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forward as one of supplier development, “Where you are encouraging the supplier to come up with new offers and you are transferring risk and payment – so it’s not just risk, it’s not just appropriating value from suppliers, it’s a question of understanding howthat risk falls,” he says. “My argument is that that requires a completely new


skill set. It puts purchasing absolutely at the centre of businessmodel design. And as yet, you are not hearing about businesses talking about it in a structured way and setting their organisations up to address those opportunities.” However, the closer the collaboration with a supplier,


the more dependent the buyer is on a particular supplier and, perhaps too, the greater the risk if anything goeswrong. Dan Quinn, new sector development director at


Achilles believes before entering into any such contract – and throughout the life of the contract – the buyer must be sure to conduct validated checks on supplier data, to ensure they are compliant across the many areas of potential risk – such as health and safety, insurance, corporate social responsibility and financials. Reflecting this,


findings from


research conducted by Achilles and IFFResearch into“Attitudes to supplier


pre-qualification”


Procurement 17


suppliers are “high risk” – defined as suppliers whose “financial failure, failure to deliver or failure to comply with relevant legislation or regulation would cause significant financial cost and/or reputational damage” to the buyer. “There are plenty of examples of companies whose


reputation and brands have been badly damaged by a supplier, or sub-supplier, being non-compliant with a buying organisation’s Corporate Social Responsibility (CSR) policies,” he says. “In recent years considerable exposure in the press


over the use of child labour at suppliers has affected major consumer and retail brands such as Nike, Primark and Gap.” However, results of the Achilles research indicate that


62 per cent of buyers seemto be relatively unconcerned about the risks suppliers present to the reputation of their business, with only 38 per cent ranking it in their top threemost important risks tomanage. Larger companies are more in tune with exposure to


CSR issues, with 23 per cent of organisations with turnover between £250 and £999 million, putting their most important risk faced asmanaging their brand and reputation, while smaller companies are more focused on financial risks. Mitigating the risks presented by suppliers is


dependent on having accurate supplier data. However, Quinn points out: “Most CPOs are unaware


Most chief procurement officers are unaware of the poor state of their databases and are consequently at great risk.


indicates that procurement chief officers


(CPOs) regard a supplier’s ability to deliver in terms of quality, timeliness and cost as theirmost important risk tomanage.


Some 75 per cent put it in their top three


risks. Quinn suggests: “Shouldn’t we be planning andmapping out our critical supply chains with regards their exposure to risk, both natural and otherwise? How aware are we of the full spectrum of issues – particularly from our suppliers – that present significant risk to our supply chains andto company share value?What is clearly needed is amore holistic viewof supply chain risk,” he says. “Supply chain risk comes in a multitude of


forms, ranging fromphysical disruption due to natural disasters, transport failure or civil unrest to the financial impact of a supplier going out of business or damage to reputation from a supplier using child labour or failing to comply with health and safety standards,” saysQuinn. “Then, of course, are


there risks


surrounding exposure to fraud, litigation and corporate


social


responsibility issues. All these risks hold the potential to impact share value and frequently, they do.” The Achilles research reveals that 43 per cent of businesses are aware of a high-risk supplier failing to


meet compliance requirements. In addition, eight per cent of organisations interviewed believe that more than half of their


Supply Chain Standard September 2012


of the poor state of their databases and are consequently at great risk.” Jason Adderley, a consultant with Expense Reduction


Analysts, believes companies are now looking farmore closely at procurement. “A lot of organisations have been through substantial “cost-downs” in the last four or five years, but largely these [activities] have centred on human capital rather thanwhat they buy,” he says. “And I think a great number have gone as far as they


can on that trailwithout affecting theway the company operates.”


Comfort zone “What we are finding is that people are very good in their comfort zone,with their core purchasing,” he says. But he believes there is scope for companies to push back into their supply chains and this iswhere Adderley has been helping companies, in removing unnecessary links in the chain and forging direct contact with suppliers further back in the chain. “Essentially, we have been helping with direct


sourcing fromChina,” he says. “Virtually everybody is in that game at the moment. I work with an organisation that historicallymade brass castings in this country, but they are nowsourcing everything fromChina – even if it means some reworking over here.” However, is it still the case that outsourcing to places


like China offers the most competitive overall solution for companies? Labour costs are rising andsupply chain risks introduced by increased distances and complexity may create significant challenges. A great deal depends onthe products inquestionand the responsiveness and agility the company needs in themarkets they serve. There may be other factors too. Adderley says,


“Certainly a lot of organisations are taking advantage of the regulatory advantages of being off-shore, because there are not so many environmental regulations and nowherenear the same levelof employment regulations. We have a client that sources printed packaging from


China – cardboard boxes and branded point-of-sale items – and youwould never believe that it’s cheaper to ship thatmaterial in, but it is.”


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