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Supply chain risk – a study of procurement in the UK
Earlier this year, Achilles commissioned an independent research project into the perceptions of risk and attitudes to supplier pre-qualification amongst 200 UK procurement professionals. Achilles’ UK Marketing Manager, Sarah Skinner explains more.
supply chains, Achilles wanted to find out more about the importance procurement professionals place on pre-qualifying suppliers and the risks they need to manage. Below is a summary of the findings.
A What are CPOs worrying about?
The research found some interesting views and attitudes to high risk suppliers in the supply chain. This is illustrated by the fact that 43% of businesses are aware of a high risk supplier failing to meet their compliance requirements.
Yet whatever level of risk the supplier posed for the business, they were seen as necessary links in the supply chain, and as such, managed as part of ‘business as usual’.
Most businesses have many risks to manage on a daily basis, so being able to minimise exposure to them is crucial to business survival and success.
Forty percent of businesses said that their most important risk to manage through the procurement process is the “failure of a supplier to deliver in terms of quality, timeliness or cost”.
This is consistent for all sizes of organisation and across all the sectors surveyed as there is an obvious and immediate impact on the business if the supply chain fails – in terms of product quality, timing or service delivery.
Two examples of the need for risk
management from the transport, storage and communications sector:
“The use of substandard labour by [supplier] caused damage to our brand reputation.”
“A supplier was fraudulently identifying parts. They went to jail as a result. Our company had to reaccredit our suppliers.”
20 | rail technology magazine Jun/Jul 12
s a provider of information and services that help companies manage global
Top 5 risks to manage identified by transport, storage and communications businesses: 1. Failure to deliver service in terms of quality, timeliness or cost.
2. Risk to reputation of business. 3. Failure of supplier to meet its Health & Safety obligations.
4. Financial failure (business ceases trading and supplier ceases trading). 5. Business exposed to litigation.
Pre-qualifying suppliers is the key to effective risk management
The research examined the levels of risk management that are driven directly by the need for compliance with law or as evidence for an audit. Some risk management is geared to ensuring that the company brand and reputation are protected and not left exposed as a result of the supply chain.
Seventy four percent of transport, storage and communication businesses rated the pre- qualifying of suppliers as ‘very important’ with 100% pre-qualification expected in 38% of cases. Being a sector that takes on high levels of supplier risk, it has by way of balance, high levels of pre-qualification of suppliers – and a high demand for evidence of compliance.
It is a sector most likely to pre-qualify all sourcing events prior to issuing tender (38% vs. 25% overall).
Pre-qualification is becoming ‘business as usual’ for the procurement teams spoken to, as the real benefits of supplier pre-qualification as a risk management tool are recognised. The fact that 95% of businesses rate the pre- qualification of suppliers as important suggests that they place greater importance on managing risk for the business. Pre-qualification can give you a context and history of a supplier and their previous performance. The more you know, the better you can run business.
Companies that were asked pre-qualify on average 58% of their sourcing events.
Transport, storage and communications
businesses devote 5.5 days to pre-qualification activities per sourcing event. Interestingly, businesses with one supplier database devoted 3.1 days on average, whereas those companies running multiple databases devoted 6.9 days – more than twice as much time to pre-qualify a supplier.
Pre-qualification: a prerequisite for procurement best practice
Irrespective of industry sector or turnover size, businesses with effective and efficient procurement have teams that are working in a specific ways to achieve their successful outcomes.
Their ability to recognise risk in the supply chain, manage it to limit the impact and potential damage to the business, brand and reputation is a key benefit of pre-qualifying suppliers – and is clearly demonstrated by the professional procurement teams we support every day at Achilles.
For a copy of the IFF research summary, information about Achilles or Link-up the UK Rail industry supplier registration qualification scheme please contact the Link-up team.
FOR MORE INFORMATION T: 01235 838193
E:
Link-upBuyer@achilles.com
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