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3 Tips to Improve Supplier Compliance

Risk & Compliance

Most businesses will have to engage the services of outside vendors at some point in their existence. And, for many companies, contracting with external suppliers is a routine aspect of conducting business. After all, it is often necessary to source parts, obtain goods, or utilize the services of other firms in order for a company to operate in a timely, cost efficient manner. Unfortunately, relying on outside help may also bring about additional issues that can disrupt the very efficiency that was sought. To avoid production disruptions and cost overruns, it is important to establish and maintain good working relationships with reliable suppliers. One of the best ways to improve supplier compliance is by simply having a coherent plan of action in place. Here are three tips to improve supplier compliance:

Affirm Capacity and Fit

Prior to entering into a relationship with a potential supplier, companies must do their due diligence to ensure that the right entity is selected. For the most part, companies will want to establish a long-lasting relationship with prospective suppliers, and thus rushing into the first deal that comes along or going with the cheapest option can prove disastrous. The relationship between a company and its suppliers is akin to the relationship between an employer and employee.

Therefore, each side must have a good understanding of the other side’s expectations and abilities. Just as individuals may inflate their skills and expertise, prospective suppliers may exaggerate their ability to meet a company’s supply chain demands. As a result, the supply chain managers must ensure that the chosen vendors have the capacity to meet their company’s needs, as well as a culture and vision that aligns with the company’s objectives.


Establish Management Expectations

Once the relationship has been established and the contract has been negotiated and drafted, the real work will begin. Unfortunately, a lot of companies focus more on closing the transaction and pay less attention to managing the relationship associated with the deal that has been struck.

To ensure a productive and enduring relationship with suppliers, it is critical to convey the company’s expectations from the outset. Things like quality standards and delivery schedules must be communicated. In addition, if there are any important restrictions or specific rules and regulations that apply to a product, the suppliers must be informed to ensure they are given all of the information that will foster compliance. Although it is generally unwise to micromanage every supplier relationship, there has to be clearly defined goals and expectations to keep things on track and avoid potential disputes.

Ensure Accountability

In addition to clarifying the supplier’s duties and obligations, there should be measures instituted to ensure appropriate accountability. For example, companies should create performance indicators, so that their suppliers will have a data-driven method of verifying whether they are meeting their performance obligations. Percentages related to things like the number of goods conforming to the established standard, on time deliveries, and punctual payments can help demonstrate where a supplier is succeeding and where it is lacking and in need of improvement.

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