Three sources of risk in supplier management that you must eliminate once and for all

The success of a company's operations is directly related to the quality of its suppliers. This is because if services or products acquired to conduct the operations are inefficient or of poor quality, the value of what the company itself offers will be reduced.

Therefore, good supplier management is an essential ingredient for any enterprise that seeks to expand its business, conquering customers by offering them products or services clearly superior to the others available in the market.

However, at the same time that supply chains can be this great source of success to a company’s operations, they can also hold the potential to cause some of the most serious setbacks an enterprise can suffer. In addition to these dangers, inefficient supply chain management only adds complexity to this scenario. It then becomes an endless source of risk.

Understand more about the natural risks associated with supply chains and identify the added complexities generated by inefficient management to, in the end of this text, learn how to eliminate them and to extract greater quality from your suppliers.

Supply chain: a natural concentration of risk

The supply chain concentrates numerous risks, precisely because it establishes contractual links between the company and third parties. Although the corporation may have all the zeal in its internal management, if it is related to others that do not have this alignment, it may suffer serious consequences.

For example, the main challenge for adopting more sustainable and constructive practices from an environmental, social and governance point of view is not in the core activities of a corporation, but in the value chain in which they are inserted. This is because even the companies most engaged with the ESG agenda can suffer reputational damage if they are involved with suppliers that are not committed to these criteria.

The risks generated by poorly selected providers does not end there. Corporations are increasingly called upon to account for the security of the information they deal with on a daily basis. Again the focus on data protection needs to encompass not only the company's activities, but also those of its contractors. Therefore, news of data leaks have seismic effects on the market as a whole.

Learn more about how to manage this risk at: How to analyze a supplier to ensure data security

Not to mention the most obvious risk of poor supplier management: bad contracts. Without evaluating points such as quality of delivery, availability for service and support, or even the superiority of what is offered in relation to other solutions on the market, the company will invariably enter a vicious cycle of bad contracting, which can end up harming its own product or service.

Considering all these potential damages, it is essential that supplier management takes place in a way that neutralizes these risks. It is very common, however, that inefficient practices make this part of the company's activities even more risky.

1. Non-standardized supplier record and assessments

It is necessary to collect data relating to the identification, operations and compliance of a supplier. These elements will be considered to rank possible providers. This ensures that all those who may eventually be hired have been analyzed and approved under the same parameters.

When records do not follow this pattern, suppliers are not offered visibility on what information should be forwarded and the person responsible for analyzing the applications will not be able to carry out a complete and agile assessment.

Some of the risks arising from the lack of standardization involve:

  • Violation of compliance rules, if an analyst fails to evaluate a supplier in light of all practices adopted by the company;
  • Incomplete registrations, generating the need to request additional documentation and increasing the time needed for analysis.

This lack of similiarty therefore makes all the company's supplier records a potential source of risk and rework.

2. Decentralized and manually filed records

These records involve the registration of suppliers themselves and the procedures that led to the composition of the list of approved candidates. In this regard, two perspectives must be considered: external, for the submission of applications and documentation; and internal, to analyze the applications and select the most appropriate one.

The lack of full registration of applications and also the absence of an organized storage are substantial sources of risks and inefficiencies for the company. Some of them are:

  • Waste of time, as analysts will need to manually gather all the information they need, when it could be done automatically;
  • Incompleteness and distrust of information, as it is always possible that some important point has not been recorded or something has been entered wrongly;
  • Lack of standardization in storing, as each employee files documents according to personal criteria, which are not necessarily the most intuitive or even the most efficient;

It is essential that procedures related to the approval of potential suppliers are fully and automatically registered on a centralized platform. This ensures transparency to the procedure and builds a digital archive not only for consultation when hiring, but also for audits, for example.

3. Outdated reviews

The evaluation of suppliers is not an activity to be conducted only when building the records. It is essential that these lists are periodically updated.

Some of the risks of outdated assessments include:

  • Waste of time considering to hire suppliers based on information that may no longer reflect the reality of the market or of the activities they perform;
  • Disregard of previous contracting experiences by the company itself, especially when there is no communication between the areas that manage the contracts and the Procurement sector;

This last risk is one of the most serious, since the best source of information about a given contractor are precisely the departments that have already dealt directly with it. To disregard previous experiences is to insist on already known mistakes, perpetuating inefficient hiring and all its harmful effects on operations.

netLex: the solution for supplier management

As we have seen, the supply chain is, in itself, a source of risk and some management practices only add more complexities to this task.

The good news is that, with netLex, it is possible to neutralize the dangers of these inefficient routines, guaranteeing, in a simple and secure way, the standardization of registrations and forms of evaluation, the full recording of all procedural steps, in addition to the maintenance of up-to-date information that is faithful to the company's experiences.

netLex is a startup specialized in automating document management and workflows. Its robust platform, in use by companies listed in the Fortune 500, invests in innovation to fully meet the demands of the Procurement sector, also ensuring the integration of data and workflows with all areas of the back office.

To understand, in practice, why netLex is the tool to eliminate once and for all the risks of inefficient supplier management, talk to our experts!

Giuliana Rezende
Giuliana Rezende
Giuliana is a lawyer and a Master's student at the Federal University of Minas Gerais/BR. In addition to being passionate about everything that involves the legal world, she also has a focus on management, economics and ESG. Combining all this, she is always looking for data and innovative approaches to show all the benefits of a smarter contract management.