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How well do you know your supply chain?

December 01st, 2013 - Posted by James Ritchie in Procurement And Supply Chain

LexisNexis' Head of Strategic Alliances, James Ritchie was invited by Procurement Leaders to write a guest post for their blog. Here he reflects on lessons from a recent roundtable and identifies some key steps for improving visibility around potential risks.
According to participants at a recent Procurement Leaders roundtable on supplier risk, the pressure is on to demonstrate to stakeholders that they have visibility of what's happening in their supply chains. Supplier involvement in bribery, conflict minerals, illegal logging, human trafficking or sweatshops are just some of the many issues which must be protected against and awareness is growing of the cost of working with the wrong supplier: exposure to significant legal and reputational impact.

Traditional approaches to this challenge include audits, requesting certifications during tendering, financial stress scores, effective supplier relationship management and a cursory scan of the open web. But forward-thinking procurement professionals are recognising the need to do more. Relying on supplier self-certification and pleading ignorance if "the supplier lied to us" might protect against some (but not all) legal risks, but it certainly won't protect against reputational risk.

Research earlier this year found less than half of firms conduct due diligence in their supply chain.* Yet due diligence incorporating media checks can provide a critical source of supply chain visibility and help mitigate supplier risk. Last week saw authoritative global media carry 56 articles about conflict minerals, 52 about illegal logging, 33 about sweatshops and over 1000 on bribery. If you don't have visibility of whether companies in your supply chain featured in those articles, there is a clear question to ask yourself: am I doing enough to protect my organisation against legal and reputational risk?

These challenges are vividly illustrated in a recent report from LexisNexis in partnership with Stop The Traffik which takes an in-depth look at human trafficking in the global chocolate supply chain.

The European chocolate industry is the largest in the world, consuming almost 1.8million tones in 2010-11. The industry's supply chain originates in western Africa; 40% of the worldwide cocoa harvest comes from Ivory Coast. Almost 110,000 children work in the cocoa industry in the Ivory Coast under the worst forms of child labour. The US State Department estimates 10-12,000 children are victims of human trafficking and enslavement.

Despite these crimes occurring at the far end of their supply chains, it is the major chocolate manufacturers who are most associated with the issue; they were referenced in 216 articles found in the report compared to just 9 articles referencing the main cocoa trading companies.

In a typical week we see 850,000 articles published globally by authoritative, credible news sources. On average less than 0.1% of those articles will relate to issues of human trafficking and just 3 articles (0.004%) relate to human trafficking in the cocoa supply chain. Those may be very faint signals, but they are clear enough to find if you try.

NGOs were referenced in over 1/3 of the articles about trafficking in the chocolate supply chain. Many campaigners use the broadest possible range of techniques to increase supply chain visibility. Are you?

* Less than half of firms carry out due diligence in their supply chain, figures reveal, as food contamination investigations continue. (EY)

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