Sustainable Procurement - limiting exposure to supply chain weaknesses

A 2020 Deloitte Global Survey into risk management shows that almost half of organisations are failing to properly address third party business continuity and resilience.

2020 has forced the economy to face it's failings in dealing with continuity under stress as the Covid crisis mercilessly exposed supply-chain weaknesses and brought procurement sustainability to the top of the agenda for many CPO's.

But sustainability is about more than just financial resilience.  The very public demise of fashion chain Boohoo during lockdown uncovered problems beyond bad planning when claims of exploitation of its suppliers caused share values to collapse.  

Put simply, the ethical standards of your suppliers matter, now more than ever - and being in the dark is no excuse.  Corporate boards of directors must tackle questions about sustainability in a new and urgent manner.  If they don’t, they will hear from investors about their lack of action.

After all, publicly traded companies are increasingly having their sustainability ratings published - so to fulfil obligations, every listed company board must now become “sustainability fluent”.

So, how can you maintain a sustainable supply chain in every sense of the word?

Be selective - consolidate

Both refreshing and narrowing your pool of suppliers is healthy - but too much of either can be bad. It’s important to find the balance.  Getting too comfortable with a set pool of suppliers may breed complacency - and oversight.  Whilst it might be easier to purchase from a familiar few, be wary of gradual price-hiking and don’t assume they have your best interests at heart.  For this reason, refreshing your pools regularly keeps your supplier base in check. 

Get to know your suppliers

It’s vital you do your due diligence and know who you’re dealing with.  How else will you manage risk in the chain? Benchmarking is a great way to quickly gain valuable oversight on the status and position of your suppliers.  Issuing a quick poll or benchmarking exercise allows you to suss out their current business methodology, gain up to date rate cards, hear of any changes in business size, structure or financial status as well as checking out their ethical credentials.  This will arm you with some real data which should make it easier to begin the consolidation process.

Understand their vulnerabilities

Knowing your suppliers in the context of how they work with you is one thing, but in order to be truly proactive, and to face a future crisis with true resilience, you’ll need to look one step further: at the pillars which support your suppliers’ businesses themselves.  This is especially key if you have a very small pool of suppliers in a certain category. 

Having a small pool can often work well when outside factors remain constant and stable but the main weakness of having pools with a very small number of suppliers is the lack of sourcing redundancy. Having a better understanding of your suppliers vulnerabilities allows you to pre-empt potential disasters. 

Possible scenarios include:

• Suppliers who are heavily reliant on credit.  Smaller suppliers usually have tighter cash flows and sometimes rely on each new transaction to satisfy outstanding credit. A late payment from you could set off a chain of late payments to the suppliers' providers and make it impossible for them to function in an environment where credit availability is tightening not relaxing.

• Suppliers who are part of a daisy chain.  Question how long the chain is between your company and the product or service in its rawest form. If one of the suppliers in the daisy-chain fails, all suppliers between yourselves and the failure could be affected.

• Supplier practices.  Desperate times sometimes mean suppliers have to change methods of obtaining or delivering products and services.  What if these new methods fall below certain ethical and moral standards? Put in place a process whereby suppliers are obligated to inform you of any changes to the way they themselves serve and satisfy the products/services they provide to you.

Even taking small steps to address these three key areas will significantly strengthen the resilience of your supply chain. Our best advice is to drive these supply base reviews regularly - fresh data means you can act quickly if signs point to an issue.

The most important thing is that you don’t remain ignorant of supply chain weaknesses - the Deloitte report shows that most organisations are totally unprepared for large scale disruption.  The smart move is to expose the weaknesses, before they expose you.