Why Over-Compliance Can Actually Increase Risk

Supply risk Ivelin Radkov/Adobe Stock

One thing that has struck me over the years is how disconnected supply chain risk management and supply chain compliance can be. Even within the supplier realm, supplier risk management and supplier compliance often can be strangely siloed. In a perfect world, you would hope that improved supplier compliance, especially regulatory compliance, would reduce supplier risk.

Yet what often happens is that so much time is spent "checking the box" on supplier compliance activities within the sourcing and supplier management areas that little remains to focus on the real supplier risks out there threatening supply performance. Part of this is organizational. Another part is process design and poor trade-offs made between the cost (and opportunity cost) of compliance and the real risks that have been mitigated (or not). Additionally, one-size-fits-all supplier qualification processes don’t differentiate activities based on the nature of the suppliers and spend, which is the core philosophy of category management.

Procurement and supply chain organizations simply don’t have the bandwidth for performing unneeded compliance activity, especially when, according to Spend Matters research, the headcount investment in supply risk management is so low. Compliance activities and risk management activities must be rightsized, aligned to each other and tied to “reward management” in sourcing and supplier management processes across the supplier lifecycle.

There are even more disconnects here. That is, unless you can “connect the dots” between risk, compliance and sourcing and supplier management — with contract management being core across all three areas.

If you want to learn more about aligning these areas so that they enable rather than hinder each other, check out the webinar we are doing today at 12 p.m. CDT. We’ll show you some explicit strategies for connecting these process silos and information silos so that both risk and reward can be integrated into a strategic procurement proces.

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