Simple Tips -- MINIMIZING RISK in your SUPPLY CHAIN

Companies of all sizes are under increasing pressure to conduct their businesses responsibly and do so with the highest levels of ethics and controls. Once just an arms-length arrangement, a firm’s Supply Chain (and the integrity thereof) has become an important consideration for their senior leaders, board of directors, investors and even their customers. 

I was able to speak with my colleague, Rich Hoffecker at The Red Flag Group®, and gathered his thoughts on this crucial but evolving area.  Rich is the product director for The Red Flag Group’s Supplier Integrity® technology platform and helps clients around the globe manage their supply chain risks. Rich’s comments and advice were enlightening…

Ken: How are the risks of supply chain partners different from traditional downstream partners, such as agents and resellers?

Rich: For agents and resellers, AML and ABAC risks are front and center, with a stronger focus on regulatory enforcement implications. While these are also areas of concern for supply chain partners, a growing emphasis also involves the risk of negative reputational impact and brand erosion that partners can have on a company.

Ken: Why are organizations taking greater steps to assess the compliance and integrity risk of supply chain partners?

Rich: Traditionally the integrity of supply chain partners was largely seen as a remote risk factor with more efforts focused on operational risks. This has changed over the past several years as government regulators have stepped up enforcement actions, and negative media attention can go viral leaving a company scrambling in the wake of supplier misdeeds. It only takes a few high profile cases where unethical suppliers hurt a company’s reputation. This can quickly impact sales and create downward pressure on stock values. These examples generate board level interest which in turn force the company to implement safeguards to protect the firm from taking unnecessary ethical risks with supply chain partners.

Ken: What are the initial steps to successfully implement a supply chain partner integrity and compliance program?

Rich: First step is to get to know your stakeholders and decide who should be involved. Be sure to leverage your stakeholders when developing a supplier code-of-conduct that sets the integrity expectations for partners with whom you do business. Next, look across the organization to rank the integrity risks that are relevant to your business and supply chain. This will take into consideration the likelihood and impact of an event. Be sure to use your ranking system to prioritize integrity assessment and mitigation efforts toward high risk partners. And finally, continually reassess your risk scoring and mitigation processes. Because risks will evolve and mature over time, you must be able to recognize any changes and update your tactics as needed.

Ken: Who within an organization is typically involved in setting up a supply chain partner integrity and compliance program?

Rich: This largely depends on the reporting and business structure of your organization. In a highly centralized environment, a smaller group will typically be involved in defining and executing your program. However, a decentralized compliance structure will often mean a much wider stakeholder group. A partner program is usually started as a joint effort between the compliance and supply chain teams. As risk priorities are established, recruitment of stakeholders from relevant business areas like procurement, IT and operational business units, will bring in strong subject matter expertise and the prospect of additional help when it comes to execution.

Ken: What part does supply chain technology play in developing an effective program?

Rich: There can be no doubt that in order to implement an efficient program, one that does not slow down the business, automation of the partner integrity check process is absolutely necessary. Technology platforms (like Supplier Integrity®) can actually speed the on-boarding and management of a company’s supply-chain and do so in a way that the firm can achieve a competitive advantage. An effective Supply Chain integrity Risk Management technology platform can augment an incumbent vendor management system (VMS) to help make better decisions about the partners you want to engage. Integrated supplier risk screening, assessment, and scoring is an imperative for firms who are progressive and want to ensure the ethical standing of business partners. It’s just good business.

Ken: As an expert in supply chain compliance and integrity, is there any other advice you would offer a company as they develop their supply chain integrity program?

Rich: The first and possibly most important piece of advice we give clients is to ensure their program goals are fully aligned with their corporate goals. This helps when seeking board level buy-in for their program, and typically paves the way to the budgets and resources needed to be successful. Second, start incrementally and mature your program over time. Create a roadmap and prioritize risk assessment processes and activities around high priority risks; those that are most likely to occur, and would have the highest impact to the business. This can provide key early wins that are excellent launch points for additional improvements to mature your supply chain partner program. And finally, implement a process that complements your existing operational third-party onboarding processes. A common misconception from the Business is that adding compliance and integrity risk protections slows them down. This misplaced belief will derail even the best intentioned initiative. Don’t let that be a reason the Business rejects the partner integrity program. Find opportunities to implement technologies that will automate portions of the integrity assessments and recognizes the Business’ need for efficiency. This will help change those conversations from speed of supplier onboarding, to the value of risks mitigated.

Ken: Thank you Rich … I appreciate you sharing your insights. I believe your observations will help those starting their journey to implement a supply chain integrity risk management program as well as those already moving forward. How can the readers contact you with any additional questions they may have?

Rich: Thank you Ken. I can be reached at rich.hoffecker@redflaggroup.com, or connect via LinkedIn. I am always happy to discuss best practices, the Supplier Integrity® platform and what we do here at The Red Flag Group®.

About The Red Flag Group® -- The Red Flag Group® is a business intelligence and technology Firm that helps clients accelerate their performance by managing risk effectively. As The Compliance Firm®, The Red Flag Group is where businesses come for strategic advice and solutions to Make Compliance a Competitive Advantage®.