February 13, 2018
Mitigating, preparing for and responding to risk is not only the right thing to do, but it also makes good business sense. Transparency matters to customers and shareholders and affects a company’s brand and bottom line. A study by the food data company, Label Insight, found that up to 94 percent of customers say they would be more loyal to a brand that incorporates transparency into its product.
Social media allows consumers to uncover information about sourcing, compliance and social responsibility easily. Shoppers are no longer willing to turn a blind eye to the origins of their products and companies need to answer to their increased consciousness.
So, what does this mean to you?
Today’s interconnected business world means that organizational risk can pop up from any direction.
Poor safety standards are not the only potential area of risk for most companies. Child labor has famously been an issue for athletic supply companies, and conflict minerals have tripped up technology manufacturers. Climate change presents a risk to everyone. So, how can companies mitigate risk and avoid catastrophe?
For most big companies, the greatest risk lies outside their immediate control, within the supply chain. These chains can be large and complex, with tens of thousands of suppliers and intermediate manufacturers. Every single one of those points can be a potential area for risk. Understanding the nature of those suppliers and their impact is crucial. Here too, the business case is clear.
The consulting firm Booz Allen Hamilton calculated that in organizations where supply chain management is part of the overall business strategy, annual savings improvements in manufacturing were nearly double those without such a strategy. Even so, a report released by Ernst & Young suggests that “many companies still do not have a comprehensive understanding of the performance, risks and sustainability impacts of their supply chain.”
In broad terms, data is the crucial first step to evaluating supply chain risk. Companies are only now beginning to understand how to gather, process, analyze and use the enormous amount of data they collect. Software can provide a centralized place to input information and process data points.
A single, integrated platform that can collect and interpret indicators allows decision-makers to anticipate potential issues and address them before they become active problems. Trends in data—like repeated safety violations at a single manufacturing facility or questionable reporting on raw material procurement—can point to areas for improvement.
While preparedness matters most, accidents and incidents will still happen. According to Eric J. McNulty, director of research at Harvard’s National Preparedness Leadership Initiative, there are two keys to an effective response in the event of a crisis. “The first key is clear and consistent values. Companies must show through their actions, not simply words, that people and the environment take precedence over business concerns,” he says. “The second key is practice. In a crisis, time is your enemy. The more people have rehearsed, the more likely they are to respond well.” Companies that have taken the time to collect, understand and seriously address the risks already in their supply chain will be better able to respond effectively and recover quickly from a crisis.