The push for more ethical behavior in supply chains isn’t necessarily altruistic in nature, but largely because it has a real impact to a company’s bottom line. At the same time, risk-management teams are acutely aware of two main drivers that could lead to an unexpectedly red bottom line:
The global increase in regulations makes visibility of the supplier and vendor base a high priority, requiring quick mitigation strategies. Investments in vendor and supply chain risk transparency are critical, in response to the modern-day speed of information and impact of social media. A negative post can go viral around the world in hours. All these factors mean that organizations need to invest in systems and processes that provide transparency and insight into their vendors and supply chains. A recent global market study of over 300 risk management professionals by Exiger and Stax Inc. found that 77% of large companies saw the need to monitor risks of suppliers down to Tier 3 or deeper.
Labor-related supply chain risk management must account for prohibitions on child labor, forced labor, slavery, disregard of occupational safety and health obligations, withholding of adequate wages, and bans on the right to form trade unions. These are all part of the “S” in ESG, and are no longer just a “nice to have” element of an ethics program, but rather a supply chain imperative.
Despite companies becoming aware of the need to do something, the challenge for many is identifying how to do this at scale, when they often need to screen thousands, and sometimes tens of thousands, of suppliers. This is compounded by the fact that the regulations increasingly require them to carry out appropriate due diligence activities throughout the multi-tier supply chain, where they suspect that poor labor practices may exist. Many companies have historically relied on manual processes, which means they’ve had to choose among less due diligence, longer supplier onboarding or monitoring timelines, and a higher risk appetite for unknown exposure that could be brought to light by the consumer, instead of being proactively controlled by the organization.
Another significant challenge is the ability to analyze disparate data from multiple sources, particularly given that it changes from day to day. Shipping data, for example, changes at least daily as new shipments are loaded or unloaded, while in the past few weeks Russia and Belarus sanctions have changed at nearly the same frequency. Key supply chain social risk source data can be both dynamic and voluminous.
As with many pressing questions, technology can enable solutions — provided that it can scale in line with the overall digitization of the supply chain.
Any fit-for-purpose solution should include the following four key attributes:
As organizations are asked to do more with less, they’re becoming increasingly dependent on third parties to operate the business. The vendor base can comprise tens of thousands of entities, so investing in technological solutions now is the only way to make it through regulatory reporting requirements, and proactively manage consumer concerns. The pressure to purchase technology should not undermine the importance of finding a solution provider that has the appropriate subject matter expertise and global capability to support a multinational.
Erika Peters is global head of third party and supply chain risk management at Exiger LLC.
Read more of SupplyChainBrain's 2022 Supply Chain ESG Guide here.
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