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How much of a concern is non-compliance from suppliers?

26 / 10 / 2015
How much of a concern is non-compliance from...For compliance managers, dealing with external partners can be just as much of a concern as ensuring that internal teams are following the correct processes. The problem here, of course, is that it can be far more challenging to ensure that buyers, suppliers and other external parties are acting in a compliant manner.

New research from governance, risk and compliance software solutions provider MetricStream sheds some light on the scale of the problem. It discovered that the vast majority (91 per cent) of companies have some kind of compliance programme in place, but that half have experienced an issue of non-compliance from suppliers.

Common supplier non-compliance issues

Speaking to 100 supply-chain professionals across a variety of industries, MetricStream found that almost all respondents were acutely aware of the need to step up supplier compliance efforts, particularly given the increasing number – and range – of risks faced by organisations over the past decade. The global economic climate has had a major impact in this area, while a spate of natural disasters has also had a significant effect on suppliers the world over.

Local regulations were a key factor affecting the behaviour of suppliers. The quantity of such regulation has increased substantially in recent years, with governments across the world introducing new measures designed to bolster corporate ethics and help the environment, as well as clamp down on bribery, corruption and the dangerous disposal of waste and hazardous materials.

Changes to the supply chain itself have also hampered efforts to control risk and non-compliance. Sonal Sinha, vice president of MetricStream, explained: "As global supply chains get more and more complex, and the supplier base continues to evolve and expand, it [affects] the ability of organisations to stay on top of their risks."

How to deal with supplier non-compliance

The survey discovered that multinational corporations are more or less united in the view that heightened vigilance is required when it comes to monitoring multiple tiers of suppliers across the world.

However, they tend to be more divided on how best to go about achieving this. For instance, half of respondents said they gather compliance-related information when considering whether or not to work with a new supplier, while a quarter do so during the onboarding process.

Just a fifth currently gather such data when introducing a new product or service to their supplier's portfolio, despite the fact that a lack of due diligence at this stage can have a significant impact on quality and could even cause harm to consumers.

One in 20 respondents – a small but still concerning proportion – say they do not gather compliance information on suppliers at any stage, despite the vast quantity of new regulations and potential threats affecting global supply chains.

Less than half of those surveyed are currently tracking or defining "action items" as a means of forcing suppliers to be more compliant. Just a quarter periodically validate compliance data, with the majority appearing to feel that it was sufficient to assess partners at the beginning of their relationship – neglecting the fact that situations, information and processes will naturally change over time.

Given this lack of monitoring, it is unsurprising that suppliers often act in a non-compliant manner, whether knowingly or accidentally. The behaviour of suppliers can have a major effect on a company's reputation, so this is clearly an area that is in serious need of attention.

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