SUPPLY CHAIN RISK MITIGATION: ENSURING THE FLOW OF GOODS TO THE MARKET

SUPPLY CHAIN

SUPPLY CHAIN RISK MITIGATION: ENSURING THE FLOW OF GOODS TO THE MARKET

COVID-19 has profoundly affected the way global supply chains operate. We look at its impact and consider how best to mitigate its affects.

Lockdowns and travel restrictions have severely hampered the ability of global supply chains to function normally. One signification disruption has been the impact on the ability of auditing organizations to perform their duties. Whether it is assessing product or process quality, or an audit to ensure correct environmentally and socially responsible practices are being enforced, the traditional approach of physically visiting a facility is currently unavailable.

Sustainability

Social and physical distancing rules, travel bans, and government orders have all led to the cancellation of many onsite visits. While the gap in product and process quality audits can, to some extent, be overcome using technology, such as remote auditing, the same solutions are not available when looking at sustainability.

Remote audits put the assessor/auditor in direct, real-time, face-to-face contact with the relevant people within a facility. This is enough to gather the evidence required for most quality audits. Audits relating to sustainable business practices, however, work because they put assessor/auditor in the same room as the worker. Inspectors need the freedom to be able to assess the work environment for themselves. They need autonomy when selecting employees for interview. They also need assurance that the interviews they hold are conducted in privacy. These factors cannot easily be replicated remotely. Without this assuredness, the audit will lack the independence that is vitally important in sustainability audits.

The inability to perform social responsibility audits on suppliers will have an acute impact on brands and retailers where failure to manage sustainability risk significantly impacted their reputation/performance/value. Sustainable business practice audits are now a key mechanism in many supplier due diligence programs. Customers and governments around the world are increasingly demanding environmentally and socially sustainable practices in the supply chains that deliver goods to their markets. Without the ability to perform relevant audits in-person, claims to meet these demands cannot easily be verified.

Meeting Customer Demand

Supply chains are defined by complexity – multiple suppliers, in multiple locations, each feeding into one another to create a product that can be shipped to the market. Part of the drive behind this growth in complexity has been increased demand from consumers for transparency and flexibility in the supply chain. They want products to be available at all times and they want assurances that they are being produced to the highest standards, in both quality and sustainability terms. Traditional supply chains functioned successfully as long as demand continued and the systems that had been implemented to verify claims were not interrupted.

The disruption over supply chain auditing has, however, also come at a time of change in consumer demand. During COVID-19 lockdowns, demand in many sectors has dropped dramatically – for example, clothing (-23%), chemicals & agriculture (-18%), hospitality (-11%), and retail (-6%). At the same time, demand has transferred towards essential goods and services, especially those that can be delivered to the home.

While some commodities/materials have seen a reduction in volumes, there has been global shortages of other materials. Resulting Supply chain disruptions have highlighted dependency on sourcing from low cost countries for essential products

Minimizing Disruption

Shortcomings in the traditional linear supply chain model have been highlighted by the COVID-19 pandemic. There are, however, reactive steps that brands and retailers can take to mitigate the impact of this crisis, which will also help to prepare them for future disruptions.

In the middle of this crisis, the primary step must be to identify which Tier 1 suppliers are experiencing slowdowns in production. This might be because their own suppliers are experiencing supply issues, or they may themselves be in lockdown. From the perspective of the brand or retailer, however, the primary objective must be a shift in supply to alternative sources.

In the long-term, supply chain risk mitigation must be based around three solutions. Firstly, brands must look at diversifying supplier geographies . We cannot predict when the next negative impact event will hit and how far-reaching it will be, but we can be certain COVID-19 will not be the last. Until a risk mitigation solution is found for each adverse risk event, such as a vaccine, the only option open to governments fighting these problems may be restrictions. If these are enforced in the geographical area a supplier is operating in, then a brand will need to quickly find an alternative supplier in a different region. High dependency on single suppliers greatly diminishes the ability of a supply chain to respond effectively to any interruption.

Secondly, technology should be leveraged to increase visibility along the whole supply chain. Using cargo-tracking, cloud-based GPS and RFID will allow businesses to monitor the progress of their products in real-time. This transparency allows a brand to proactively respond to issues at an early stage, giving them more time to instigate remedial actions.

Finally, COVID-19 has been a timely reminder of the importance of conducting comprehensive risk assessments. Supply chains are complex, not necessarily complicated. The interconnectedness between supply chain operators means there is greater opportunity for risk to be manifested as disruption. By conducting comprehensive risk assessments of the whole supply chain, a brand can identify potential issues and instigate corrective solutions in advance of a problem.

It is noticeable that brands and retailers whose supply chains are no longer linear responded more effectively to the demands of the COVID-19 pandemic. By employing digital supply networks (DSNs), where functional silos are broken down and organizations become connected to their complete supply network using advanced technologies, they were in a far better position to respond to this unprecedented situation.

Solutions

To help reduce any additional disruptions to your business, SGS provides supplier risk management solutions – risk evaluation and mitigation processes including supplier audits. As the global leader in audits and assessments, SGS is the preferred partner for executing your brand checklist that aligns to our best practice gained from experience of delivering these audits. With a truly global audit team and a full competency management process we can bring both scale and expertise to any auditing program. Due to our strategically placed global audit team SGS will ultimately save you time and money.

SGS Transparency-One enables companies to discover, analyze, and monitor suppliers, components, and facilities in their supply chain and use real-time data to reduce risk. Using cutting edge cloud-based technology and our global experience in supplier evaluation and certification, the SGS Transparency-One solution has 2 significant applications to drive improved performance: Tier One Transparency & Supply Chain Mapping.

Learn more about Supply Chain Management.

Learn more about Transparency One.

SUPPLY CHAIN