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Comment: Five tips to manage FMCG supplier risk


In a matter of months, retail businesses across the world have been rocked by a series of supply chain disruptions, which have highlighted the true cost of ‘value’ food and clothes. The Bangladesh factory collapse and the UK horse meat scandal reinforced the fact retail is now totally globalised and that businesses must gain greater visibility of potential risks throughout their supply chains.
Both events show that no matter how deep risk lies within the supply chain, incidents can ultimately cause a devastating loss – in terms of the bottom line, share price, reputation and public confidence.

Here, Paul Carr, Director of FMCG at Achilles, a global supply chain management company, offers five top tips on how to manage supplier risk within the retail industry.

  1. Know who your suppliers are

Sounds simple, doesn’t it? But while most businesses know their own suppliers, what about their suppliers’ suppliers? And further down the chain? With components of products now sourced from all over the world, it can be very difficult to know exactly who is involved in your entire supply chain. This in turn makes it much harder to be aware of potential risks and ensure compliance with specific laws and regulations in each country around ethics, compliance, Corporate Social Responsibility (CSR), health and safety and financial security. Even if a company does have data about its suppliers, or even suppliers’ suppliers it can be difficult to ensure the data is kept accurate and up-to-date.
To combat this, it’s advised that organisations centralise supplier information and introduce a process to consistently collect, verify, cleanse, and analyse data about their suppliers.

  1. Work collaboratively to reduce complexity

The Bangladesh tragedy and the horse meat scandal showed that whole industries need to collaborate in tackling supply chain risk. In Bangladesh, 70 retailers realised they could work more efficiently and effectively in a community rather than in isolation. As a result, they have signed a pact to improve protection for Bangladeshi factory workers to create a stronger supply chain. Meanwhile, in the UK, the National Farmers’ Union has called for more industry collaboration to give greater visibility of the origins of beef products.
Both are brilliant initiatives which should be applauded, but they would be even more powerful if retailers collaborated globally to tackle supply chain risk. We suggest industries form true ‘supply chain communities’ and implement the same, standardised criteria for all potential suppliers across the world. This ensures suppliers can be assessed fairly and consistently, while buyers maintain the highest possible standards in terms of core business requirements, CSR, ethics and sustainability – irrespective of geographic location. A collaborative, standardised approach also offers clear benefits to suppliers. For example, companies of all sizes would only have to apply once to be eligible to work with the world’s biggest retailers. All suppliers, would submit one set of documents, such as audit certification or health and safety records, and these would then be visible to all.

  1. Map all tiers of your supply base

With up to 60 per cent of spend on subcontractors, the best way to identify and mitigate risk of all kinds is to map the supply chain through the many tiers. The automotive industry recently introduced a supply chain mapping tool, which sends requests for information from buyer to supplier, and then to suppliers’ suppliers, via a cascading invitation, to gain a complete picture of potential risks. For the retail industry, this could uncover a whole raft of further potential issues, which could then be proactively managed.
The power of this information is connectivity. Businesses can link the data up and down the chain and use the information to influence and make evidence-based decisions. With visibility of potential risks, buying companies can proactively manage and mitigate potential issues before they arise, and make contingency plans.

  1. Check the information provided by suppliers

Information provided by suppliers is only truly useful if it is verified and maintained. Provided everyone is assessed in a consistent way, suppliers can be assigned a risk profile. Lower risk suppliers should have to undergo a desktop audit – with checks on documentation including certifications and insurances. For high risk suppliers, this could include a physical inspection. Both processes enable buyers and suppliers to implement clear improvement plans with guidelines on what action is required for the two parties to do business.

  1. Legislation and compliance

Recent research reveals that 43 per cent of businesses are aware of a high-risk supplier failing to meet compliance requirements. Criteria such as health and safety, insurance cover, CSR practices, financial stability, and Bribery Act policy, are not optional extras; they’re critical to business continuity. Retail businesses are the subject of increasing legislation and regulations associated with Global Food Safety Initiative (GFSI) standards, and the World Trade Association’s General Agreements on Tariffs and Trade, and need to be ultra-careful in ensuring their suppliers don’t put themselves or their customers at risk. It is encouraging to see the retail industry taking steps to increase scrutiny of its supply chains. However, the industry cannot wait cannot wait for another serious incident before it takes a global approach to tackling supply chain risk.

Published on Thursday 25 July by Editorial Assistant

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