An Everyday Story of Reputational Risk – Supplier Failure the Cause

It shouldn’t be a shock to anyone, really, but it never fails to surprise me how procurement and supply chain issues come into every part of our daily lives. I was sitting at the desk the other day, getting started on  a piece of writing, when the guy came to do the annual check on our security system. It’s a small firm and we got the boss rather than a field engineer as they were short-staffed that day.

As he finished he apologised for bothering me, and I said not to worry, I was writing an article about reputational risk in the supply chain and I was struggling a bit with it anyway.

He looked puzzled. "What’s reputational risk in the supply chain"?  Well, if a well-known brand bought something from a supplier and it turned out to have been made by young kids in the supplier's factory, then that would not be good for the brand. It is something like that the supplier does which affects the buyer’s reputation and therefore business, I explained.

Oh, he said, I’ve got something like that going on at the moment.  It seems that he has been telling customers to hold off putting in a certain type of improved security system until a particular equipment manufacturer launches what should be an excellent new technology product. Problem is, the product was supposed to be launched last December and still hasn’t appeared. August now looks likely after several failures to meet expected dates.

This is not good news for my friend, of course. Not only has this delayed some revenue for him, but more importantly it is affecting his reputation – his customers are not too pleased about the delay, and although he has told them it isn’t his fault, there is still a reputational effect for him.

“It’s also the fact the supplier hasn’t kept me informed – I’ve had to chase them”, he said. That illustrates another good point in any supply relationship. When problems occur, openness almost always helps everybody.

It also shows that reputational risk is not always about the big headline issues such as modern slavery, horsemeat or collapsing factories in Bangladesh. Sometimes a supplier simply not performing effectively can have that consequent effect on reputation for the customer organisation. It is also hard to protect against that commercially or contractually – proving damages would be tough for this security firm even if they had a strong formal contract (which they don’t).

So much of it comes down to assessment of suppliers’ track record and trust-worthiness, as well as the usual issues around dependency and power. I did also suggest he might just want to check that the supplier is not in any financial trouble; that can also be a root cause of delays like this.

Anyway, the experience shows again that supply chain and procurement is everywhere. One more thought on that – perhaps when we try and promote the “profession” to young prople, or argue why it should be included in MBAs, we should stress that the issues are core to pretty much every business organisation, from the smallest to the largest.

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