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Evaluation of Supplier Compliance Parameters for the Services Industry

by Meghna Rustagi , Research Analyst, HR Service

26 January 2020

The services industry needs to focus strongly on financial compliance, ethical considerations, supply chain risk, and environmental impact. Whereas factors such as sustainability, IT security, labor, health, safety, and diversity are indirectly associated with sourcing.

Supplier Compliance Program
Parameters	Impact	Focus level	Reasons
Financial compliance	Direct and high impact on sourcing	Increasing effect	Employers should focus on being financially compliant, as it is a fast-evolving and revenue-generating industry.
Sustainability	Indirect and medium impact on sourcing	Increasing effect	The increased significance of sustainability has forced many services companies to implement major environmental initiatives. For example, Yum! Brands has built more than 30 LEED-certified buildings, and McDonald’s is planning to eliminate foam packaging and is committed to source its packaging from recycled materials.
IT security	Indirect and medium impact on sourcing	Moderate effect	It is not widely adopted by companies across the world. It is in emerging stage, and they are beginning to adopt self-service kiosks, which impact human behavior.
Labor	Indirect and medium impact on sourcing	Increasing effect	As it is a service industry, restaurants need friendly employees/labor to engage with customers properly.
Health	Indirect and medium impact on sourcing	Increasing effect	A few companies adhere to the FDA menu-labeling rule of providing nutrition information for standard menu items; however, other companies, with fewer than 20 units or expanding, have not complied with the FDA rule, which leads to an impact on sales.
Safety	Indirect and medium impact on sourcing	Increasing effect	Companies need to adhere to each country’s food safety act and follow its standards. Employers are shifting from an end-production inspection and testing approach to a systems approach.
Diversity	Indirect and medium impact on sourcing	Increasing effect	Due to high frequency, and fragmented and unapproved suppliers, diversity in the services industry is generally not addressed and indirect spending is high. This lacks the visibility needed for the leadership team to make procurement decisions.
Ethical concerns	Direct and high impact on sourcing	Increasing effect	Companies need to have ethical practices to avoid huge penalties.
Supply chain risk	Direct and high impact on sourcing	Increasing effect	Due to fragmented suppliers for this industry, employers should focus on the risks involved in the process to avoid paying penalties to the government.
Environmental impact	Direct and high impact on sourcing	Increasing effect	These factors should be taken into consideration, as any initiative or commitment to long-term targets would take time to reduce the environmental impact.

Sources: Spend Matters, Services magazine, ComplianceOnline

Challenges and Impacts of Supplier Compliance in the Services Industry

Adherence to regulatory factors in supplier compliance programs leads to a collaborative approach toward the supply chain network; any indication of high-risk suppliers calls for immediate action.

Challenges

Solution

Result

These are the factors that have been high in challenges in supplier compliance programs:

Environmental
Social
Governance screening and monitoring
FDA and ISO requirements
Quality
Huge amount of indirect spending because of fragmented suppliers

ISO and FDA-regulated manufacturers are increasingly shifting toward automation as a basic tool for ensuring regulatory compliance.
Single software supplier for integrating supplier management with other critical quality processes.

Ease of use and the ability to scale software for its business projections
A collaborative platform for international suppliers and franchises
Helps to ensure, evaluate, and interpret data to meet requirements
Alerts about high-risk suppliers and products, and calls for immediate action

Case Examples:

Companies like Dunkin’ Brands and McDonalds are implementing a single software supplier compliance program for the proper analysis of supply chain risk.
Chipotle Mexican Grill created a traceability program to advance its commitment to safety and integrity.
Yum! Brands and Subway have successfully implemented supplier compliance programs.