Working with suppliers through supply disruptions

The global supply challenges triggered by the COVID-19 pandemic are unprecedented in both scale and effect on everyday life.

From a procurement perspective, we must consider the impact of our decisions on the viability of businesses and on the people they employ.

Help boost supplier resilience

Supply chains have been disrupted across the globe. Our suppliers may, temporarily, be unable to supply as contracted. They may be unable to meet volumes or timelines.

We should consider how we can work through supply chain disruptions in partnership with our suppliers.

We may need to source through alternative channels for a while. But this should be limited to meeting immediate needs.

Manage suppliers and your pipeline

Actively manage your contracts and be open with suppliers. Understand the pressures and constraints of the current operating environment.

Identify your critical contracts and mitigate supply risks as much as possible before they turn into major disruptions.

Consider varying or extending existing contracts to cover your immediate needs.

Delay non-critical procurement activities. The market may not be able to effectively respond to your tenders while facing supply chain disruptions.

Work with other agencies to share requirements and combine market approaches for similar items.

Handle new or urgent needs

Consider if you need to use the emergency procurement provisions.

Buy local if you can, both to support the local economy and reduce travel times and demands on delivery staff.

Buy only what you need. Allow for contingencies but avoid overloading the market. Don’t stockpile non-critical goods beyond your foreseeable needs.

Avoid overly detailed specifications and onerous processes – procure for the outcome. Similarly, keep things simple for buyers in your agency.

Collaborate with suppliers on logistical and payment issues

Work through logistical and delivery issues with your supplier. For example, do you have unused storage or warehouse space they could use as a staging area? Can you combine deliveries across multiple contracts and suppliers?

Consider ways to combine your orders or deliveries with other agencies or nearby businesses to rationalise demand.

Streamline invoice processing and pay quickly, especially if your suppliers are small businesses – they should still be paid in 5 business days.

Understand your suppliers’ cash flow circumstances and consider frontloading or progress payments to help secure supply chains. Always consult with your chief financial officer before committing to prepayment.

Allow reasonable contract variations

Accept reasonable variations to contract terms arising from the current supply chain situation. Variations may include delivery timeframes, volumes, temporary cost increases or others.

Limit the use of penalty provisions which may affect a supplier’s financial position.

Make reasonable closure payments to suppliers if it’s absolutely needed to terminate a contract.

Seek legal advice on specific contract risks, such as force majeure or contract frustration.

Uphold ethical standards and balance risks

Urgent procurements, including emergency procurements, may not be subject to the same controls and due diligence as procurements during more typical times.

ICAC’s guidance on Managing corrupt conduct during the COVID-19 outbreak (PDF) identifies that risks of fraud and corruption increase during periods of disruption and economic downturn.

You should remain mindful of your agency’s and suppliers’ obligations in the Supplier Code of Conduct. You continue to have an obligation to:

• use government resources and spend public money efficiently, effectively, economically and in accordance with the law
• declare and manage your real and perceived conflicts of interest, and ensure your suppliers do the same
• document procurement decisions and authorisations
• conduct supplier due diligence in line with the value and risk of the procurement, balancing time delays against health and safety, quality and environmental risks and the risk of fraud or corruption
• safeguard the health and safety of the end users of the goods or services you procure by ensuring any goods or services meet minimum standards or other regulatory requirements.

Conduct supplier due diligence in line with risks

Emergency procurements carry more risk than standard procurements. This is particularly true if the supplier is unknown to your agency, or not a member of a scheme or contract.

As a minimum, you should check credentials, licences and mandatory accreditations and verify all business details, including insurance, before adding new suppliers to your master vendor file.

Referee and financial capability checks should be conducted if there are critical risks.