Keeping Suppliers Honest — There's Always More to Learn

Keeping your supply chain honest and in-check is a topic that Spend Matters' readers and procurement professionals certainly know a whole lot about. The topic has been dominant in the sector for so many years that on occasion, we might all be prone to thinking we've heard or read it all. That would, of course, be a mistake.

Today's Wall Street Journal in a feature section entitled The Journal Report, in collaboration with MIT Sloan Management Review offers a very well written review of the topic in light of ever increasing supply chain complexity. The authors open with an acknowledgement of how "complexity has led to higher productivity for companies and lower prices for consumers" and proceed to describe the "dark side" of complex systems and their potential for "spectacular collapse", stating that " each case, the cause is essentially the same: a failure to guard against suppliers acting in their own interest." Then simply summarizing: "Such opportunism often leads suppliers to take advantage of poorly written agreements, or simply break them outright if the risk or cost of getting caught is low. And the deeper they are in the process, the further from the end customer, the less responsibility they are likely to show in the absence of effective controls."

There are a number of gems in a checklist "designed to help managers check their own situations for integrity and stability" but perhaps the most controversial item in the list is a discussion of regulation that the authors claim need not cause "managers [to] get queasy." They argue that while "Regulation adds to costs and runs counter to the goal of ever-increasing efficiency ... if the costs mitigate or dramatically reduce the risks of failure, then regulation is the most efficient way to curb opportunism and decrease costs in the long run."

The article (linked above) is well worth the full read.

William Busch

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