Vendor Risk Management

Critical components in your supply chain are at risk - and you may not even know it. There are numerous points of failure in today's complex supply chains and because of the difficulty that upstream suppliers have funding their business from day to day, the risk of a damaging and expensive failure is increasing. And it gets worse. Efforts to cut costs have resulted in leaner, riskier supply chains held together by a network small suppliers. If the risk of financial failure isn't mitigated it could have disastrous consequences - which is why businesses - especially in Europe - should begin to take supply chain finance more seriously.

Many suppliers will offer a discount for early payment. The decision to accept the discount is normally based on two factors. Are you in a position to pay the invoice early? (i.e. are your purchase to pay processes efficient enough to do so) and secondly, the size of the discount. What is not normally considered is arguably the most important factor of all – the mitigation of risk.

In the last 12 months or so there has been a number of natural events that have had unpredicted consequences to business. There was the Volcano that grounded Europe and created significant disruption to some global supply chains.  There was (and still is) unrest in northern Africa that made many business question the safety of their assumptions when selecting locations for low cost country outsourced operations and there was the tragic earthquake and tsunami in Japan with it enormous human cost and the lingering consequences to any business reliant on Japanese industry. Procurement and sourcing organizations play a vital role in helping to mitigate and manage the risks inherent in operating in a fragile global economy. Risk management is regrettably under valued sometimes but these events should have brought into crisp focus the necessity of ensuring that backup strategies are in places - not just for the routing, mundane and predictable events but also for the unthinkable. And this is why it's so shocking to have seen the massive disruption cause by Amazon cloud crash this week.

What gets measured gets managed. It's a slightly tired truism but it's very relevant to Purchase to Pay and, sadly, often overlooked. Most P2P (Purchase to Pay) projects are justified as a means to reduce cost. They introduce efficient processes that allows  purchasing payment and accounting...