Effective vendor risk management is increasingly important as global supply chains become more complex and interconnected. Organizations must manage complicated networks of outside vendors, ensuring that occupational health and safety compliance is a top priority that extends throughout their entire supply chain.
In a recent study,* 140 top supply chain executives were asked about the criteria, processes, and tools their organizations leverage when vetting and prequalifying new vendors. The study examined the importance their organizations place on their vendors’ commitment to safety practices and regulatory compliance and the respondent companies’ use of technology to monitor and improve practices. Here we take a look at 5 key findings of the report that reflect Supply Chain’s role in managing vendor risk:
- Safety performance of vendors is often overlooked.
Nearly 90 percent of respondents ranked safety as a priority, yet assessing the safety performance of their outside vendors is not often part of vendor risk management efforts, or it is poorly integrated with overall vendor prequalification processes. Failing to address the occupational health and safety compliance of contractors and other third parties can increase companies’ exposure to a number of risks, potentially causing harm to their security and reputation; diminishing the quality of their goods and services; and negatively impacting their bottom line, potentially due in part to fines and penalties incurred from wrongdoings involving third-party providers.
One study respondent noted, “The ultimate goal is to reduce risk within our supply chain. When dealing with suppliers with poor safety records you are asking for processes to be shut down or delayed due to accidents… not to mention, there is a strong obligation to protect people and the environment throughout the entire supply chain.”
The Importance of Occupational Health and Safety When Vetting Vendors
- Nearly 50 percent of organizations lack a formal vendor safety prequalification program.
A formal vendor safety prequalification program requires that outside vendors meet OSHA and hiring client-specific occupational health and safety requirements. It can help organizations more effectively manage their contractor workforce, mitigate risk, and drive ongoing improvement to safety, yet nearly half of those surveyed operate without a formal program and the same number lack ongoing visibility into vendor safety performance.
Those who do monitor vendor safety on an ongoing basis require vendors to submit regular safety performance updates. Nearly two-thirds of those actively managing vendors’ safety risk say they do it to protect their organization’s reputation and brand, and to maintain quality products and services. It also helps them align with their company’s safety culture, support Corporate Social Responsibility (CSR) goals, and adhere to regulations to avoid citations or fines. Without a strong safety prequalification program and careful monitoring, organizations expose themselves to risk and miss opportunities to proactively improve their vendors’ performance.
- Who owns evaluation of vendor safety risk? It’s unclear for many organizations.
Ownership and responsibility for gathering and vetting a vendor’s occupational health and safety information varies widely across organizations. Purchasing and procurement, safety, corporate management, supply chain, and operations departments may all play the lead role in handling these assessments. Unfortunately, these efforts are not always integrated with the organization’s overall vendor prequalification process. In fact, 64 percent of organizations lack cohesion when tying occupational health and safety prequalification programs into their overall vendor prequalification efforts. Tighter cross-departmental coordination – in particular, between Supply Chain and Safety – to imbed safety vetting into the overall vendor prequalification process and set the tone that safety is a priority from the very beginning of a vendor relationship, as well as the use of web-based technology to collect and analyze vendors’ safety performance data and enable better internal collaboration will create a more cohesive process.
- Assessing and monitoring safety compliance of outside workers is challenging.
More than three out of four executives (78 percent) acknowledge that occupational health and safety is an important concern when evaluating vendor performance, yet admit it’s often wrought with challenges. The biggest hurdle organizations face when evaluating and selecting vendors based on safety performance is keeping up with vendors’ ongoing safety performance after initial vetting occurs. In addition, time-consuming administrative tasks, such as gathering the vendors’ safety stats and reviewing documents like safety manuals; inconsistencies in how vendors’ safety performance is evaluated; a lack of visibility down to the worker level; and a lack of resources to help improve vendor-related safety issues are other critical challenges supply chain executives must address when vetting vendors from a safety perspective.
A study respondent noted, “We just don’t have the time required to analyze and implement supplier changes. Too much time is required to ensure consistency of the review, selection, and implementation.”
Top Challenges When Assessing and Vetting Vendors Based on Their Occupational Health and Safety Performance
- Technology enhances and simplifies management of vendor safety risk.
Technology, such as a contractor management software solution, helps organizations ensure safety compliance by providing better transparency into vendors’ safety records and modernized methods for monitoring and improving safety compliance. The study found that, in general when adopting new technology, many companies take a cautious approach, though there is also a highly-receptive contingency that’s willing to embrace the advantages offered by implementing the most current solutions. More than one out of four companies surveyed is among the first to implement technology as it becomes available or is an early innovator, while just over a third consider themselves in the early majority – cautious and practical about adopting new tech.
Those who leverage a third-party provider’s web-based contractor management software cite the many advantages it provides. Nearly half report that technology helps to streamline safety prequalification program administration and improve the vendor experience. Fifty-two percent leverage their third-party provider to conduct audits of vendors’ safety programs and policies, and a third or more cite reducing administrative tasks, capturing and centralizing vendors’ safety performance data, bringing in expertise that otherwise doesn’t exist, and enabling KPI reporting and analytics to support risk management as key benefits offered by tech and partnering with a third party.
By leveraging technology to streamline the vendor prequalification process and monitor ongoing compliance with occupational health and safety regulatory requirements, companies can successfully integrate safety compliance into their overall vendor prequalification efforts and reduce the risks associated with running global, interconnected supply chains. The companies that take this proactive approach can enable stakeholders across the organization to easily identify which vendors and contractors meet the company’s workplace health and safety standards, mitigating safety risk and helping to safeguard their brand and the quality of their products and services.
* Study conducted by Peerless Research Group (PRG) on behalf of Supply Chain Management Review for Veriforce, June 2019.