Most companies rely on their supply chain. Even smaller companies use contractors, suppliers and vendors as part of their business. In the UK, we are seeing more and more businesses outsourcing large parts of their operations to contractors. Although this is a great business model, unless the supply chain is managed properly, it can present a massive risk.
In 2015, a survey was carried out by PECB Insights magazine. The survey asked 500 risk managers from 40 countries what their top ten business risks are for their company: 44% placed the risk of supply chain disruption as their top risk.
Over the last few years, we have seen Brexit, the war in Ukraine and now the military action in the Middle East as potential disruptors to business in the UK. Businesses remain vulnerable to changing circumstances, particularly if they are dependent on a few suppliers of critical equipment or services.
Regardless of the size of company, business leaders must ensure that supply chain risks are included in their risk profile, and they must include audit and assurance of their supply chain as an integral part of risk management.
Jim Thorburn, Principal Consultant at 32, said: “Companies often place contracts on the basis of cost, which is okay providing that they include their contractors in the overall risk profile, and that they put in place a programme of assurance.
“We are often asked to support our clients by running contractor forum meetings, and by developing an audit and assurance plan for their supply chains.
“What business leaders must realise is that it is not only large scale global crises that can affect business supply chains. More often it is local disruption that can have an effect. One of our clients procured valves from a UK supplier. A major fire in the suppliers workshop and warehouse destroyed a large amount of their stock. This fire had devastating consequences for our client’s business.
“Audit and assurance can help prevent business disruption. By having a robust audit and assurance plan for their supply chain, our client’s can mitigate the consequences of poor performance and poor risk management of their contractors and suppliers. By auditing key contractors and suppliers, we can identify weaknesses and thereby help our contractors to develop systems and processes to improve their business, which ultimately improves our client’s business.”
Business leaders should undertake a significant amount of due diligence to provide assurance that health and safety and other business systems are robust within their supply chains. Poor work practices, lack of procedures and lack of business continuity are some of the key factors that businesses need to look into with their suppliers and contractors.
Jim Thorburn concludes: “One of the largest risks to companies is their supply chain not operating efficiently and safely. Protecting the supply chain is a win-win situation, because it improves the systems and behaviours of each contractor and supplier, and therefore it improves and lowers the risk profile of the company”.
32 HSE 