Expert Column: Mitigating Supplier Risk Through Strategic Sourcing

When your suppliers provide the products that ultimately end up in customers’ hands, both of your reputations are on the line – making it critically important that your suppliers consistently deliver exactly what’s expected. Unfortunately, that’s not always the case.

Just recently, conservation group Oceana found that 30 percent of inferior farm-grown shrimp is intentionally mislabeled as a premium product by vendors, and sold at a higher markup. This obviously wasn’t the first time vendors were caught misrepresenting their products (remember last year’s horsemeat scandal?), and it won’t be the last.

For grocers, this misrepresentation – intentional or otherwise – puts their customers’ trust at risk. To ensure that grocers aren’t getting scammed, misled, or victimized by supplier wrongdoings, they need complete visibility and control over their vendor base.

Here are three ways grocers can help mitigate supplier risk – while still focusing on building long-standing, valuable supplier relationships.

Be Meticulous During the Sourcing Process

When it comes to sourcing vendors, ‘being meticulous’ means a few things:

On one hand, grocers need to take the time to identify and thoroughly vet potential suppliers for a sourcing event. This includes checking references, reviewing customer testimonials, and assessing potential vendors’ expertise in grocers’ specific industries.

Additionally, grocers should be meticulous when outlining the specific and unique attributes they’re looking for in their products. This helps suppliers prepare offers that are best suited for grocers’ specific needs.

Of course, there’s no substitution for actually seeing the products – and your vendors in action – first-hand. Sample testing is a great way to vet both vendors and products to ensure they’re delivering what’s expected.

By carefully identifying, approaching, and vetting potential vendors, grocers can uncover new and dependable sources of supply and ensure suppliers are the right fit for the business – while not wasting the time of unqualified vendors.

Expand and Diversify Your Suppliers Base

For many grocers, continually turning to a few select, long-standing supplier relationships is the normal way of life – but doing so can create a lot of risk, while also leaving money on the table. Finding ways to bring new vendors into the conversation is key to ensuring that sourcing initiatives are as successful as possible, and for keeping costs down.

One of the biggest benefits of a large, diversified supplier base is the protection it grants from a major supply crises, like the aforementioned horse meat scandal, or the shrimp shortage of 2013. Whatever the cause, having additional sources of supply to turn to makes it easier for grocers to keep quality products on the shelf, and mitigate the risk of any disruption for customers.

As an added bonus, expanding the list of suppliers can help grocers uncover new suppliers and products, which could lead to more favorable deals, as well as unique offerings that help establish a competitive differentiation.

Apply Contract Management and Compliance Processes

After a contract has been awarded, the work for the procurement team is really just beginning. Ensuring that both sides are living up to the agreement terms is absolutely essential to the long-term success of the partnership.

By establishing contract management processes and continually measuring and tracking supplier performance, grocers can catch potential problems before they develop into full-blown crises. Beyond lowering risk, contract management also helps ensure that cost reductions secured by the grocer are locked in and sustained over the long term.

Building Healthy Supplier Relationships

For grocers, suppliers are the lifeblood of the company, and healthy, long-lasting relationships can improve profitability, define the customer experience, and ensure overall success. But if suppliers fail to deliver on what is expected, it can cause devastating harm to your reputation, brand, and customer trust.

Effective sourcing practices can mitigate that risk. By methodically selecting and vetting new vendors and taking steps to ensure long-term success, grocers can rest assured knowing that their suppliers are truly reliable partners, and put more of their attention back into running their business.