The risk management of your suppliers

To know the risk of the suppliers at all stages of the commercial relationship, and not only in the approval process, is one of the objectives of the purchasing departments.

SRM (Supplier Relationship Management) is a tool that improves interaction with suppliers to maximise the relationship with them. For that purpose, it is necessary to obtain information from suppliers, based on defined criteria. The main objective is to use this information to make decisions on who to establish commercial relations with. Ensuring that the company works with the right supplier panel.

To dentify the risks of our suppliers is of vital importance, as it will allow us to have defined procedures to minimise or eradicate them. When we talk about supplier risks, we usually think only about the risk of non-supply that would directly intervene in our production chain. But there are also other risks that can have repercussions on the quality of our product, risks that can lead to legal or regulatory problems, etc.

The analysis begins by identifying which are the strategic categories of our company, where we will put the focus. In some cases, we can even align the strategy of our company with the strategy of the supplier, in order to obtain a mutual benefit in the long term.

Another fundamental point of this analysis is to study the risks of our suppliers, carrying out an analysis according to the defined indicators. Some of these indicators are quantifiable, such as financial indicators. On the other hand, there are qualitative indicators that are only known to the people who work directly with the suppliers, i.e. experiences of service or supply and incidents in carrying them out. The idea is to have all this information collected and updated in order to know the risk involved in the purchase of a product/service.

To do this, a list must be made of all our suppliers and at the same time identify which suppliers work with them, especially in the case of strategic suppliers for our company, since if a supplier stops production, we would have a supply problem. Another important analysis is geographic localisation to avoid having them all concentrated in the same geographic area, and thus diversify the risk by having different alternatives for the same service.

It should not be forgotten that it is a change of model that goes hand in hand with a cultural change, and it is necessary to have the cooperation of the people involved in the whole purchasing process. The success of the project will depend on those involved in the process and on the monitoring of the defined indicators.

BENEFITS OF THE SRM

The benefits of SRM (Supplier Relationship Management) include, among others:

  • Strengthen the relationship with suppliers, with the possibility of joint strategies.
  • Reduction in the number of incidents, as we have more information about how suppliers work before issuing an order.
  • Overview of the supplier panel, we will have identified the risks per supplier: turnover, financial, and legal situation, etc.
  • To speed up the decision-making process, as we have up-to-date information at our disposal.
  • Increase the capacity to respond to unforeseen situations external to the organisation.
  • Provide transparency and traceability in the purchasing process.

Purchasing departments are constantly faced with major challenges, so having identified risks is of vital importance as it allows for agile decision making and this speed is an advantage over our competitors.

Supplier risk management will become increasingly important in the future and will be a fundamental tool in the rapidly changing environment in which we live.

Do you want to know which is the situation of your suppliers?