Do Your Suppliers Put Their Interests Above Yours?

Today's supply chains are global, elongated and enormously complex.

Of course, that also means they're riskier and more unpredictable than ever before.

How can supply chain managers maintain integrity, stability and clarity in what can easily become a nasty hornet's nest? And now that many suppliers feel far-removed from their customers, how can you mitigate the risk of irresponsible suppliers you know, the ones that put their own interests above yours?

Answers to questions like those are almost as complex as supply chains themselves, but Mark Vandenbosch and Stephen Sapp do a nice job breaking down the key issues in their article, Keep Your Suppliers Honest, published last week in The Wall Street Journal. According to the authors, mitigating risks from irresponsible suppliers boils down to four fundamental tasks.

In short, you need to:

Constantly monitor potential risks in the market. While Vandenbosch and Sapp concede that eliminating opportunism is impossible, they point out that constant monitoring and updating of assumptions and procedures are critical to allow managers to more fully understand the risks they face. Be proactive. Stay up-to-date with current research in your field, and change your risk assessments accordingly. Don't wait until after a failure to change your mindset.

Make suppliers and intermediaries responsible and accountable and not just for order volume or on-time shipments, but for quality, safety, etc. "All members along the chain need to share in the rewardsand failuresof the end product," Vandenbosch and Sapp write.

Change the ways you test and measure. Using a variety of testing measures makes it more difficult for opportunistic suppliers to game the system.

Understand and accept the role of regulation. As Vandenbosch and Sapp sum it up, "Regulation adds to costs and runs counter to the goal of ever-increasing efficiency. But if the costs mitigate or dramatically reduce the risks of failure, then regulation is the most efficient way to curb opportunism and decrease costs in the long run."

That's a great four-point plan, to which I would add one more item:

Build relationships.Know who you are doing business with, and make it a priority to build robust, collaborative relationships. In today's high-tech world, sometimes we forget the fundamentals of good communication. Is it time for you to pick up the phone and connect one-to-one with companies in your supply chain? I know some corporations that find it beneficial to communicate daily with their strategic suppliers. Why? Because today's just-in-time inventory model demands precisely that level of exchange to mitigate risks and ensure that goods and services get to market reliably and consistently.

A strategy that incorporates all five of these elements will help reduce the probability of a harmful event, and the severity of impact if one does occur. Plus, once you start beefing up your risk management strategy in this way, you can also unlock opportunities for innovation and even greater competitive advantage.

TAGS: Finance
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