CombineNet: Integrating Risk Management Into the Sourcing Process Through Gating

The past 24 hours at CombineNet (now branded as CombineNet, a SciQuest Company)’s customer conference has seen a wealth of information exchange and cross pollination of ideas by practitioners and CombineNet experts alike in a manner that reminds me more of the original FreeMarkets WorldSource event (over a decade ago!) than the typical software user conference whose primary mission is to schmooze customers and potentially upsell them products – either at the event or later in the quarter.

As one example, at Spend Matters we spend a decent amount of time covering supplier management and supply risk, but the information I learned in Brett Cornell’s session, Integrating Supplier and Supply Chain Risk into Decision Making, gave me a ton of new ideas on both the strategic and tactical levels for pulling forward supply risk management approaches into the strategic sourcing process. These are things I was not thinking about before.

Brett began his talk by asking the question: Are we doing enough today to address supply risk, and can or we do more? He shared the example of exploring overall supplier health today (e.g., profitability, performance, quality, environmental/CSR focus, responsiveness, growth, innovation) through traditional supply risk means – performance reviews, audits, tools (e.g., D&B, z-score calculations, Rapid Ratings, Ecovadis/Sedex, score-carding, etc.). But then he introduced three additional approaches (methods, really) companies can use to enhance their overall risk efforts.

The first of these centered on bringing supply risk into a standardized sourcing process, using a gating approach in which “bidding is not open to a supplier” unless they’ve met certain requirements. Said another way: sign off on our requirements (or go through our processes) if you want to work with us. Brett shared three different gating approaches in his talk:

  • Statement Gating – This approach requires a supplier to agree to a statement that is displayed at specific points in the RFI process (e.g., signing on to read a document or requirements).
  • Document Gating – Under this model, suppliers download documents and then agree to the contents of the documents (Brett gave the example of buying company terms and conditions).
  • RFI Gating – This is really the most powerful gating approach of all in that it pulls up the supplier management survey approach into strategic sourcing by “requiring a supplier to complete RFI questions and submit RFI responses” before participating in the formal tender.

For what areas of risk management is gating most effective? Brett provided two examples. First, when you need to tell your suppliers about a policy (e.g., – terms of use, IT policies, data security policies, codes of conduct, CSR policies, etc.). Second, it’s valuable when “suppliers need to inform you” in such cases as their own sustainability programs, labor initiatives, quality certifications (e.g., ISO), diversity status, financial data, insurance certifications, and continuity/disaster recovery programs.

We see numerous advantages to pulling forward these types of supply risk management initiatives into the sourcing process. Brett shared two:

  • It creates audit travels by showing that you provided suppliers with your requirements clearly in the event and you have documented confirmations.
  • It can be used to set a tone for seriousness and importance of an event with suppliers.

But even more than this, there is significant value in pulling forward supply risk management steps into sourcing because:

  • It makes supply risk management an integral element of all procurement rather than having it as a separate step.
  • It pulls the sourcing and category management teams into the supply risk management process (rather than making it an afterthought that someone in finance ticks a box on).
  • It creates a more comprehensive look at supplier capabilities and practices that can be factored into the sourcing process itself and ultimately, award decisions.

To this last point, stay tuned for later today when we share some additional examples from Brett’s talk on how we can introduce risk elements into the sourcing and negotiation equation to create optimal awards based on qualitative and quantitative risk factors.

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