The Auditor-General is concerned that important public services will remain vulnerable to unexpected failure unless the public sector improves how it manages its strategic suppliers.

A new report, Strategic suppliers: Understanding and managing the risks of service disruption, looks into how well the public sector understands, and manages, the risk of disruption if a strategic supplier fails to deliver goods and services.

Strategic suppliers are companies that provide goods and services that are critical to the delivery of public services. These suppliers are not easily replaced. They can include, for example, companies that can build major infrastructure, provide highly specialised medical equipment, or IT systems that hold important information.

The Auditor-General found that most public organisations know who their own key suppliers are. However, many of these suppliers support a wide range of important public services and, as a whole, the government lacks understanding and visibility of which strategic suppliers it relies on. It also lacks visibility of the risk of disruption to important services if a government strategic supplier fails to deliver.

“I am concerned about the current state of strategic supplier management across the public sector. A significant failure of a government strategic supplier could affect many public services and thousands of New Zealanders,” says Auditor-General John Ryan.

An important first step is to improve the information available about strategic suppliers. Some public organisations are required to report their significant service contracts to the Ministry of Business, Innovation and Employment (MBIE). MBIE is working to better understand which suppliers are government strategic suppliers. However, MBIE needs to do more to improve the process for reporting significant service contracts. Without better information, the Government will remain uninformed about some of the risks it faces.

There is also a need for a co-ordinated approach across central and local government to ensure that risks are well understood and managed.

The report identifies the need for better communication with government strategic suppliers about which public services to prioritise after an emergency.

“Covid-19 has highlighted New Zealand’s vulnerability to global supply chains. Understanding and managing strategic supply risks is an important part of ensuring that services to New Zealanders are not interrupted. More broadly, I also expect public organisations to consider their preparedness for shocks to ensure that important public services continue to be delivered in an emergency,” says Mr Ryan.

The report has five recommendations to help improve information on strategic suppliers and reporting of risks to the Government; ensure the public sector – including local government – takes a co-ordinated approach to strategic supply risks; and improve how public organisations identify, manage, and report on their strategic suppliers and strategic supply risks.

This report is also available as an epub and a one-page summary.

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