Three Supply Chain Risks and How to Address Them
Companies face three main sourcing supply chain risks: regulatory, brand erosion, and social compliance. Any one of these issues could lead to lost profits, product recalls, and customer erosion. At the same time, the longer the supply chain—with more levels of suppliers, disparate geographies, and other middle men, the more complex and challenging compliance becomes.
Here are some ways these issues can affect a company’s supply chain and how some best practices can mitigate them.
Corporate Social Responsibility
Adhering to ethical business practices is something any company should take seriously. Not only is failure to comply with regulations and ethical standards questionable from a moral point of view, it’s bad for the bottom line. Workplace conditions, child labor practices, production processes, and chemical/conflict mineral usage and sustainability, for example, are increasingly scrutinized by both consumers and governments—and failure to address these issues can result in fines, brand erosion, and lost customers.
Yet while audits (often extensive) are a cornerstone to most companies’ operations today, too often they are done manually or in Excel spreadsheets. This strategy requires many people, is error prone, and doesn’t connect the audit to the purchase order, so the sourcing department may not even know if there is a problem with a particular supplier or factory.
Instead, companies should have a centralized approach to compliance operations, with a collaboration portal where all parties have access to the information they need, from the sourcing department, which needs to know which purchase orders are in jeopardy of being noncompliant, to suppliers providing information on corrective actions they have taken to address an issue.
Are your products safe? Are you doing business with a safe supplier or terrorists? Government regulations are ever increasing, placing additional burdens on monitoring, documenting, and remediating any violations. New laws regarding social responsibility and environmental impacts from production, such as chemicals in the production process, and doing business only with known, trusted partners and suppliers make the costs of noncompliance high.
To side-step potential problems companies must be completely transparent about how they do business along every stage of their supply chain process. They must evaluate facilities before doing business with a company and continue due diligence efforts throughout the production and supply chain process.
By centrally managing its compliance operations a company enables all relevant parties, both internal and external, to have access to a single version of the truth, increasing visibility, lowering errors and costs, and reduce noncompliance. For example, a company can send a test request and receive the results electronically. The results are reportable to all parties, which can then take corrective action if necessary. Audit results can be used to generate compliance certificates that will become part of the import/export filings.
In addition to supplier compliance, companies must also screen potential customers against restricted party lists, determine license requirements, perform import/export compliance checks, and generate international trade documents.
While a reputation can take years to build, it can be battered or ruined in a very short time. In fact, brand reputations are among the most prized assets major corporations have. And once brand images are tarnished it can take quite a while and a lot of effort to win back a positive image.
Today’s increasingly globalized market requires a strong brand to remain competitive. The best way to manage brand image is to avoid having issues occur in the first place. Adhering to product standards ensures products are produced ethically, safely, and profitably.
Standards compliance tests are usually done by third party labs and can be complex, thorough, and vary by country. Using a single information platform with automation technology allows all data necessary for standards compliance, such as audits, questions and linkage relationships, to be easily accessible, with fewer errors and at a lower cost than manual efforts.
In short, by enabling a holistic, integrated approach to managing global supplier risks, companies are able to minimize these risks; enforce codes of conduct and ethical sourcing to protect brand integrity; improve customer service levels; and reduce global supply chain costs.