COVID and the Pandemic set the stage for a real time awareness of supply chain economics and the management of community risk. We all remember desperately trying to obtain hand sanitizer, cleaning supplies, and hepa filters required to provide emergency services to our communities. The pandemic price gouging was unprecedented and often created hysteria bringing out the worst of us. Taking that into context, it is important to realize that:
• Risk management plays an integral role in connecting the operational efficiencies of an organization by identifying risk issues in partnership with department silos.
• Given the fact that risk assists in crafting property and casualty programs whether commercially insured or self-insured to various degrees, it has the capacity to understand the dynamics of a departments purchases and the use of those purchases.
• The partnership between risk and purchasing is an opportunity to begin managing risk with the letting of requests for quotes and bids and establishing insurance parameters within those lettings.
• Purchasing establishes an entity’s “rules of engagement” laying out the initial roadmap for risk mitigation.
• Risk management can collaborate with departments, purchasing, and legal from the onset to manage contract terms and transfer risks associated with purchasing goods and services.
• Risk management through its partnerships can set the framework for education and training in risk mitigation by working to: identify potential risks involved in any purchase; assist in assessing a vendor’s credibility and insurance; mitigate strong arm tactics for quote/bid language disputes; and work in partnership internally to monitor contract engagement before claims and/or litigation occur.
An example of mitigating and monitoring: A vendor’s inability to fulfill a pepper spray order for law enforcement leading to the use of a less desirable brand and a claim when the defective pepper spray misfired. The crux of the matter being that an effective communication of the issue between law enforcement and purchasing could have mitigated the resulting claim and saved an insurance deductible.
Public entity risk management policies that address Supply Chain Risk Management or SCRM should try and operationally focus on:
• A partnership with internal folks to prioritize goods and services vital to the provision of community services;
• The development of criteria for a vendor database of goods and services;
• Creating vendor redundancy capacity to establish a resiliency strategy;
• Drafting a comprehensive purchasing protocol that aligns with your states purchasing guidelines recognizing minimum vendor standards and insurance and indemnification requirements;
• Consulting with internal stakeholders to understand their operational needs and concerns;
• Developing a purchasing-procurement policy that is fluid and has the capacity to meet multiple needs and priorities incorporating ongoing monitoring and mitigation strategies to communicate supplier performance, market conditions, and emerging threats; and
• Officially adopting the final purchasing-procurement policy to ensure compliance and acknowledgement of your entity’s rules of engagement.
Remember that a constructive policy and procedure dialogue provides an opportunity to educate your workforce on the importance of establishing firm rules of engagement to transfer risk to the appropriate entity.
Vendor Management is important to an organization’s operational resiliency. The following factors have the capacity to materially affect vendor management:
• A lack of transparency and compliance in procurement has the potential of politically crippling an organization creating reputational risk.
• Failure to thoroughly research a vendor’s capacity can result in supply chain inadequacy or failure leading to disruptions in the provision of services.
• Proper vendor onboarding can strengthen relationships and support effective risk transfer.
• Vendor partnerships assist in creating redundancy and resiliency through timely and effective communication – risk mitigation in action.
• Vendor compliance with your entity’s policies particularly purchasing-procurement; computer use – cyber; and fiscal policies assist in universally mitigating emerging risks.
Consider the following risk identifiers when deciding on a vendor for products and services to mitigate supply chain issues:
• Solvency and Capacity to Provide
• Insurability
• Market Conditions
• Geography – think mileage and expenses
• Inventory Management
• Redundancy in Products and Services
• Political Instability
Remember, risk management has the capacity to be a strong partner in the management of vendor relationships and an entity’s effective transfer of risk.