Effectively Manage Contractors in Your Supply Chain to Mitigate Risks

Supply chain risks come in all shapes and sizes, including environmental pollution, shortages of raw materials and natural resources, workforce health and safety incidents, labor disputes, bribery and corruption, and geopolitical considerations.

A KEY STAT

Organizations that proactively manage supply chain risk spend 50% less on handling supplier disruptions.

WHO ARE CONTRACTORS?

While there may be controls for raw material sourcing, contractor services are often less controlled. There are variations in some sectors where contractors are key, such as construction, and they provide a multitude of activities, including:

• Machine – installation, commissioning, maintenance and servicing
• Facilities management
• Grounds maintenance
• Waste services
• Construction – groundworks, build and plant operations
• Utility works – gas, water and electric

SUPPLY CHAIN DRIVERS AND EXTERNAL INFLUENCES

Each stakeholder group, such as compliance, procurement and operations, has varying objectives. The aim is to align each stakeholder into a single process to reduce costs and create high visibility. There is also added complexity when regional procedures vary.

Teams have three considerations. Procurement’s drivers are quality, price, speed of supply and service level agreements. Risk management’s drivers are brand reputation, geopolitical and environmental impacts, fines and enforcements, and region(s) of supply. Compliance’s drivers are health and safety, management system controls, audits and inspections, and global/national consistency.

There are direct and indirect influences that can impact the continuity of business operations. Direct influences include quality issues and geopolitical impact while indirect issues include reputation, competence and infrastructure damage. Both include compliance.

UNDERSTAND AND FOCUS ON THE RIGHT RISKS

You need to understand the risks you face. There are many ways to define these risks. An organization must assess whether the below come into play:

• Country and/or region of supply – possibly when sourcing from low-cost countries.
• Types of products and/or services – such as safety-critical items or those prone to theft due to their value on the black market.
• Levels of spend – how much money is spent on particular products and/or services.
• Safety – where suppliers’ import risk to the organization.
• Reputation – where supplier behavior directly affects the organization’s brand.
• Quality – where high standards are required.
• Social and ethical – where there is increased risk of factors like bribery, corruption, modern slavery and child labor, etc.

DETERMINE KEY RISK FACTORS

You must determine and focus on the key risk factors. Health and safety is an important area to consider, as contractors can import significant risks and directly cause death and injury, as well as infrastructure problems. This can lead to reputational damage. You must also be aware that subcontracting work can import additional risks.

Your health and safety controls must be regularly checked and updated. The crucial questions to ask yourself are:

• How often do I check the qualification process of contractors?
• How often are these controls checked after a contract has been awarded?

ONE KEY ESG RATINGS AGENCY

Environmental and social performance ratings and reporting have become more important. The Dow Jones Sustainability Indices (DJSI) is one of the more established and respected ratings systems.

The Corporate Responsibility Index is updated annually, and supply chain sections include:

• Supplier Code of Conduct – formal supplier codes of conduct are in place and accepted.
• Critical Supplier Identification – identify crucial Tier 1 suppliers.
• Supply Chain Risk Exposure – assess the risk of Tier 1 suppliers.
• Supplier Risk Management Measures – risk evaluation and mitigation methods.
• ESG Integration in SCM Strategy – use of ESG criteria when selecting suppliers.
• Supply Chain Transparency and Reporting – public information on supply chain management.

THE VALUE OF SUPPLY CHAIN RISK MANAGEMENT

Supply chain risk management creates a strategic competitive advantage and promotes efficiency and agility.

It allows you to outperform competitors and boost market share when a common risk occurs. You can reduce uncertainty and strengthen relationships and trust with prospects. Finally, you can continuously detect, optimize and reduce risk exposure and costs.

HOW WE CAN HELP

We can provide a fully managed service to ensure Tier 1 Supplier Risk Management (licensees).

We can ensure accurate and up-to-date Supplier Information, with ongoing updates throughout each year; a Risk Assessment process for all suppliers, developed in partnership with clients; and information on the key criteria required for licensees.

Furthermore, we offer risk-based Audits on suppliers as a physical validation of their Self-Assessment Questionnaires (SAQs); Risk Assessment, SAQ and Audit information storage in a single location; and Performance Analytics for our client and their suppliers.

Depending upon the buyer organization’s challenges, it is possible to improve their understanding of Tier 1 suppliers before driving increased transparency through an indirect supply chain. The two models are also mutually supportive.

SGS TRANSPARENCY-ONE

Our comprehensive supplier risk management solution – SGS Transparency-One – helps you to maintain supplier visibility. It is driven by three core values:

• Governance – implementing supply chain transparency
• Performance – continually improving performance by evaluating supplier risk
• Intelligence – providing data and insights on reported trends