Confusion in supply chain risk management adding to exposures

Despite a belief amongst respondents that due diligence in general has tightened in the last three years, the survey found that 65% of companies do not conduct detailed due diligence on the incoming key personnel provided by their supplier. While companies are increasingly taking on responsibility for risks associated with an outsourcing project, such as project delay and data loss, opinion is sharply divided on whether the customer or the supplier should take responsibility for political and jurisdiction risk. Just 8% of suppliers believe they should manage political and jurisdiction risk, compared to 49% of customers who felt that suppliers should manage this risk.hideCommenting on the survey Mike Rebeiro, Group Head of Technology and Innovation at Norton Rose Group, said there is no ‘one-size-fits-all’ solution for risk management of supply chains and it should never be seen as a box-ticking exercise. Customers are advised to visit a potential supplier, test their technology and speak to other customers of that supplier. “The majority of customers assume that their suppliers will have done the necessary due diligence on their own staff and do not see the need to repeat the exercise. This is surprising given the impact a single rogue employee can have on the reputation of a business and all associated organisations,” said Mr Rebeiro. “In addition, as the margins for suppliers become thinner, suppliers need to have an open conversation with customers about the risks of doing business in certain jurisdictions. While almost half of customers believe that the supplier should have satisfied themselves that they can operate successfully in the jurisdiction they have chosen, they should also familiarise themselves with that jurisdiction and consider a contingency plan,” he added. Keeping tabs on a supplier appears particularly important given the fact that the survey reported that 58% of suppliers have no dedicated risk manager and only 51% of suppliers keep a written risk record for projects. The survey also revealed a disconnect between the way suppliers and their customers view risk. Customers rate reputational damage as a primary risk but suppliers rank it as a secondary risk. Service performance failure is seen as primary risk for suppliers but their customers view this as a secondary risk. “Customers should draft their contracts to allow for the maximum possible flexibility, with mechanisms for managing contractual and operational change, and processes for requesting and pricing any amendments. A pricing mechanism that includes the costs of investigating and implementing change should also be agreed before the contract is signed,” Mr Rebeiro continued. “The days when offshoring was considered an easy way of saving money are drawing to a close, and customers are recognising the impact on their own business of squeezing their suppliers’ margins too tightly. Asking suppliers to take on a greater proportion of the risk will have a direct impact on costs, but customers also need to bear in mind that there are some risks that simply cannot be ‘outsourced’ to a supplier,” he concluded. The report, entitled Outsourcing in a Brave New World, is the second outsourcing report released by Norton Rose Group and details the views of CIOs, General Counsel and Heads of Procurement from 74 businesses, including suppliers.

Confusion in supply chain risk management adding to exposures

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