As many individuals and organisations are finding out, today’s supply chains are incredibly long and complex. Goods can cross many borders, often several times until a final product is achieved. Most of the time, as consumers, we don’t know or care about such issues. However, the coronavirus crisis and concerns around food supplies and other essentials, has brought this sharply to our attention.
Consumers have been panic buying some key essentials and even stockpiling certain items, causing a rapid increase in demand and placing a strain on the supply chain. This has become an emergency issue within certain supply chains, for example those involved in the manufacture of ventilators to treat coronavirus patients and protective equipment for hospital workers.
Organisations which thought they had robust supply chains in place, are finding that they were relying on a single supplier, country or distribution capability. This has led to significant disruption in the goods many of us take for granted and could lead to shortages of certain products, some of which could ultimately be life-saving. And the issue even extends to some non-essential items – Apple has already announced issues with the manufacture and delivery of the popular iPhone and falling revenues.
SAS has been working with many organisations around continuous compliance and simplifying the complex layers of supply chain, consisting of tens of thousands of suppliers and millions of payments and purchase orders. The sheer amount of data and complex relationships are not easily understood within procurement departments and can mask a number of underlying problems and opportunities.
- Does our range of suppliers support our strategic purchasing aims around diversity, robustness and value? What we thought were independent trading companies may be owned by a single parent company.
- Leveraging purchasing power by amalgamating purchases at parent organisation level; so instead of negotiating with each separate organisation over five contracts of £1m each, using the full £5m as the basis for our negotiation.
- Can we be sure that we’re only paying for goods and services properly invoiced and received? Suppliers have been known to send multiple invoices or in some cases where no product was ordered, hoping that a busy department will simply pay the invoice.
- Do the goods meet the specification that was ordered, for example, a supplier delivering lower specified IT equipment than ordered?
- Networks of companies where senior employees recommend organisations where they have an existing connection or relationship. We’ve seen examples where directors sit on the boards of each other’s companies with the potential for a conflict of interest.
One example from the construction industry is where firms colluded with competitors to inflate building contracts, known as ‘cover pricing’. In this situation, bidders submit artificially high bids to give the impression of competition, and “losers” in the bid will often get compensation payments for their part in the deception. The Office of Fair Trading (OFT) imposed fines totalling £129m on 103 construction firms in England.
Price fixing: The NHS saw a sharp rise in the price of generic drugs, which are usually cheaper than the equivalent drug under patent. No criminal charges were brought but three of the seven companies involved settled out of court without admitting liability. In a subsequent case, a pharmaceutical company admitted anti-competitive practices and paid £8m in fines for fixing the price of a hormone imbalance drug.
Today’s supply chains are long and complex and generate huge amounts of data throughout the process. The importance of understanding them and gauging how resilient they are, has been brought into sharp focus by the COVID-19 pandemic.
Having this greater understanding can also protect against fraud. Analytics helps organisations to make sense of this data and make sure organisations fully understand what is happening, so they can detect procurement fraud and get the best value for money.