March 21, 2017
According to the Allianz Risk Barometer 2017, operating and supply chain disruptions represent the single largest risk faced by businesses in major markets around the world. A supply chain breakdown can be financially devastating for businesses involved, causing significant sales losses, operating revenue declines, slumps in shareholder returns and significant fluctuations in stock prices.
For global companies with suppliers in regions throughout the world, the greatest difficulty is achieving sufficient transparency in their supply chains to be able to direct their suppliers to live up to responsible standards. Businesses based in highly developed countries are particularly vulnerable since their suppliers are often located in countries that are less regulated and do not necessarily insist on compliance with safety regulations.
In recent years, a restaurant chain tackled global food safety concerns after port slowdowns and supplier closures created shortages that directly affected sales. Similarly, one of the world’s leading consumer electronics manufacturers introduced, in late 2016, a new set of migrant worker guidelines after media reported on multiple incidences of workers’ rights violations at suppliers the manufacturer uses in Southeast Asia. Both examples underscore how, when high consumer expectations of corporate social responsibility in more developed markets are coupled with the lower compliance standards of suppliers in less-developed markets, businesses can find themselves in the perfect storm of elevated risks.
Potential supply chain disruptions – along with increasingly stringent requirements in more developed markets – are forcing companies to rethink their approaches to identifying and mitigating these risks and, ultimately, staving off financial impacts. Now more than ever, the availability of reliable supply chain data is critically important to risk assessment plans, and more and more companies are looking to technological solutions for help.
Advanced software systems, such as UL’s PURETM platform, provide companies with automated risk assessment and communications tools, freeing up supply chain professionals to spend more time on important supplier integration tasks. The data collected enables companies to identify and react to risks in their supplier network at an early stage by:
- Identifying risks among suppliers. Establishing expectations early on, through a set of guidelines, with suppliers is a critical first step that, in extensive supply chains, can easily overwhelm supply chain managers. However, automation of this process minimizes the time and effort required to assess a supplier’s risk to a company.
- Collaborating with suppliers. Suppliers often lack specialist knowledge in a key area, such as water scarcity, needed to comply with relevant laws and regulations. “Chat room" features within software can be used to communicate with suppliers or share up-to-date information, thus promoting collaboration on key issues and allowing suppliers access to company data at the push of a button.
- Making the auditing process easier. Technology can be used to carry out supplier audits or to enable third parties to do so. Data can be collected while the auditor’s device is offline and then synchronized with existing auditing data in the system as soon as the device is back online.
- Measuring and anticipating CO2 footprint. Switching to a low carbon economy requires not only the reduction of emissions produced by a respective company but also by all entities within the supply chain. Software helps to determine the respective carbon footprint of all product types and to calculate the CO2 emissions per dollar spent. Moreover, a company can calculate the carbon footprint of future purchases to make more informed decisions.
- Helping to ensure sustainable procurement. Despite the abundance of commitments made by global companies to more sustainable procurement practices, the traceability of purchased products back to their origins remains very complex. However, new traceability tools help simplify the process by enabling evaluation of a product against industry-specific procurement criteria.
“Quick access to the right information, as well as the ability to initiate corrective actions, enable companies to reduce the likelihood and severity of potential risks – ideally, before they cause a break in a company’s often-delicate supply chain,” offered Tom Bley, Senior Sales Executive, UL EHS Sustainability.
With potential disruptions to business operations as well as negative consequences for brand reputation at stake, it’s time to ask those risky business questions.