Compliance is a matter of hot debates within businesses. Organizations are looking more and more for transparency in their internal/external processes and negotiations. This is where the management of business partners (or, more specifically, the risk management of these partners) comes into question.
The increased outsourcing of activities, along with new regulations and legal obligations (such as SPED, Anticorruption Law and others) have been increasingly exposed the risks that are inherent to relationship in the production chain. This occurs because is no longer enough assuring compliance within the organization; it’s also necessary to ensure that your partners follow several rules for negotiation integrity.
Compliance helps decreasing supply chain risks
Just imagine a retail company whose labor supplier hires irregular employees in product manufacturing. Even being an outsourced process of that company, the responsibility for any legal omission lies with the brand. Therefore, it’s crucial to ensure that suppliers follow all governance criteria and labor laws, in addition to other standards and rules. After all, nobody wants to take risks when comes to brand’s reputation, right?
Many companies still ignore the importance of this stage. A recent study on “Third Party Risk”, conducted by Thomson Reuters, interviewed 1,132 company leaders in nine countries, and revealed that only 55% of Brazilian respondents are conducting risk analysis (due diligence) of their subcontractors. These data reinforce the fact that lack of knowledge on supplier reputation (corruption practices, hiring of irregular workers, etc.) is still very high – which can even result in legal penalties for contracting companies.
In this scenario, where companies depend more and more on their suppliers, the challenge is to implement efficient risk management processes – from cleaning up the partners’ registration data to assessing the reputation of their companies and executives. Aspects such as legal qualification, checking of tax and labor compliance, technical/operational qualification and sustainability practices must be key factors in supplier management. These requirements must be monitored constantly, not only when closing a deal.
Defining processes and automating
Once defined the processes, you must carry out an internal alignment, to address the pressure between the need of meeting internal service levels (such as deadlines to conduct a procurement process), and the need of complying with the rules established at the time of supplier certification.
Supplier certification is extremely important, as it helps to ensure the quality of services and products from partners. Many companies have an area dedicated to this function only – which looks for new ways of developing, implementing and handling automated tools, in order to check the full documentation of suppliers.
Automating this process through technology brings several benefits, such as standardization and consolidation of data in a single database, integration with other systems, issuing of management reports and less time spent in supplier contracting and management. In fact, it’s worth stressing the key benefit of automating operational processes: the procurement professionals can dedicate themselves to strategic and less procedural activities – actions that actually add value to the organization.
In summary, looking closely at the supplier issue is vital. If the risks cannot be fully extinguished, on the other hand, knowing how to manage them, using the right tools, makes all the difference. That is to say that an efficient partner management is vital for the success both of your procurement area and your whole organization. Then automate the operational processes and shift your team’s focus to what really matters: the organization’s core business. Finally, stay tuned to your suppliers, as they are an extension of your brand.
Marcelo Pereira, Supplier Management Director at Mercado Eletrônico.
Source: TI Inside