One large retail business in 17 is substantially reliant on high-risk suppliers, illustrating the fragility of many companies’ supply chains, according to new research by international procurement services provider Achilles.
It has interviewed 200 UK companies, including some of the largest corporates, and found 6% of retail businesses believe more than half of their 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.
“Companies are becoming far more vulnerable to supplier failure as they become more globalised, and as they seek to offset business complexity by outsourcing increasingly larger proportions of their activity to third parties,” said Adrian Chamberlain, CEO of Achilles Group.
“Distant sourcing and extended global supply chains are not only raising levels of supplier risk but are creating more diverse forms of risk. If purchasing organisations are to mitigate these very real supply chain risks they must gather and manage information on suppliers on a global basis.
“High-risk suppliers are worryingly prevalent in the current economic climate, at a time when businesses need transparent relationships and absolute security of supply. De-risking should be the order of the day. In part, this is about ensuring new suppliers are vetted appropriately.It is also about assessing the risks during the contract and ensuring controls are in place. In this way, the chance of underperformance or non-delivery on a contract is minimised at an early stage.”
The research also reveals an additional 10% of retail businesses interviewed believe between 11% and 50% of their suppliers are high risk.
“That’s a substantial proportion of the supplier base,” said Chamberlain. “Procurement teams need to be alive to the challenges for their organisation if their suppliers are not fully evaluated and screened before they are appointed.
“With those companies that present a high risk to a buying organisation, thorough and in-depth checks must be made to ensure a supplier’s compliance to such matters as health and safety regulations, financial robustness, data security, legislative requirements and corporate social responsibility policies – to name but a few,” said Chamberlain.
“Verification of information supplied by suppliers is critical. The consequences of a high risk supplier failure could result in financial losses, litigation, or reputational harm to the brand of the purchasing organisation. Such damage can directly impact share value.”