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August 31, 2016

In Chains in Supply Chain


The US Democratic Party presidential candidate Hilary Clinton is strongly advocating against modern slavery in her current election campaign. In the UK, the new Prime Minister Theresa May is setting up a government task force to 'get a real grip' of this problem.


Early this year, three global IT manufacturing organisations in the forefront of innovative consumer electronics were accused for not inspecting their supply chain for child labour. These companies have been using Cobalt (a mineral used in lithium-ion batteries) mined by children as young as seven in the Democratic Republic of the Congo. The recent estimates show the number of victims of Modern Slavery are in the range of 45 million globally.

If there was any similar incident twenty years ago, reputational damage would have been the only aspect to worry about. Still, after some time consumers and media would have forgotten the scandal leaving the original issue unresolved. In the wake of such exposures, organisations also actively went after fairtrade certifications which were primarily focusing on food & textile manufacturing. Again, over a period of time, these initiatives were reduced to mere marketing tools and used only to 'tick the CSR box'.

As practitioners, are we also to be blamed for taking this global issue lightly? We often ask various questions in our RFx documents on related subjects. 'Do you have a corporate social responsibility (CSR) Policy? What CSR targets do you have? The vendors also respond reasonably well and often attach their policies as evidence. However, do we really read them and ask questions? Do we consciously use the information provided in the evaluation process? Do we verify the responses with an independent party? One may argue this is not our job and the responsibility lies with the vendor if there were any wrongdoings discovered later contrary to what they promised on paper. However, this is not the case. There is too much at risk. The buyers are also responsible for what the vendors in their supply chain are up to. In the incident mentioned at the beginning, who would have thought a raw material used in a small component of the end product would have caused so much mayhem!


Matters are also getting tougher on the legal front. Last year the 'Modern Slavery Act' was introduced in the UK. This legislation empowers courts to use seized assets to compensate victims and issue orders barring offenders working in certain segments, such as with children.  The Act also introduced the 'Transparency in Supply Chains Clause', which now requires any supplier over £36 million in sales carrying out business in the UK to publish an annual slavery and human trafficking statement. There is significant focus on this problem in the political landscape as well. The US Democratic Party presidential candidate Hilary Clinton is strongly advocating against modern slavery in her current election campaign. In the UK, the new Prime Minister Theresa May is setting up a government task force to 'get a real grip' of this problem.

How can we help the buyer organisations to mitigate this risk? What are the tell-tale signs of these inhumane acts in supplier organisations? Can we partner with independent organisations specialising in Ethical Trade Audits? I am interested in knowing how much awareness on this topic is there in the Sourcing & Procurement fraternity. Also, what measures have you seen in organisations trying to combat this issue?


Please share your thoughts and comments.


August 2, 2016

Corporate Boards - Wake Up To Streamline Chaotic Supply Bases

One CPO indicated the root cause of chaotic supply base is -"First, we let anyone and everyone become our supplier and then we keep complaining that we are losing our sleeps working with so many of them".


This post should benefit corporate boards in general and CPOs, CFOs, CROs in particular. Is it on your agenda to avert loss of investor wealth and supply risks proliferation due to the sheer number of suppliers you have? Whether yes or no, stay invested. Here are some facts. I did some research on the topic "do the large number of suppliers appear as a topic on your corporate boards' discussion agenda?" and almost all the answers were in the negative. This just goes to justify what a recent Harvard Business Review article titled "Stop Wasting Valuable Time" cited "Our findings support what many executives have long suspected--namely, that they spend too much time discussing issues that have little or no direct impact on company value".

So do these findings provide reason enough for inclusion of this topic into board agendas? Look closely on the number of suppliers any firm has by spend categories. Most likely what you will find is a higgledy-piggledy supplier distribution across spend categories fitting the theory of chaos postulates. Results? Boards start expecting the unexpected e.g. suddenly getting into media spotlight for the poor social practices of some supplier, or finding that their company purchasing costs are higher than that of their competitors, or they keep hearing that their employees spend a disproportionate amount of time to transact with so many suppliers rather than focus on business etc.

That leads us to another question. How many suppliers are enough? Hackett, CAPS studies have reported "best in class" firms having ~4,000 suppliers for $1 Billion indirect spend. I think that's too high. If UNSPSC (The United Nations Standard Products and Services Code®) has 100 odd segments (spend categories) and any typical firm (except resellers) spends across not more than 20 categories, should a maximum 100 suppliers or 5 per category not be enough? Don't firms target such ratios for direct spend categories? A few large suppliers do exist who can supply everything that a firm needs but still setting such standards get missed out.

One CPO indicated the root cause of this situation to me through a seminal quote - "First, we let anyone and everyone become our supplier and then we keep complaining that we are losing our sleeps working with so many of them".

What are your thoughts? Join the conversation!

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