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How opaque supply chains can land your firm in hot water

by guest contributor, Charles Henri Royon, VP EMEA, Tradeshift

Managing supply chains effectively has become increasingly crucial to maintaining brand image and reputation. In the age of mass media, firms can’t afford to turn a blind eye – any irresponsibility or wrong doing in a far flung area of an enterprise’s supply chain will be exposed, and rightfully so.  

However, doing this is easier said than done. For large enterprises in a globalised economy, supply chains have become vast and complex. Take Apple for example; when ramping up production ahead of a new product launch, the firm is said to indirectly employ 1.1 million supply chain workers across multiple continents.

Named and shamed
When you consider this scale, it is easy to see why large firms might be unaware of unethical or illegal activities occurring in their ecosystem. Consequently, we see a constant stream of organisations and industries being hauled in front of the courts or global media for supply chain failings.

Recently, global food manufacturer Nestle has been accused of supporting slavery in Thailand and child labour in Ivory Coast. Concerning the latter, it is alleged that Nestle were aware of child slaves on the cocoa farms, but continued to work with them to secure produce at the cheapest possible price, a charge the firm continues to fight. However, regardless of Nestle’s complicity in the scandal, the company must address the supply chain processes in place that failed to prevent it doing business with unethical partners in the first place.

A lack of visibility and standard checks can lead to negligence across whole sectors. The cobalt mining industry, based largely in the Democratic Republic of Congo, has also been embroiled in a child labour scandal. Here, child labour has grown, seemingly without international detection, despite the fact most major tech firms have supply chains that touch the sector. Cobalt is used in the production of lithium-ion batteries, an essential part of every mobile gadget sold around the world.

Lasting damage
As well as damaging the lives of the workers involved, these crises can cause lasting damage to the reputation of firms. This includes the eroding of customer trust which will often directly impact on the bottom line.

Take Chipotle, an established and commercially revered Mexican restaurant chain found across the United States. Negligence in the firm’s supply chain led to a staggering series of health crises in the final months of 2015 - including E.coli outbreaks in Washington, New York, Maryland, Oregon, Ohio, Illinois, Kansas and Oklahoma, as well as 200 cases of norovirus in California linked to the firm’s Simi Valley store. As the scandals racked up, sales naturally tumbled. Chipotle reported a 30 per cent fall in sales in December, while the firm’s stock price has dropped nearly 53.3 per cent since its peak in August four months earlier.

Open sesame
For big businesses, the key to reducing risk and avoiding compliance-issues in the supply chain is to make the infrastructure behind it more transparent. Too many enterprises continue to use antiquated procurement processes, run on legacy IT systems that make collaboration with suppliers impossible. As a result, procurement teams simply lack the ability to look across the breadth of their supply chain, make informed decisions on who they are partnering with, as well as mange the performance of the relationship.

By developing a more transparent system, it also becomes easier for businesses and suppliers to hold each other to account - be it to expose humanitarian issues, like child labour, or financial issues such as late payments. In an era of cloud platforms, transparency can be achieved by digitising processes across the supply chain. Many solutions exist on the market, from e-invoicing to online supplier cataloguing. By adopting these, businesses can improve compliance and reduce risk for all parties involved in global supply chains.

 

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