Answer by Graham Campbell:
The first question is “Protect from what?”
The main risks are :
- The financial security of the supplier
- The security of supply of raw materials to that supplier
- The security of that supply of raw materials
- Intellectual property security
- Integrity (Lack of corruption) within the supplier
- Competition threat to the supplier
Basic, Warren Buffett detailed analysis.
Other threats are from within the local authority:
- Managers who prefer to deal with ‘Mates’
- Resistance to change in materials or method by staff
- Organisational lethargy to change
- Outdated skillsets and open minded thinking to better solutions
- Corruption and bribery
- Lack of forecasting demand and matching it to supply capability
- Lack of project management skills causing wastage and delay
- Lack of understanding the limitations of the supply chain
- Lack of understanding the limitations of the product supplied leading to dishonest billing and supply monitoring
- Lack of effective cost benefit analysis
- Lack of financial auditing
- Lack of performance monitoring.
So, it’s a two way street where each side needs to understand :
- The product
- The people
- The method
- The performance
- The timing
- The administration required.
It also pays to have multiple suppliers to spread the risk and keep an element of competition alive. The reality is that the suppliers know their market and you and will seek to exploit the situation for maximum profit. Conversely, it is your job to seek the best performance at the lowest Total Overall Cost (Which is NOT ‘Price’).