Managing risk within international supply chain networks

Companies sometimes expose themselves to operational and reputational risk through their international supply chain networks:

 

Nike was publicly accused of using child labor in offshore factories in 1996, as a result, in 1998, its CEO announced significant, long-term measures to improve working conditions at supplier factories.

 

Mattel was forced to recall US$100 million worth of product when a supplier in China used lead-contaminated paint on the company’s toys in 2007. The company’s stock price fell by 18% in the following months and it has faced law suits since then.

 

On the other hand, international food and consumer products company, Unilever earns annual revenues of over $50 billion from more than 400 brands by sourcing from 10,000 raw materials suppliers and up to 100,000 non-production suppliers. Unilever buys 12% of the world’s black teas, 6% of the world’s tomatoes, and 3% of the world’s palm oil. Maintaining an effective supply network is vital to sustaining the company’s success.

 

Unilever has acquired financial benefits through supply chain responsibility regarding working conditions, wages, and environmental issues including those related to waste and climate change across their global network. These benefits enhance Unilever’s reputation and provide increased stability of operations, thereby cutting costs.

 

Unilever also developed a Supplier Code defining the company’s responsible sourcing requirements. The Code is based on local laws and internationally accepted norms to assist in the creation of consistent expectations across the supplier network. Unilever’s direct and indirect suppliers are required to adhere to the Code. Supplier self-assessments and site audits are carried out to ensure suppliers are meeting the Code’s requirements.

 

The Supplier Ethical Data Exchange (SEDEX) platform, which offers standardized evaluation methods and makes audit data widely available, is also used by Unilever’s suppliers. In addition to maintaining supplier standards, this reduces their administrative work and helps them learn directly from others’ assessments. When audits show non-compliance from suppliers, Unilever consults with the suppliers and corrective action is taken.

 

Knowledge and best practice sharing between suppliers, peers and partners is also encouraged through the Carbon Disclosure Project’s ‘Supply Chain Leadership Collaboration’. Unilever also shares its expertise with suppliers in areas such as irrigation management. This has helped water usage at farms in Brazil decrease by 30%, and tomato yields to increase by 20%. The company’s work regarding supply chain network sustainability has been recognized internationally by the FTSE, Dow Jones and the World Wildlife Fund.

 

What other methods have large organizations used to mitigate the risks present in their international supply chain networks?

Sources

http://nbs.net/wp-content/uploads/NBS-Executive-Report-Supply-Chains.pdf

http://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimization?page=1

http://www.nytimes.com/2007/08/02/business/02toy.html?_r=0

http://www.forbes.com/sites/timworstall/2012/05/28/apples-foxconn-to-double-wages-again/