A need for deeper understanding

By Neil Willings, Global Head of Audit Delivery, Achilles.

'How much do we need to know about our supply chains?' and 'how much do we actually know?' are two questions companies across all sectors should be asking themselves in the wake of the brand-damaging events of the horsemeat scandal.

The risk suppliers present to corporate reputation and brand value are significant and extensive, and yet, results of research released recently by Ernst & Young indicate that only 48 per cent of UK firms carry out due diligence in their supply chain, with a further 30 per cent never doing any checks. The root causes of this behaviour can be found in buyer attitudes. Findings from research conducted last year by Achilles and IFF Research into 'Attitudes to supplier pre-qualification' indicate that 62 per cent of buyers seem to be relatively unconcerned about the risks suppliers present to the reputation of their business, with only 38 per cent ranking it in their top three most important risks to manage.

Clearly, if corporate reputation is to be protected and shareholder value to be maintained, buyer attitudes need to change. No company can divorce itself from the errant policies and practices of its suppliers – this stretches across all industries and encompasses a supplier's approach to multiple issues such as quality, health & safety, Bribery Act, labour standards, environment and increasingly, data security.

Mitigating supplier risk is dependent on having a clear picture of the supply base and accurate supplier data. However, most CPOs have insufficient visibility of their supply chain and are often unaware of the poor state of their databases - consequently they are at greater risk.

But the problem is compounded by the increasingly complex nature of modern global supply chains and, in particular, by the multiple tiers of suppliers that are involved. Very few companies have an understanding of what is happening in their supply chain beyond tier one, and yet, grave dangers reside there.

There are plenty of examples of companies whose reputation and brands have been badly damaged by a supplier, or sub-supplier, being non-compliant with a buying organisation's Corporate Social Responsibility (CSR) policies. Over the years considerable exposure in the press on the use of child labour at suppliers has affected major consumer and retail brands such as Nike, Primark and Gap – to name just a few.

The crux of the horsemeat issue was a lack of joined up information about how suppliers were interacting. In theory supermarkets, do understand the activity in one line from farm to shop, but it took four weeks to work out, sideways, which other supermarkets and outlets the rogue supplier was providing meat to.

To fully understand a complex supply chain it is necessary to map out supplier interactions and check supplier compliance throughout the multiple tiers of the network. At present, few are doing this successfully and this is hardly surprising, as for any one company this is a significant and daunting challenge.

However, mapping the supply chain down through the tiers will become increasingly important to buying organisations across all industries. In the automotive sector, Achilles is working with Toyota Motor Europe, Jaguar Land Rover and Aston Martin on a collaborative Supply Chain Mapping initiative. It will offer greater supply network visibility by creating a community with the ability to map and risk-assess the supply base beyond first-tier suppliers – with several other multi-national car companies providing input too. The technology will enable members of the community to map and understand their supply chains right through the many tiers, allowing them to see the interaction and dynamics that exist, and risk-assess across the network.

Interestingly, buyers want more and more information, ever greater assurance, increasingly higher levels of transparency over suppliers' activities and management systems, but at the same time do not want to burden those suppliers with onerous levels of bureaucracy, multiple audits and numerous questionnaires. Collaborative initiatives to mapping the supply chain and checking supplier compliance may well offer a sensible path of action for a great number of industries.

Following the horsemeat debacle it is quite evident that buyer attitudes to supplier risk and corporate reputation need to change. Higher levels of due diligence are clearly required and, importantly, we need to know a great deal more about our suppliers and our suppliers' suppliers than we currently do. Mapping the chain through the tiers is a prerequisite to ensuring supplier compliance and protecting both brand and shareholder value. But why not do this collaboratively? After all, it's for the good of all.