Every supplier relationship your company enters into is an investment in the future and growth of your business.
It’s an investment that also impacts your customers, for better or for worse. Therefore, investing a little extra in evaluating the financial credentials, operating practices, and reliability of prospects during supplier selection, will safeguard your overall expenditure more than simply searching for the best price deal.
Evaluating supplier risk can help to prevent negative impacts on your bottom line through loss of sales or worse, loss of customers. It also protects against the management headaches involved in seeking alternative supply sources at the last moment or playing catchup after stalled production. In addition to preventing unnecessary costs though, risk assessing potential suppliers also ensures some peace of mind in the areas of safety and compliance.
Health, Safety and Corporate Responsibility
If ever a mishap should occur relating to the quality of a product supplied by your organization, it will be your organization that takes the heat. If the quality issue results in harm or, even the known risk of harm to your employees, customers, consumers or the community at large, that’s going to be an awful lot of heat.
Nobody will care that the issue was caused by a Chinese-manufactured faulty component or some contaminated raw material that your supplier failed to isolate—it’s your company’s product in the spotlight and your company’s reputation at stake.
Legal and Regulatory Compliance
Finally, incorporating risk evaluation into your supplier selection practices will help to keep you from falling foul of industry regulations or laws enacted by your country’s government. With more and more regulatory and legislative attention being paid to sourcing practices, the likelihood of a massive fine wiping out the gains from an attractively priced supplier deal—along with the associated negative publicity—increases with every missed red flag that should have told you to avoid a certain supplier.
You Can’t Put a Price on Peace of Mind
In today’s global supply and demand environment, supplier selection requires a holistic approach. The best price doesn’t always equal the best deal, especially when procurement crosses geographical and cultural boundaries.
The rewards of risk profiling in supplier selection extend way beyond cost savings. There’s a lot to be said for any activity that can preserve and enhance your company’s reputation, not to mention protect its health from ills such as litigation and customer attrition. If a supplier passes the risk profiling and happens also to have what you want for the best price available—well, it’s better to have a happy accident than an accident waiting to happen.
