It is at times of economic stress that buyers need to be particularly alert to the risk suppliers present. Cuts in corporate budgets erode the resources that are available to supplier companies and in some instances critical risk factors may be exposed. It may be that the supplier itself is unaware of the holes that have appeared in its own compliance concerning, perhaps, important aspects of its Health & Safety processes, insurance cover or its Corporate Social Responsibility (CSR) practices. Staff cuts in the business can easily result in a breakdown in compliance if those within the business with the specialist skills, knowledge or responsibility for important processes are removed.
For supplier organisations, as much as for buyers, it is important to ensure that the auditing of these high risk elements of the business is carried out correctly, thoroughly and on a regular basis. Exposure to risks, such as a Health & Safety processes being neglected, can have very serious consequences in the event of an accident, for both the supplier and the buyer. The supplier faces the possibility of being sued by staff, or in the case of a fatality, even worse, it may lead to litigation or may leave directors exposed to prosecution. And for the buyer, on whose site the accident may have taken place, the damage to reputation may be considerable.
A supplier’s non compliance to CSR policies can also have a hugely damaging effect on a buying organisation’s brand. There are plenty of examples that have hit the media in recent years. In these stringent times, are buyer’s more exposed to supplier digressions to CSR policies and practices?
For buyers, the auditing of high risk suppliers allows the validation of pre-qualification information offered by the supplier. But for the supplier, an audit conducted by a fully trained and experienced auditor with relevant industry experience should offer the supplier a little more than simply a ‘tick in the box’. It should also deliver added value to the supplier in the form of formal feedback based on in-depth analysis of evidence and observations on the integrity of the supplier’s business systems and processes. This may be valuable feedback for companies, particularly if suppliers are concerned about the integrity of their processes following budgetary cut backs.
Auditing of high risk suppliers is an important step to mitigating risk. In tight economic times, perhaps the need for audits is even higher.
Kristofer Whitfield is head of audit for UK and Ireland at Achilles