Supply Chain risks are more important than ever
Supply chains are becoming increasingly global and fragmented, and then even more difficult to monitor, and thus becoming more sensitive. Companies with global operations does probably have a risk policy to ensure and minimize risks that could cause costly disruptions in the supply chain and severe negative brand effects.
Most companies have high focus on Supply Risk Management and have implemented processes and technical systems to monitor the performance of their suppliers. But the scopes are often too shallow and sometimes not deep enough. We've seen several recent examples of companies that have problems with costly supply chain disruptions due to their Tier 2 or 3 suppliers have gone bankrupt.
Secure your Brand
A company's brand is often highly valued, and sometimes a prerequisite to exercise its business and having global sales operations. It does not take much for a brand to be negatively associated with effects as substantial economic consequences. Especially if a company has high ethical standards and good CSR policy. Consumers are nowadays increasingly aware and take stronger position against irregularities. Nowadays negative event spreads at speed of light through social media globally. The challenge is to get an overview of the entire supply chain from Tier 1, Tier 2 down to Tier 3 and 4th. A Supply chain that on the surface looks safely controlled, may have its perifer origin in conflict minerals from Congo, etc, which can have undesirable effects.
Outsourcing as a risk?
There are benefits of outsourcing but also risks that must be managed. When outsourcing, a company often consolidates part of the supply chain to one outsourcing partner, and then hands over the risk of the downstream supply chain. One challenge is to keep control and follow-up of the supply chain. Outsourcing of a part of your operations to a large stable outsourcing partner may give false sense of security, and it is crucial that you have insight into how they manage their risk management to their suppliers, also called your "Tier 2, 3 and 4" suppliers. This applies to both purely financial stability, quality and in terms of ethics and CSR Compliance.
Even if your premier outsourcing partner is financially stable, a disruption in their supply chain will in the end affect your supply chain and disrupt your deliveries to your end customers, which will cause brand damages and severe negative eco-nomic effects. Your outsourcing partners probably have a supply risk policy, but my advice to you is to verify and ensure that the policies they have, is in line with your company’s Risk Management policy.
Take your risk management process a step further and also monitor further down in your supply chain to ensure that you comply with your company's CSR policy, to avoid unpleasant surprises.