Risk management is a vital aspect of enterprise development
When large businesses implement enterprise development plans, they do not always consider how critical risk management and due diligence are to the process.
Supplier and enterprise development is a vital issue, ensuring that large enterprises ‘pay it forward’, by helping to grow the skills and abilities of those smaller suppliers in the supply chain that may otherwise never have had such opportunities for improvement and growth.
While technically beneficial for both organisations, the enterprise that takes an SME on board as a supplier faces several unique risks, which is why the issues of risk management and due diligence are crucial.
Risk management is necessary to ensure that any SME which is contracted can meet the demands of the enterprise and is not taking on more work than they can handle. The same goes for due diligence, which will assist you to clearly understand an SME’s abilities and capabilities.
With risk management, it is worth noting that you not only need to manage your enterprise’s risks, but also assist SMEs with understanding how their own risks can impact your business, and to educate them around the management of these.
From the outset, make it clear what your organisation’s requirements are and evaluate the SME’s risk exposure level. At the same time, be aware of the importance of talent. A potential enterprise development (ED) candidate that has the right talent and desire, but potentially lacks certain skills, should not necessarily be immediately dismissed.
Not only is the enthusiasm engendered by such talent valuable, but it demonstrates their commitment is at the right level for you to put the effort in to mentor and develop them, and to help them manage their risks more carefully. This is ultimately a win-win situation, since it means your suppliers become more effective at what they do, while the possible risks they expose your business to are minimised.
Doing due diligence
The importance of proper due diligence is that you should have someone in your organisation looking directly after that process. Someone that has the time and ability to manage the SME you are taking on the ED journey, who will ensure that due diligence is done properly and who will assist with the necessary training requirements.
In the end, it also comes down to communication and transparency. If the SME does not have the confidence to tell you which areas it might face challenges in when meeting certain of your supply chain requirements, this will in all likelihood cause your business to end up getting burned.
For example, you may have brought on a supplier who you think has 100 trucks to undertake deliveries for you. However, without transparency, the reality may be that half their trucks are not properly maintained or may require repairs. This will lead a situation where not all your deliveries get completed, or where the supplier doubles the loads in the operating vehicles, thereby exposing you to additional risk.
On the other hand, if the supplier is transparent and warns you that they can only meet 13 out of your 17 ED requirements, it may still be worth bringing them on board and helping them with training and skills to achieve the requirements for the outstanding steps. After all, it is unlikely that you will find a perfect fit in the ED space, so it is worth being wary of any SME that promises you everything.
It is often better to identify several SMEs that can supply a part of the service you need, thereby spreading your risk, rather than putting all your eggs in one basket.
Of course, some might say that the least risky approach to ED is to spin certain employees out into their own business that can service your supply chain. However, while it is less risky from the point of view that an ex-employee will have deeper insights into how your business operates, this can also have negative connotations.
For example, they could have knowledge of your profit margins, and could possibly squeeze you for more money. Worse yet, they may know someone at the business who is more senior than their contact point as a supplier - effectively enabling them to go over their manager’s head and thus compromise your supply chain.
In the end, enterprises choose the ED organisations they support very carefully, based on the impact these can have in respect of B-BBEE levels and compliance legislation, among others. Taking such care also means ensuring that you undertake proper due diligence and risk management processes.
After all, ED is as critical as it is costly, and if you are going to spend the kind of money involved in pursuing an ED agenda, then it is certainly worth spend a little bit more time, effort, and money on an effective due diligence process, to ensure that the chosen SMEs are the right fit for your enterprise.