Sub-tier supplier risk continues to be a challenge

The issue of sub-tier supply risk continues to be a challenge in many of the companies we work with at the SCRC.  For example, one large company has experienced big problems in the form of tier 2 supplier mechanical failures that wind up in their product.  Even though they had a problem, they were totally unwilling to invest a resource to monitor and manage these suppliers.  Companies need to start coming to the realization that they are part of a network.  Your business may not be significant to a sub-tier, even if you are a large brand name customer.  It is not enough to “put the blame on the supplier” to manage their sub-tier – it is your problem in the end!  But what options are available to manage sub-tier suppliers?

If it is a quality management issue, than procurement may need to invest effort to develop sub-tiers, and drive improvement issues.  However, how can you do this?  One option is to write contracts that require direct reporting of sub-tier supplier performance on scorecards – but enforcing this may be difficult.  Another option explored is to have third party providers to manage this.

Procurement’s value to the business is increasingly driven by the knowledge of supply markets, including the sub-tier, and the ability to communicate nuggets of information based on deep intelligence and insight into the current and future state of these markets.    This is not a capability that is inherently resident in many procurement organizations.  Rather it is a network capability that must be developed through nurturing of external partners with their hand on the pulse of sub-tier suppliers.  This requires a new form of collaboration, and regular communications to identify and work with tier 1 suppliers to help them nurture and develop the best tier 2 suppliers, and motivate them to manage them.

In the end, managing the tier 2 IS procurement’s responsibility – whether you like it or not.