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How to minimize risks of supplier mismanagement and frauds?

Updated: Aug 5, 2020

The ever-increasing levels of business dynamics have become a major factor compelling businesses to outsource many of their activities. That’s no secret. However, with the rising number of suppliers and vendors contributing to the business, it is becoming a challenging task to manage them.

Of course, outsourcing brings in several benefits, in terms of filling the skill-gap and keeping a check on costs. At the same time, the more the number of external suppliers, the more the risk a business faces.

Here is a case in point. There had been media reports, highlighting the alarming level of vendor mismanagement in an organization of vast reputation. As the company was running deep into red, it decided to outsource its repairs & maintenance services to multinational service providers. The whole affair resulted in a loss running into crores. The major reason was that the company was not able to track claims that might have been covered under warranty. Instead the company kept shelling out money on the items that were still under warranty. There were allegations that there were deliberate delays in addressing the concerns in order to cause expiry of warranty period in a large number of cases.

This whole affair became sensational news material and one can expect the consequences. Loss of crores, reputation and widespread unrest and negativity! This could happen with any large organization. Managing external suppliers may become a highly complex matter.

How to cope up with this? Firstly, I would suggest that companies should try to keep the number of vendors at the minimum. It may also benefit to incur some extra costs and hire an agency which can provide diversified services and manage some more suppliers under it, instead of engaging different suppliers for each and every activity separately.

This is quite possible with the advent of technology solutions wherein you can engage with an online platform that enlists verified suppliers from where you can avail of services at any point in time. This also reduces your time cost spent in searching and verifying different suppliers every now and then.

Secondly, if you have sufficient bandwidth to manage dozens of suppliers, then you can develop policies and procedures for screening, verifying and hiring suppliers under various categories. However, this could be a big challenge vis-à-vis the kind of changes that may happen in the business environment. You will also end up adding members to your team to manage these activities leading to a permanent cost increase which can be difficult in these already challenging times.

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