London: In a new study, senior executives at multinational companies have identified reputational risk as being an even greater consideration than cost when selecting suppliers and partners.
According to the report published by Baker & McKenzie, companies are more concerned than ever about the reputations of the vendors with whom they partner, with the 100 individuals surveyed placing reputational risk above cost when assessing a potential third-party supplier or service provider.
Those surveyed identified corruption, product quality and general compliance among the top issues with regard to managing their company's supply chains.
Based on a survey conducted by an independent London-based research consultant commissioned by Baker & McKenzie, the report provides data and insights on identifying and addressing the key risks that businesses face when using third parties to source, manufacture, transport, distribute and sell their products around the world. See attached report titled The Companies You Keep; Global Supply Chain Management: Five Steps to Managing Third-Party Risk.
"The underlying strategy for any company to bring a third party into their supply chain is so they can focus on their core competencies and grow their business. As the use of third parties in supply chains increases, companies need to take a closer look at the potential risks involved in taking these partners on and implement strategies for mitigating and managing those risks across borders and business units," said Nicholas Coward, head of Baker & McKenzie's Global Trade & Commerce Practice.
According to the study, more than 80% of the respondents confirmed that the risks of using third-party suppliers or partners are higher in emerging markets, due to increased concerns with corruption and political and legal instability. Additionally, when asked to identify the greatest future risks in the next two to three years, respondents cited region-specific risks and compliance as the leading concerns due to rapidly developing laws in emerging markets, international trade sanctions and anti-bribery laws.
Despite nearly 70% of those surveyed affirming that corruption represents the top risks when engaging third parties in emerging markets, the majority of respondents (83%) indicated that an emphasis on training and education on major compliance issues and guidance on identifying and mitigating compliance risks is the best strategy for overcoming major hurdles.
"Choosing the right third-party supplier/partner can mean the difference between having a significant asset
or a major liability," said Coward. "This report aims to provide companies with a set of general steps they should take to ensure that they are legally and operationally ready to establish relationships with third parties to help their business expand."
Other interesting insights found in The Companies You Keep; Global Supply Chain Management: Five Steps to Managing Third-Party Risk:
· In addition to providing more training for employees as a strategy for reducing third-party risk, respondents also said having better processes for monitoring their compliance with contractual terms (75%) and having better protocols for screening suppliers/partners (74%) also help to mitigate risks.
· With regard to experience and reputation when selecting third parties, respondents said the most important factors when assessing the suitability of suppliers/partners are experience and track record (8.2 points out of 10), reputation (8.1), and cost (7.9).
· In addition to the top risk of corruption within these emerging markets, respondents say their other leading risks involve bribery (58%), the threat of political instability (33%) and a lack of enforcement (18%) are also of great concern.