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SUSTAINABILITY Increasingly, companies are responsible and held accountable for ethical and sustaina- bility issues. As consumers increasingly demand sustainable products and behaviour from business, this focus trickles down to their suppliers. Key to addressing this chal- lenge, is to create a supply chain community where your values are embedded in your supply chain network and not just at the first tier. However, simply demanding action from suppliers to ensure they are compliant with standards, to reduce consumption of energy, water or raw materials, or to meet standards on labour rights, is not necessarily the right approach. Certainly oversight has its place, but so too does help and support. Sustainability issues are driving many of the innovations that are currently happening in supply chain management. This includes increased collaboration between suppliers and, in some cases, competitors. Carlsberg and Heineken share logistics in the UK, while oil companies have had shared trucks for petrol deliveries for some time. Because the cost of moving things will continue to rise, we are likely to see a change in globalisa- tion strategies, resulting in more local production or alternatively new ways of transporting things. For example, it’s possible to half the CO 2 impact of some products reaching our supermarket shelves by shipping in bulk and then packaging locally. GEOPOLITICAL RISK Political risk has assumed new prominence in recent years as a result of events in North Africa and the Middle East. However, business has little choice but to be involved in coun- tries that are susceptible to unrest either to obtain goods and services or to capture new markets. Most analysts predict the economies of the BRIC countries (Brazil, Russia, India and China) and other emerging markets such as Nigeria, Indonesia, South Korea and Turkey, will be showing the strongest growth over the next ten years. These are also the countries that have some of the biggest geopolitical risks * . Egypt is a good example, which up until 2012 was one of the fastest growing economies, thought to be funda- mental to accessing wider Middle East markets. Although growth economies are ripe for investment and development due to fast and hopefully sustained economic growth, they are also more likely to be exposed to ‘global risks’ and lack the structural resilience to face these risks. It is therefore imperative for companies operating in these countries to identify and monitor the inherent risks that go hand in hand with the opportunities these countries offer. SUMMARY It’squitepossible that thebenefitsof globalisation in termsof supply chainmight have reached their limits, and we might see at least some return to more local production and supply. However, this won’t happen overnight and in the meantime, the true nature and vulnerability of supply chains need to be understood and effectively managed. This can only be achieved by addressing risk seriously throughout the procurement lifecycle and looking at risk holistically. Risk management must be seen as a strategic activity and achieve the correct balance between setting standards, oversight, and supplier development and support. SRM provides a vehicle for a more collaborative and transparent approach to supply chain risk management. Visibility of risk does not equate to ownership, so clear accountabilities and expectations for each member of the supply chain community need to be established. Good risk management practices should not be the preserve of only strategic supplier relationships - these also need to be embedded in minimum standards of supplier contract and performance management.
Article by Mel Shutes, Head of SRM at State of Flux. Call Mel on +44 (0)207 842 0600 or email him at mel.shutes@stateofflux.co.uk for more information on the relationship between SRM and supply chain risk management.
* According to the Global Risk Atlas, published annually by risk analysts Maplecroft
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