How Well Do You Know Your Supply Chain?

James Ritchie reflects on lessons from a recent round–table session and identifies key steps for improving visibility around potential risks.

James Ritchie is head of strategic alliances at LexisNexis, a global provider of business information and technology solutions.

According to participants at a recent Procurement Leaders round–table discussion on supplier risk, the pressure is on to demonstrate to stakeholders that they have visibility into what's happening in their supply chains. Supplier involvement in bribery, conflict minerals, illegal logging, human trafficking or sweatshops can trigger issues that can bring significant risk. The cost of working with the wrong supplier includes exposure to significant legal and reputational impact.

Traditional approaches to protecting orgnizations from this risk include audits, requesting certifications during tendering, financial stress scores, effective supplier relationship managementand a cursory scan of the open Web. But forward-thinking procurement professionals are recognizing 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. During a recent week, authoritative global media carried 56 articles about conflict minerals, 52 about illegal logging, 33 about sweatshops and over 1,000 on bribery. If you don't have visibility into whether companies in your supply chain are featured in those articles, there is a clear question to ask yourself: Am I doing enough to protect my organization against legal and reputational risk?

These challenges are vividly illustrated in a recent report from LexisNexis in cooperation 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 1.8 million tons 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 Ivory Coast under the worst forms of child labor. The U.S. 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.

Non-governmental organizations were referenced in over one-third of the articles about trafficking in the chocolate supply chain. Many campaigners use the broadest possible range of techniques to increase supply–chain visibility. Do you?

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

Adapted from original post on Procurement Leaders Blog, Nov. 15, 2013.

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