In today’s complex supply chain environment, it’s more important than ever to ensure your suppliers play by the rules – and that there are consequences if they don’t. That’s exactly what supplier compliance is all about.
Supplier compliance is becoming an increasingly important element of running a successful business. It’s about ensuring that your suppliers comply with both external and internal regulations. After all, the price for non-compliance isn’t insignificant – so why not make sure you don’t have to pay it?
In this article, we’ll cover what supplier compliance is, why it’s so important and 5 best practices for ensuring supplier compliance within your supply chain.
What is supplier compliance?
Supplier compliance is the process of ensuring that a company’s suppliers meet the company’s regulatory standards and requirements – and that they comply with internal company policies, too.
Essentially, supplier compliance means that when it comes to quality, safety and industry fairness, your suppliers, partners and service providers must live up to the same standards as your company.
This goes for both external and internal compliance:
- External compliance refers to rules, requirements and laws set by the government or governing body. External regulations set the industry standards for how your organisation can and can’t act. Breaking them can result in legal issues and financial penalties.
- Internal compliance refers to the rules set by your company itself. Breaking internal regulations doesn’t typically come with the same risks and penalties as external regulations, but that doesn’t make them any less important to comply with.
The benefits: Why supplier compliance is so important
Supplier compliance isn’t just about avoiding penalties. In fact, there are numerous benefits to gain from ensuring compliance in your supply chain.
Let’s take a look at some of them:
- Risk reduction: When your suppliers follow the rules, you can avoid the headaches that come with supply chain disruptions, fines, legal action and reputational damage. Staying on top of supplier compliance means you can fix issues before they blow up.
- Quality and performance: Everything is smoother when your suppliers stick to the agreed-upon standards for quality, delivery and pricing. This means improved efficiency and productivity – and happier customers in the long run.
- Cost savings: Finding and fixing inefficiencies and compliance issues reduces waste and delays. This can help cut costs, boosting your profitability and keeping your company running smoothly.
- Transparency: With supplier compliance programmes, it’s easier to see what’s going on with your suppliers. Being able to provide a clear view of how your suppliers are doing and if they’re following the rules helps build trust and strengthen your relationships with your customers, investors and other stakeholders.
- Ethics and sustainability: Supplier compliance can help encourage fair labour practices, environmental sustainability and ethical business conduct. This aligns your supply chain with the values and expectations of the modern customer and stakeholder – and that’s important for the success of your business.
In short, ensuring supplier compliance benefits your company in everything from the resilience of your supply chain to your professional reputation.
What are the consequences of non-compliance?
The consequences of non-compliance can be quite severe. This might not be surprising. After all, if you consider the benefits above it’s not too difficult to imagine what they might be in reverse.
It probably goes without saying that non-compliance can lead to supply chain disruptions – e.g. delivery delays, quality issues or even complete breakdowns in supply. If production halts, your customer demands aren’t met, and your bottom line will suffer for it.
Just as supplier compliance can help you save money, so non-compliance can result in financial losses. The costs associated with resolving issues, fines and other penalties can be quite substantial.
What’s more, associating with non-compliant suppliers can also hurt your reputation. Negative publicity and public backlash can severely damage your customer trust and brand value, and that’ll impact your sales, too.
These are just a few of the consequences of non-compliance. In other words, you’ve everything to gain from ensuring supplier compliance – and just as much to lose from ignoring it.
5 best practices for ensuring compliance in your supply chain
Ensuring supplier compliance is all about staying on top of and addressing non-compliance issues before they blow up.
Here are five best practices for ensuring supplier compliance in your supply chain.
1. Set clear expectations
Let your suppliers know exactly what you expect from them. Not just in relation to compliance, but also in terms of quality, performance, pricing and delivery.
This also includes your expectations for their ethical behaviour, their environmental impact and how they treat their workers.
2. Conduct due diligence
Before partnering with a supplier, it’s important to do your homework. Research them thoroughly to make sure they can meet your compliance requirements.
Look into their financial health, reputation and compliance history. This’ll help you avoid partnering with a supplier whose negligence will harm your business in the long run.
3. Monitor supplier performance
Keep tabs on your suppliers’ performance. Tools like audits, assessments and performance metrics can help you stay on top of how your suppliers are doing.
Monitoring their performance also helps you ensure they’re sticking to the terms of your contract, industry standards and regulations.
4. Offer training and support
Help your suppliers stay compliant by offering training and support so they always know how to meet all the necessary regulations, requirements and standards.
Training your suppliers can also include sharing tips on ethical conduct, good labour practices, eco-friendliness and other topics important to your company.
5. Enforce the rules
Last, but not least, you need to make sure there are consequences for suppliers who fail to meet your compliance requirements. For example, these could be terminating the contract, imposing fines or taking legal action.
Consequences encourage your suppliers to take your partnership seriously. They’ll help ensure they stay on track – and that reduces the risk of non-compliance.
Conclusion
Supplier compliance is essential for ensuring that your suppliers play by the rules. Not just the rules of your industry – your internal company regulations, too.
By following the best practices above, you’re all set to stay on top of how your suppliers are doing and address non-compliance issues before they blow up.
