Prepare for the unpredictable. That may seem like an oxymoron to most, but for procurement and supply chain leaders at banks, insurance carriers and other financial institutions – mitigating the unpredictable is part of life.
Regulations have stiffened significantly over the past five years, leaving businesses across the financial ecosystem responsible not only for their own behavior but for the actions and performance of their vendors. Given the typical global bank can easily work with 30,000 – 50,000 suppliers, the complexity (and risk) is significant.
Mitigating that risk has always started with knowing your vendors. While the concept of knowing your vendor is not new, far too often, the scope is way too limited. Financial institutions have prioritized core third-party risks – such as financial viability and information security — for years. But what about how a vendor operates and runs its business and the relationships the vendor enacts on your behalf?
Vetting cybersecurity protocols and monitoring financial health is table stakes. Today’s procurement and supply chain professionals need to know much more about their partners – like how they treat their employees, the working conditions they operate within and the impact they have on the environment. They also need to be concerned about corruption, bribery, fair business practices, discrimination and harassment, to name a few. We look at it as “knowing your vendor for the modern world.”
Attaining this level of sustainability and CSR (Corporate Social Responsibility) visibility is no easy task. According to our Sustainable Procurement Barometer – only 15 percent of organizations have complete visibility into the sustainability performance of both tier one and two suppliers. That number dips to six percent for tier three and beyond.
While the complexity is very real, the stakes are too high to continue with the status quo. The risk of failure goes well beyond compliance breakdowns and hefty fines. Recently, we’ve seen supplier incidents impact everything from earnings per share, sales and customer retention to brand reputation and company valuation.
The most mature companies in the space combat these challenges with a four-fold approach to vendor management. The first step is to prioritize the operational aspects of knowing your vendors – specifically sustainability and CSR – as a key part of the supply chain and enterprise risk strategy. Secondly, the best rely on third-party validation. When it comes to sustainability breakdowns that could have a significant impact on your business – like working conditions and corruption – static and self-reported supplier surveys are never enough. Next, it’s about investing in accurate, holistic and action-orientated data. (Our evaluations draw from 2,500 plus sources when analyzing suppliers!). And finally, the focus shifts to continuous improvement. Even your best partners have opportunities to improve their performance and reduce their risk. Your job is to help them identify the blind spots, and put a roadmap in place for improvement.
That may seem very daunting – but with the right technology, risk methodology, partners and process – it’s more feasible than you think. And even if it wasn’t, the risks of the status quo are too significant to ignore.
If you are ready to learn more, join us for a webinar with Simon Lodge, Head of Category Management at AXA UK, to hear what it takes to build a successful sustainable procurement program in the finance and insurance industry.
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