Supplier Management

With so many suppliers to consider, it’s not practical to apply to the same level of oversight and assessment rigour to all suppliers irrespective of their impact on cost, risk and resilience. Discussions with clients highlight the following challenges they see as factors in their approaches often not delivering the right outcomes.

• Resource constraints and volume of suppliers – these are compounding factors, and it’s often not a practical option to increase resources or meaningfully reduce the number of suppliers firms have.
• Information overload – with so many suppliers, the volume of information procurement functions have to parse through can be significant, and it can be difficult to see the wood for the trees.
• Lack of supplier responsiveness – ‘death by questionnaire’ afflicts both company and supplier. It can impact the quality of supplier responses which makes it difficult to make informed decisions.

What practical actions can firms take?

• Establish clear ownership and responsibilities – where resource is constrained, its important to be clear on who is doing what, and to have a clearly documented approach in place to support teams.
• Adopt a risk-based approach – identify key risk and resilience drivers, and define what constitutes high, medium and low risk for each. These definitions will support an assessment of the inherent risk of any given relationship, which should correspond to clear minimum requirements in respect of due diligence and ongoing monitoring.
• Ask what you need, and no more – be clear on how information gathered is being used, and cut away redundancy. This may require stepping through due diligence question sets to review how information is used, and developing risk-adjusted questionnaires to focus on what’s relevant.
• Leverage data and systems – dashboards and good management information (MI) can help maintain focus on the most material suppliers, risks, and actions, that in turn help deliver meaningful outcomes. Governance, Risk and Compliance (GRC) systems can further reduce some of administrative and operational burden of supplier management.

The number of incidents arising from supply chain disruption has increased. This means firms are needing to take a more proactive approach in setting out plans to continue to deliver their most important business services in the event of disruption. This explains why regulators are asking firms to engage suppliers in the process of defining and testing these arrangements. Companies we’ve spoken with highlighted the following challenges.

• Lack of meaningful engagement from suppliers – this can make defining practical workarounds, and testing them, challenging. Similarly, conversations regarding stressed exists can be difficult.
• Documentation isn’t user friendly – it’s often difficult to find the right information in the event of disruption.

What practical actions can firms take?

• Assess impact first, engage second – it’s likely that suppliers are getting similar requests from a large number of customers. This may mean they’re slow to engage, or provide generic responses that don’t address specific challenges. By assessing the impact of disruption first, and understanding internal workarounds, you can be more targeted in what you need. Firms should look to their work on operational resilience as a starting point.
• Ensure relevant parties are familiar with key documents – those defining continuity arrangements and exit strategies may not be the only ones using them. Make sure they’re easy to find, focus on the essential information only, and that likely users remain familiar. 
• Consider relationships on a par with contracts – ensure all contracts contain basic provisions, and think risk-based about the demands and vulnerabilities of particular services, while also building up the relationship that will help you culturally if there’s an issue.

Today, suppliers not only support the delivery of firms’ services, but are key to meeting operational resilience obligations and achieving their sustainability-related goals, and a lot of firms we speak with have made good progress implementing responsible procurement processes. For many, however, it’s not always clear whether they’re asking the right questions, or how the information is used. Part of the challenge is sustainability often being looked at discretely, outside of the procurement process.

What practical actions can firms take? 

• Avoid standalone responsible procurement processes – define how sustainability is being considered at each stage of the procurement process, including risk assessment and due diligence, ongoing monitoring and performance, and define minimum expectations at each stage. This will help make it clear how sustainability informs supplier selection and decision making. 
• Ask what you need, and no more – increasingly, information on suppliers’ greenhouse gas (GHG) emissions is needed for emissions reporting, but it should be clear how all information collected is being used. The level of questioning should be proportionate to the risk, and it should be understood how sustainability is considered alongside other risk factors when making decisions. 
• Engage with high emitters – the principal reason for engaging suppliers on sustainability is to ensure there is an alignment of interests, particularly over sustainability objectives and climate transition plans. Efforts should be targeted at those partners that are identified as having the most significant impact on the overall sustainability profile of the business.

Companies we speak with often recognise gaps in their approach. For some, this means development work to fully incorporate PRA and FCA requirements. For others, it means refining their current approach to improve efficiency and deliver better risk outcomes. Some are just not sure what’s required.

What’s clear from regulators’ focus on operational resilience is that they’re serious on firms getting this right. That means being confident that your work in this area is delivering the right outcomes.

What practical actions can firms take?

• Focus on risk outcomes – by focussing on managing risks, rather than approaching requirements line by line as a tick box exercise, firms can avoid embedding inefficiencies that often arise from changes without taking a step back.
• Take the chance to address operational challenges – many roads are converging on procurement, including supplier risk management, operational resilience, and sustainability. And many firms we speak with acknowledge gaps or inefficiencies in their current approach. This is a great opportunity to approach developments in a more comprehensive way that can deliver tangible operational and cost benefits.