29 May 2014

Why all businesses need to take control of their supply chain

The report investigated some of the world’s largest electronics brands, including Dick Smith, on their efforts to guard against the use of child and forced labour, and worker exploitation in production. Photo: Glenn Hunt

The electronics industry is again in the spotlight over labour practices, with Australian players such as Kogan and Dick Smith Electronics among those named in a new report.

The Electronics Industry Trends Report, released by Baptist World Aid Australia and Not For Sale last week, investigated some of the world’s largest electronics brands on their efforts to guard against the use of child and forced labour, and worker exploitation in production.

The report included many of the world’s best known brands: Sony, Nintendo, Fujitsu and even Australian players such as Kogan and Dick Smith Electronics.

The report reveals that not one surveyed company had complete visibility of their supply chain. Drilling down into the three stages of the production process, the report unveils some interesting statistics that are shocking, though probably not surprising:

  • 49 per cent of companies have traced all or almost all of their suppliers responsible for the final stage of manufacturing;
  • Only 26 per cent have done the same for their components manufacturing;
  • None had completely traced where their raw materials were coming from.

Not knowing the identity of suppliers – and importantly, your suppliers’ suppliers – makes it impossible to ensure the labour rights of the people who make their products.

But it’s not just the electronics industry that plays a role here. In April last year, more than 1000 workers were killed when the Rana Plaza Complex, a garments factory in Bangladesh, collapsed as a result of unsafe construction.

The Rana Plaza Complex was a production house for fashion brands such as Benetton, Mango and Primark. The public was up in arms when the incident occurred, and consumers started to demand answers from retailers about where their clothes were coming from.

Lessons to learn

So what can Australian businesses learn from all of this?

There is no doubt that businesses today are juggling the pressures of being globally competitive while managing triple bottom line considerations.

But the balance lies in how companies source and manage their suppliers. This is what plays an increasingly important role in protecting their margins, brand and growth into the future.

The onus is on companies, and in particular their procurement teams, who are in charge of supplier selection, to do their due diligence when it comes to tracing down their supply chain.

Why? It comes down to brand protection. Too many times we have seen companies suffer from a reputation perspective, and subsequently their bottom line, because they were unknowingly engaging with suppliers who practised unethical or unsustainable labour practices.

Over recent years, we’ve seen the corporate world understand that without a disciplined approach to risk management, and without commitment from suppliers, any procurement activity is left exposed.

The right approach begins with installing ethical sourcing policies within your business then acting on them – monitor your suppliers and their labour practices. Finally, craft a plan to ensure these measures are upheld.

Social procurement

But it’s not all cautionary news. There are businesses that are already taking this one step further. They start looking into social procurement – proactively buying goods and services that also serve a positive social outcome.

For example, Leighton Contractors chief procurement officer (CPO) and The Faculty’s CPO of the Year, Visna Lampasi, facilitated a significant engagement project with indigenous businesses into the company’s supply chain, helping to drive jobs creation within the indigenous community.

Investing in your supply chain now could save you severe brand damage and dollars in the future. If you are already ethically sourcing, then consider social procurement, which not only provides reputation mileage, but can give you that competitive edge.

Andrew Cordner is the managing director of one of Asia Pacific’s leading procurement advisory firms, The Faculty.

View the whole article here.

supply chain