Supplier Management – Exploring Regulation and Reputation

One of our more recent papers this year comes courtesy of Peter Smith in conjunction with supplier information management firm HICX. The firm held a breakfast briefing towards the end of last year to discuss AI and procurement and the impact of master data; it was so popular they had to hold it twice! So another breakfast briefing on the same topic was held this year in March. This paper - “Understand Your Suppliers – Do You Know What's Happening Below the Surface? - was written to complement that briefing and focuses on what you really need to know and why.

Here's an extract - we hope it piques your interest:

Exploring Regulation – and Reputation

The previous risk heading overlaps with information linked to regulation. This focus has been the major change in supplier information management in recent years, as rather than the buying organisation wanting information purely for its own benefit, now governments and related third parties are insisting (with regulatory backing) that buyers must have certain information, data, and understanding related to their supply base. That is backed up with severe penalties, ranging from fines which can run into millions of pounds, to exclusion from bidding for government contracts, as well as the reputational damage that can follow.

So, what was once seen as “nice to have” information has become defined by law. Other requirements are enshrined in public procurement legislation. For instance, in the EU, asking questions about whether company directors have convictions, or the firm has been investigated over tax matters, is now a routine part of public sector supplier qualification processes. There is regulation for everybody – not just public bodies - in terms of environmental issues, employment practices in the supply chain, data protection and so on.

Another example: go back to the 1990s, and the banking regulators were totally disinterested in the precise supply arrangements of the big UK high street banks. But from the late 1990s onwards, and with accelerating interest through the last financial crisis, regulators decided that they would check more diligently that banks understood their suppliers better.

Why did this change come about? Because understanding key suppliers was seen as an important element in understanding how secure and well-managed the funds of the banks’ own customers might be. Today, there is considerable regulation across many aspects of banking, including supplier management. As the European Central Bank said, announcing a new framework for cyber-resilience:

“We also anticipate that the TIBER-EU framework will have an important interplay in the on-going supervision of key financial market infrastructure providers, given the framework's overriding emphasis on "critical functions" – which firms will want to delineate with a view to the official definition used by the framework: ... the people, processes and technologies required by the entity to deliver a core service which, if disrupted, could have a detrimental impact on financial stability, the entity's safety and soundness, the entity's customer base or the entity's market conduct."

Those “people, processes and technologies required by the entity” includes suppliers and suppliers’ activities, hence the need for much tighter management and better knowledge about key suppliers than existed 20 years ago.  That is an example of a specific industry, but there are other regulatory developments that apply to all firms, and it is vital that firms understand their responsibilities and take action.  Having effective visibility of the supply base and the appropriate level of knowledge around specific suppliers is an absolutely fundamental element of this essential regulatory compliance. Of course, every industry, not just financial services, is affected; here are just some of the general provisions that must be considered. (Please download the paper to read on).

Download the paper here, free on registration.

 

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