The obvious & lesser-known key risk indicators for vendor management (part 4)

Your supplier’s business continuity is your business continuity

As supply chains become more complex and global, with multiple dependencies in their network spread across multiple parties and along multiple tiers, there is an inherent risk of the weakest link breaking the chain, causing a disruption to business continuity.

Insolvencies rate by industry. Source: ASIC
  • A key vendor goes under > project plan is halted > its partners unable to meet deadlines, violating contractual agreements with other enterprises
  • A raw material supplier is affected by natural disaster > shortages across the board > project delays > increased total costs
  • An investigation on a subcontractor is launched > public pressure to distance from the party in question > dragged timeline to find replacement
  • A few key project stakeholders suddenly resign > gap of knowledge > project delay, potentially lower quality if no equivalent replacement is found
  • Contractual dispute > stakeholders claiming different versions of the truth > paperwork recovery process still taking place after a recent relocation and restructuring of multiple branches > missed deadline > loss of customer trust
Source: The Business Continuity Institute

Is there such a thing as over-dependence on vendors?

There is a tendency to buy things in bundles to take advantage of better pricing — just as in the consumer goods’ world. Generally, there are two procurement strategies deployed to deliver economies of scope and scale for buyers and suppliers respectively.

  • Consolidation of your supplier base can result in power being shifted to the select few — who may exploit their positions and increase prices
  • There is a point of diminishing returns from economies of scale
  • Possibility of sub-optimal service delivery due to bundled services not being core capabilities of the supplier. Or they outsource those services which has a degree of risk
  • Locking out innovators and more agile or local suppliers who can deliver stronger value in the long run
  • Business continuity issues if something drastic happens to the key supplier(s)
  • Not having a diverse pool of suppliers may affect the ability to compete for work from government agencies, who have sustainability quotas — or even the organisation’s ability to meet its own sustainability goals
  • For government bodies, favouring single suppliers may contravene the Competition and Consumer Act 2010

Vendor risk management in construction

Industries that rely heavily on subcontractors and have dynamic supply chains like construction face unique challenges.

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Felix

Felix

Enterprise marketplace platform that connects orgs & their supply chains. www.felix.net