Articles

What is the status and view on Supplier Compliance?

Author: Dr Awie Grobler

T

he current status quo of most companies is to have a supplier or vendor compliance programme with traditional supply chain and procurement goals set for its suppliers. These goals are required to be accountable for their products and services, manage their own errors, ensure on-time delivery, and to be responsible for supplier compliance. Companies that go beyond the point of only managing the above goals distinguishes themselves from the rest by:



  • Measuring a supplier’s ethical conduct in alignment with their own ethical code of conduct;
  • Ensuring that their suppliers conform to the minimum legislative requirements set by Government to conduct business in the country;
  • Maintaining and managing the suppliers’ minimum legal and legislative requirements before conducting business with said suppliers;
  • Setting compliance KPIs to ensure that they deal with compliant suppliers and comply to legislation;
  • Considering and applying compliance as a rule which is intended to regulate behaviour and offers the market more transparent processes and businesses;
  • Performing internal and third-party audits to verify if the company and its departments (such as procurement) are complying with regulations and working to maintain the company’s good reputation with the suppliers and clients that they deal with;
  • Implementing a system to continuously improve supplier compliance and to measure themselves against a set of supplier compliance KPIs; and
  • Forcing potential suppliers to adhere to the minimum requirements set by them for a supplier to do business with them.
The Companies Act requires companies to do business with compliant suppliers and contractors. Companies should therefore not compromise their fiduciary duty by contracting with or placing orders on non-compliant suppliers.
SCM

Why do companies not push back on suppliers who does not comply to minimum legal and legislative requirements as set by Government? Why is supplier compliance a general company nemesis?

Author: Dr Awie Grobler

M ost companies do not push back the responsibility of compliance to their suppliers due to existing relationships with said suppliers. Some companies are even willing to pay to manage their supplier compliance on behalf of their suppliers.

It is also true that some companies do not understand why compliance and the adherence thereof is important and are therefore reluctant to address the issue of compliance as it could be seen as a grudge payment within the company. This is specifically true with those in charge of the supply offices, as they could be part of corrupt schemes and will never improve the compliance status of their suppliers due to their involvement.

Most companies are known to have people in charge of supplier management within supply offices which are worried that their incompetence and mismanagement of supplier compliance is revealed, and they are unaware of the legal and legislative compliance of supplier documentation due to:

  • Poor or no systems to actively manage the supplier compliance pro-actively and in real-time;
  • Manual systems that allows for visual verification of documents and not the vetting of said documents which allows for fraud, incomplete and non-compliant documentation; and
  • The lack of knowledge of the minimum required standards and requirements as set by Government to be a compliant supplier.

What is the real risk to companies who do not manage their supplier legal and legislative compliance?

Author: Dr Awie Grobler

C ompliance is known to lead to performance. Companies could face reputational risk if they deal with suppliers who become visible in the media when they are part of some corruption scheme or if they allow suppliers to be non-compliant.

Company directors are responsible to deal with compliant suppliers and this responsibility is delegated to someone in the supply chain department who could potentially create risk for the director should he / she not manage this important requirement.

Companies could risk the loss of income should they deal with a supplier who cannot deliver due to low maturity within its ranks.

Companies could face hefty fines and claims against them where suppliers are non-compliant and supplier non-compliance could potentially become a fixed part of input cost due to the fact that companies will have to manage and administrate these suppliers in order to get the expected goods and services required.