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Vigilant Due Diligence Could Head Off Vendor Viability Issues

November 14, 2008
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The volatile stock market and struggling economy have companies intensifying due diligence on all of their vendors.

As a result, a growing number of human resources executives are working more closely with their procurement departments to make sure they are current on the financial viability of their HR vendors, experts say.

“This is a very hot topic of discussion right now,” said Michel Janssen, managing director at Hackett Group, a Miami-based business process outsourcing consultant.

Procurement departments at companies usually are in charge of keeping tabs on the financial viability of all company vendors. But given the unpredictable nature of today’s markets, it’s essential that HR talk to procurement managers about what they believe would be red flags of financial viability issues, experts say.

“Procurement is doing the risk assessment from the top and bottom, but HR should be helping and comparing notes,” Janssen said.

At Prudential Financial, HR has its own team monitoring vendors. The company is keeping a particularly close eye on financial institutions, said Suzanne Manganiello, vice president of risk management at the Newark, New Jersey-based company.

“Any relationships we have with financial institutions are of higher risk,” Manganiello said. For example, JPMorgan Chase is the pension payroll provider for Prudential.

In the past, Prudential’s HR risk managers would run quarterly reports on all of its vendors, but given the current economic situation, the company is doing this much more frequently, Manganiello notes. “We have people Googling companies and data mining constantly,” she said.

While Prudential is one of a number of companies that have executives like Manganiello, whose job is to monitor HR risks at the organization, many companies do not, experts say.

“At many companies, this is the first time in history that HR has spoken to procurement,” Janssen said.

And these conversations between HR and procurement should be ongoing, advises Naomi Bloom, an HR business process outsourcing consultant.

“My standing advice to HR executives is that they should not just evaluate vendors when they are in the dating process, but they need an ongoing competitive intelligence gathering process so that they are never surprised about what is happening at vendors,” Bloom said.

Bloom advises companies to use the Internet, particularly social networking sites such as LinkedIn and Glassdoor.com, to keep tabs of what’s occurring at vendors.

“Find out if the vendor is getting any buzz,” she said.

Unfortunately, even the most thorough due diligence might not enable an employer to foresee a problem with a vendor, Janssen warns.

“There is no magic tool in this market,” he said. “A high credit rating doesn’t guarantee anything.”

—Jessica Marquez

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