Let’s face it, change is constant and companies need to rapidly respond to the unexpected changes. The COVID-19 pandemic, the 2021 Suez Canal obstruction, natural disasters, wars, scarcity of semiconductors, the energy crisis in Europe…are all examples showcasing the need to better manage and monitor your supplier base. Improving collaboration and sharing additional information with suppliers is imperative in order to make sure that your supply chain is resilient, a word that has been incorporated as a top item in many business agendas.
Consumers Want to Buy from CSR Compliant Companies
Another trend that is getting rapid traction is the fact that there is a collective desire for humanity to become more human (luckily!). We can see how consumers are changing their buying habits and looking for additional information before making buying decisions: Is this product coming from firms that ensure human rights are protected? Are the employees provided a living wage? Am I contributing to society by buying an environmentally sourced and produced product to have a greener planet?
Governments and industries are joining this trend by creating new laws and regulations to ensure that businesses are respecting human rights, supporting diversity and respecting the planet. In many cases, this is no longer a business choice, but a business mandate with impending legislation like the German Supply Chain Act, EU Sustainability Due Diligence Directive and the New York Fashion Sustainability Accountability Act. Industry guidelines like the Automotive Sustainability Practical Guidance from AIAG also play a role as companies add yet another item to their business agenda – social and environmental responsibility compliance.
In front of these new agenda items, resiliency and social-environmental responsibility compliance. To address these environmental, social and governance (ESG) compliance requirements, companies need to capture additional information from their suppliers to mitigate the risks suppliers can place on a business. For example, Hyundai recently found a supplier utilizing child labor in the state of Alabama. How will your organization monitor and manage suppliers? What actions will your organization take to avoid future compliance violations? And here starts the fun…over the last few years, the market for supplier risk management solutions has grown quickly, but it is close to impossible to find a risk provider that captures all the risks that your company may be interested in monitoring. For example, certain supplier risk solutions focus on the financial health of suppliers while others may focus on ESG or CSR factors. As Gartner states in the Market Guide for Supplier Risk Management Solutions published in May 2022: “The software market to address supplier risk remains highly fragmented, leaving companies with almost too many options.”
Addressing Supplier Risks and Challenges Head-on
Supplier risk information is a fundamental element of supplier data that needs to be continuously monitored for out-of-tolerance activities to ensure companies can act immediately to mitigate any business risk. As previously mentioned, your company may need to extract supplier risk information from multiple sources to capture all the risk factors that can impact your business. Of course having to monitor information scattered in different solutions and having an incomplete picture of supplier risk can easily place your company at risk. This could result in late shipments that impact customer satisfaction, unknowingly working with a supplier that employs child labor or does not pay a fair wage, engaging with a supplier in a poor financial position and other unsatisfactory factors.
To address this situation, QAD SRM is gradually adding new interfaces with different risk providers to better consolidate risk information into the Supplier Management module.
As indicated in the figure below, available interfaces support the following risk categories:
- Financial risk identifies the financial viability of a supplier, indicates if the supplier is currently experiencing or is likely to experience any financial issues that can affect their ability to fulfill their commitments. Currently, QAD includes financial risk ratings from Dun & Bradstreet.
- Risk Event Monitoring refers to supply chain disruptions that can be caused by weather, geopolitical events and other hazards. Both Dun & Bradstreet and Riskmethods can provide this type of information in QAD SRM.
- Corporate Social Responsibility (CSR) refers to the ability of companies to track and manage corporate goals, improving their impact on social and environmental goals. In this case, EcoVadis is the risk provider that incorporates CSR rating information in QAD SRM.
Lastly, we can not forget that performance is another category of risk that should be included in the full supplier risk picture. Examples of performance include quality metrics or logistics metrics. These are metrics that can be calculated internally in the organization based on the actual activity with the supplier. QAD SRM can incorporate performance indicators as part of the full supplier data view from your internal systems (ERP, Quality Systems or other sources).
Do you want to see more? Below is a view of supplier Aidan Lovett Limited in QAD SRM. Aidan Lovett Limited did not receive a great score from Ecovadis on sustainability and you can see the original EcoVadis report is embedded in the same view. This easy access to the report provides greater insight on the rating information. Risk visibility from different sources is solved and companies are in a better position. Now, the next step is to act on it! But let’s keep that topic for the next blog. Stay tuned!
