk, and the primitive Supplier “Risk” Management application (that we prefer to call Supplier “Uncertainty” Management) that is bundled in many S2P suites. Then, in Part 2, we noted that there are risks in every supply chain entity; with the people and materials used; and with the locales they operate in. Then, in Part 3, we discussed inwardly focussed Corporate Risk Management, which some companies offer partial solutions to in the form of GRC (Governance, Risk, and Compliance) solutions.

Today we are going to talk about some of the third party risks and outline the function specific baseline capabilities that such a solution should possess. Before we get started on the risks, we should note that a third party risk management (TPRM) can also be used for Supplier Management as a supplier, in addition to being a second party, could also be one of the many “third parties” an organization has to worry about if it is a sub-tier provider contracted by another primary, first-tier, supplier of the organization and a good TPRM solution will contain all of the functionality in an average Supplier Risk/Uncertainty Management module in a Source-to-Pay solution and much, much more.

We’ll continue in yesterday’s format, outlining some of the key capabilities and what that may mean solution-wise. There are quite a few key capabilities. So many, in fact, that, as you may we’re actually breaking this article up into 2 parts.

Capability Description
Customizable Assessments No matter how many capabilities come out of the box, every organization is going to need to do a customized assessment of a third party at some point. Thus, any TPRM system must support the creation of customized assessments with arbitrary questions, multiple forms of answers (multi-select, numeric, free-form, etc.), customizable weighting systems (that also support group-based weightings using averages, medium, or weightings based on role) and customizable reporting on the results.

In addition, the system should come with a slew of starting, customizable assessments out-of-the-box on every area covered in the application, whether or not there are third party data feeds and assessments that can be sucked into the application for use by the client. (This is because most third party feeds and assessments come with a cost, which may not be worth it to the organization if that aspect is only relevant to a few suppliers or doesn’t cover all of the aspects an organization needs.)
Reputation/Brand As we noted in our last article, a significant risk to the company is its reputation/brand, and that includes reputation/brand risks that come from being associated with third parties with reputation/brand risks. As a result, an organization needs to keep on top of the reputation/brand of its suppliers and partners.

Thus, it needs a platform that can monitor news sources and social media and look for stories about all of its suppliers and partners that could blow up, sentiment that could propagate, and events that could cause repercussions through the supply chain.
Regulatory Compliance Organizations need to be compliant with regulations in every geography in which the organization does business, which means that it needs its core suppliers and key partners to also be compliant with those regulations. As a result, it needs to monitor all of its suppliers and their suppliers/partners for compliance with the regulations that are relevant to those suppliers/partners.

This may mean tracking certifications, tracking raw material inputs, tracking human resources assigned to projects, tracking carbon/GHG reports from the third party, and other key pieces of information. It may mean asking suppliers for additional (self) assessments, getting (temporary) access to third party data feeds, and having third party do compliance audits for you.
Ownership/Financials Just like your company cannot be associated with sanctioned entities, you need to be careful not to do business with suppliers who are (partially) owned or controlled by sanctioned entities as well or who are doing business with sanctioned entities to support your organization. In addition, you don’t want to be doing business with suppliers or third parties who are financially unstable, as their bankruptcy could negatively impact your business.

Thus, this system must tie into all sanctioned and denied party lists of every country it operates in, cross-reference the ownership and partners of all suppliers/third parties the company does business with against the sanction list, and monitor ownership changes as they occur. In addition, it should tie into systems that monitor financials of public companies as well as systems that judge the financial stability of private companies.
Human/Labour Rights Legislation has been introduced and/or is being considered in many jurisdictions around the world that make your organization responsible for any abuses of human or labour rights in the supply chain. It’s important to have systems that can monitor for human/labour rights in the supply chain, even if this is only through integrations with third parties that do (independent) on-site assessments.

This should also make use of the brand/reputation monitoring module that monitors news sources, events, and related data feeds to scan for anything that could indicate a human/labour rights violation.

Come back tomorrow for Part 4B as we continue our discussion of Third Party Risk.