Supplier Risk and Performance Management ChecklistRisk Management
A guide to getting the most out of your supplier risk management program.
The wave of globalization has made businesses more reliant upon their suppliers than ever before. This reliance can increase supplier risk or uncover a large source of value and supplier innovation for organizations.
In order that sourcing and procurement teams fully optimize their supplier network, there needs to be a change in the way organizations view all suppliers. Suppliers are no longer just transactional in nature to be kept at arm’s length. They are integral partners that require management to reduce supplier risk, improve supplier performance, and foster supplier collaboration across the entire supply chain and throughout the complete supplier lifecycle.
This checklist has been designed to to help your organization put together an effective supplier risk and performance management (SRPM) program as well as provide guidance for the technology to enable it.
Objectives for Supplier Risk and Performance Management
What is your organization’s objective in investing in a supplier risk and performance management program? The following are some of the most common objectives for implementing a supplier risk and performance management program.
- Employ more structured processes around supplier risk management
- Drive competition and achieve savings
- Improve visibility across all levels of the supply chain
- Ensure compliance with business and regulatory requirements
- Assess and mitigate risk across the supply chain
- Evaluate and manage supplier performance
- Drive collaboration and leverage suppliers to drive innovation
People and Organization
Implementing and automating a successful supplier risk and performance management program can yield significant value in many areas.
In organizations with a large supply base, numerous and varied commodities, large group of stakeholders, and unique/regionalized business requirements, this value can be replaced with churn. This churn can sabotage procurement automation initiatives and the overall program.
This can occur because many individuals are impacted by suppliers and many maintain close relationships with their suppliers. Such relationships can be seen as profoundly personal and stakeholders can be territorial about disrupting existing procurement processes and supplier relationships.
This type of issue is not uncommon and highlights the need to have a structured process that is inclusive of stakeholders.
Considering the people and organizations involved will help avoid landmines, inject transparency, and ensure a complete and scalable process to support the entire business throughout the supplier life-cycle.
Here are some recommendations when dealing with individuals and organizations.
- Secure executive sponsorship
- Define a governance structure for the project to effectively address issues
- Establish the strategic sourcing program objectives and identify the owners of these objectives
- Map the supplier life-cycle and identify cognizant stakeholders for each phase
- Define the attributes to be measured (including data sources) for each supplier life-cycle phase
- Define the reporting requirements, triggers, and frequency of reports/monitoring activities
- Identify missing skills, needed training, and develop plans to address
- Identify and include project advocates. Identify and include project opponents
It is not uncommon for organizations to have many disparate supplier risk and performance management processes to address different types of spend, categories, regions, business requirements, and more.
These processes rely upon different systems (if any at all) and utilize numerous and disconnected sources of data. This lack of continuity leads to grossly inefficient processes and can be a roadblock to compliant and scalable programs.
The following identifies a common approach for managing critical aspects of supply base.
Business Process Description
Step 1: Gather Supplier Information
Understand the current state of your supply base. Determine all the sources of supplier information within an organization. Assemble all available information on suppliers.
Step 2: Identify Business Goals, Objectives, and Standards
Segment suppliers into relevant groups and identify standards and processes that each group is required to meet as a minimum.
Step 3: Translate Goals, Objectives, and Standards into Specific Requirements
Distill actionable requirements from high level goals to include items like the following:
- Document requirements, standards, and processes for each supplier segment and each stage of the supplier lifecycle, for example:
- Onboarding process and information requirements
- Regulatory requirements like Sarbanes-Oxley (SOX), Anti-Bribery and Corruption (ABAC), Office of Foreign Asset Control (OFAC), Modern Slavery
- Supplier risk criteria, tolerance thresholds, and monitoring requirements
- Supplier performance criteria including defining key performance indicators
Step 4: Apply Requirements to Existing Suppliers
Perform a gap analysis to determine strategies for the following:
- Identifying non-compliant suppliers
- Bringing suppliers into compliance
- Replacing suppliers that cannot satisfy requirements
- Mitigating supplier risks. Improving supplier performance
Step 5: Establish a Supplier Onboarding Process
Assess new suppliers against requirements and goals.
- Collect the necessary information from suppliers and/or third-party data sources to determine compliance
- Assess supplier risk profile and establishing mitigation strategies, as necessary
- Set expectations for performance measures and establish collaboration mechanisms
- Establish key controls for review and auditability
Step 6: Implement Monitoring Program
Track key aspects of the supplier risk and performance management program, including:
- Regular reviews of supplier information to ensure it is complete and valid
- Monitor continued compliance with regulatory requirements (e.g., OFAC, ABAC, etc.)
- Reassess risk criteria and mitigation actions
- Regularly assess supplier performance and update KPIs to ensure obligations are met and/or corrective action / improvement plans have been applied
- Establish clear expectations regarding input from internal stakeholders
We hope this checklist helps your organization prepare for a successful supplier risk and performance management project.
If you have found this checklist useful, you can download the full document which includes guidance on supplier data, metrics and technology.