The disadvantages of low supply chain visibility

April 28, 2016 Charles Henri Royon

Risk management

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 have low visibility on 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 globalized economy, supply chains have become vast and complex and visibility low. 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 organizations 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% fall in sales in December, while the firm’s stock price has dropped nearly 53.3% since its peak in August four months earlier. 

Open sesame

For big businesses, the key to risk management 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 digitizing 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.

This article originally appeared on fx-mm.

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