Supply chains are a critical part of many businesses – helping to deliver products or services. While the right supply chain partners promise timely and cost-effective delivery, the wrong partners can expose you to risk. Which is why it should always be a priority for senior management to know their supply chain.
As James Cascone at Deloitte & Touche LLP, points out, working with supply chain partners means your organisation “can outsource an activity, but not the responsibility and accountability ”. If something goes wrong at the end of the day, the buck stops with you. And this can significantly impact your brand.
Different industries have different pressures and regulatory requirements. Pharmaceutical companies will likely have a more rigorous process for monitoring supply chain risk, with more robust controls over manufacturing and distribution. But of course different countries have different laws and regulatory requirements, which all need to be taken into account when assessing supply chain risk.
Each industry has its own challenges. The retail industry has a responsibility to make sure its supply chain adheres to international labour and human rights standards and that workers aren’t exploited. There are similar pressures in the food industry. In a recent article we recounted a Channel 4 investigation into the exploitation of immigrants sub-contracted to a Spanish salad producer. Agroherni, the producer, supplied salads to M&S, Tesco, Waitrose, Sainsbury’s and Asda.
While there’s no suggestion these companies were aware of the workers’ mistreatment, which included being exposed to dangerous chemicals and allegedly having their wages withheld, having a supply chain with unethical partners inevitably reflects badly upon their own brands.
These supply chain risks require a new approach to monitoring. Cascone explains that while the traditional approach of monitoring through audits and inspections remains important, there’s a growing need to use advanced analytics or risk-sensing tools. This can help businesses better understand their areas of vulnerability and adopt proactive measures to manage these risks.
Centralised risk management: One of the biggest challenges of effective supply chain risk management is having a fragmented risk management system. Responsibility for managing supply chain risk is often dispersed throughout a company, with different departments managing risk independently. Without a joined up approach, it’s more difficult to see the bigger picture. Having a centralised supply chain compliance function, however, will ensure that regulations are complied with uniformly and promptly.
Cascone points out that trade compliance regulations are often owned by finance or tax departments, while sustainability requirements are often owned by corporate responsibility and product safety is typically governed by quality assurance teams. So having a comprehensive supply chain risk monitoring process throughout a company is often a better approach.
Allocate responsibility: Identifying ownership is an important step in minimising supply chain risk. First, identify potential areas of risk and then assign responsibility. If employees have direct ownership over risks, they are likely to be more proactive and engaged in its management.
Establishing strong relationships with your suppliers will create a better partnership. Not only will you feel more accountable towards each other, but you’ll also be able to communicate better. Providing open feedback to your suppliers will help iron out difficulties in the supply process and encourage discussion from both sides. It will also help you outline clearly your requirements, so both sides have agreed goals and standards to uphold.
Supply chain risk is perhaps one of the greatest areas of vulnerability within a company, but with the right approach to managing risk, you can reduce your exposure and build reliable partnerships.