By Malcolm Harrison
How vulnerable are we to geopolitical risk? How do we mitigate those risks?
Almost every business runs the risk of supply chains being disrupted by geopolitical tension. To understand your company’s vulnerability, your first step should be to ask the procurement team about its risk map and the resilience it has built into supply chains. This will be different for every business and for each distinct supply market. Setting aside time and resources to support procurement is crucial.
As a result of the Ukraine war, many businesses have swapped Russian or Belarusian suppliers for alternatives and sometimes suppliers closer to home. This has led to strong competition for a smaller pool of suppliers, driving up prices and creating shortages that companies have had to factor into their decisions. This situation can be eased by establishing new sources of supply.
Some businesses have taken on several suppliers to avoid being too reliant on a single stockist, particularly one that is key to their business. Others have increased their inventory. Procurement professionals usually look for a mix of cost, risk mitigation and responsiveness when working with suppliers, but the priority now is sureness of supply until stability returns.
How have we changed our sourcing strategy to reflect Brexit?
Brexit had a significant effect on United Kingdom supply chains, with many businesses switching from suppliers in the EU to those elsewhere in the world. A survey last year for the Chartered Institute of Procurement and Supply found that 20 per cent of UK supply chain managers had found suppliers closer to home. Onshoring, though, has been difficult. In the same survey, 59 per cent of respondents said UK suppliers could not meet their needs.
The alternative, then, is to look farther afield. In the Queen’s speech, the government said it would implement Britain’s first new free trade agreements since leaving the EU, which would lead to new supply markets for businesses. The Brexit trade deals struck so far have had little effect on globalising UK supply chains but more new deals could help.
New international suppliers could become available but this will come with risk. The start of a supplier relationship is the point where most due diligence is done; once a contract is underway, it can be easy to think the task is complete. Due diligence, however, is not a one-off exercise. It should continue throughout the term of the contract, especially with new suppliers, regardless of their location.
What steps can we take to reduce our environmental impact throughout our supply chain?
The biggest environmental impact of many global businesses is not from their own activity but that of their supply chains. Consumers and investors now make forensic examinations of the companies they buy from or invest in, and any business that ignores this will court reputational and financial risk. Companies that commit to Scope 3 net zero pledges quickly find that control of the supply chain is the key to meeting targets.
Most businesspeople will feel overwhelmed by the task of assessing how they contribute to climate change but companies can use data to identify and address significant environmental impacts. Non-financial reporting rules already require large UK businesses to measure emissions throughout the lifecycle of their products, which makes it essential to track data from all suppliers.
Not all organisations will be at the same level of understanding or maturity, however, so the environmental picture could be skewed if it is not applied across an entire supply chain. Including non-financial reporting requirements in contracts with smaller suppliers is one example of how to obtain a clearer view. Larger companies must be ready to support suppliers in collating this information or it could otherwise become yet another burden for struggling SMEs.
Everyone needs to understand that companies and individuals cannot do this alone and that collaboration is the key to widespread change. It may be counterintuitive but businesses should consider working with rivals to address the biggest challenge of the modern age.
Who are our most important suppliers and is our relationship meaningful?
Strong relationships between buyers and suppliers are essential if a supply chain is to run smoothly. Dialogue and collaboration benefits all. During the recent shortages crisis I noticed that suppliers had “customers of choice” and gave them priority. How do you build a good partnership? One way is to pay suppliers on time. Late payments are a problem for small suppliers who might depend on that money for staff wages. If you pay within 30 days you will support both your suppliers and your own business.
Are we acting ethically in our supply chain, including tackling modern slavery?
Complex supply chains make it a challenge to ensure that your business has no part in modern slavery. The UK has announced stronger regulations which include civil penalties for poor reporting or a lack of evidence. As well as the moral obligation, these new rules will help to root out this evil practice.
For businesses that have suppliers worldwide it is critical that they put time and resources into learning about cross-cultural communications and customs. Attitudes to modern slavery can differ between countries. Train suppliers in the ethics you want them to observe, and encourage them to sign up and adhere to a code of conduct. This should at least start a conversation which will help you to a better understanding of where slavery could exist and what your next steps are.
Malcolm Harrison is group chief executive of the Chartered Institute of Procurement and Supply.
This guide has been brought to you by FT Board Director. If you are not a member, register here.
