B2B Payments

How Contractor Risk Analysis Shifts To Look Ahead

On a global scale, supply chain risk for large conglomerates can often be about regulatory compliance, contract negotiations and even addressing threats based on weather patterns and natural disasters. However, in areas like construction, supply chain risk mitigation is typically examined at a more micro level, with some of the biggest organizations in the world often working with small contractors and a handful of their employees.

It’s in cases like these where supply chain risk management focuses on aspects of business relationships like worker and on-site safety requirements, supply chain sustainability and insurance coverage.

This process has always been filled with friction. For a multinational conglomerate like Verizon to manage sometimes thousands of small business (SMB) contractors, and reduce their risk exposure, takes coordination and a level of document-gathering that is difficult for any organization. In recent years, though, organizations’ supply chain management needs have evolved, explained Kevin Berens, chief product officer at Avetta, in a recent interview with PYMNTS.

No longer are these companies tasked with gathering documentation and data about their suppliers to manage risk. Now, these firms are looking for trends in supplier performance, piling on the data-gathering burden and introducing new opportunities for supply chain management solution providers to integrate more sophisticated analytics services for their clients.

In Avetta’s case, that meant the recent launch of an entirely new supply chain and supplier management portal — one that Berens said is highly configurable and flexible to streamlining document and data uploads, the analysis of that information and the addition of new integrations to reflect the changing needs of companies’ supplier management strategies.

“When we first started the company about 15 years ago, it was very much about gathering documents and answering questions,” Berens explained of the way organizations collected information about their contractors to analyze their risk exposure. “But customers’ needs have changed, and they’re looking for trends. It used to be, ‘Hey, is this guy safe?’ Now, they’re saying, ‘Even though he is safe, he’s trending in the wrong direction.'”

In companies’ construction operations, working with a contractor means having to assess that contractor’s safety records, sustainability efforts and insurance coverage. After all, if an accident happens on-site, it’s not the contracting company that is typically named in the media. It’s the hiring organization that must face the consequences, be they lawsuits or a loss of customer trust and brand power, all with financial consequences to the bottom line.

While one contractor may have an incident rate that is below the industry average, taking a trend-analysis approach to supply chain risk management means examining that contractor over time. Companies may find that the contractor, though still below the industry average, has been gradually increasing incident rates, raising a possible red flag for the hiring company.

Being able to foresee a potential issue can be just as critical as gaining visibility into a contractor’s insurance and liability coverage, or analyzing not just the contractor, but the particular qualifications of the handful of employees that will be working on-site, said Berens.

Anticipating The Future

Future-proofing the supply chain isn’t only about being able to analyze contractors’ historical data. Berens explained that, for a supply chain and contractor management portal to be future-proofed, it must be flexible enough to address the upcoming trends that organizations will be focusing on.

Businesses are increasingly focusing on the sustainability of their supply chains, for instance. While Berens said that Avetta clients aren’t demanding the analysis of contractor cybersecurity data today, they could be tomorrow, making APIs a valuable tool for such a platform.

“We do a lot of partnerships,” he explained, noting that being able to aggregate documents and data in areas like financial liability, or employee drug and alcohol testing, means partnering with companies that offer those particular services, and collecting that information. “If customers say they want cybersecurity data in our system, we’ll do an API with a cybersecurity company.”

In the construction field, employee safety is, of course, the number-one priority, both for contractors and the companies that hire them. Yet, protecting (and bolstering) the bottom line is also top of mind, a benefit that Berens said can be captured both by Avetta’s clients and their contractors.

For organizations using the portal, the ability to address a potential incident or other risk based on a contractor’s historical data can be a valuable way to prevent financial losses. Companies can choose to have a conversation with that contractor, or end a partnership in favor of a different contractor with more reassuring data on the portal. For those contractors, being able to analyze their own processes and past data similarly means preventing a future incident, and retaining key customers and business partners.

Often, looking forward requires looking back, and businesses in the field can struggle to achieve that proactive stance on supply chain risk management.

“What clients used to do is gather contractor data in a folder, and not look at it until an incident happens. Then they would look in that folder to see if they should have hired that contractor,” Berens said. “But, by then, it’s way too late.”

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