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Using a Holistic Approach to Address Global Supplier Risks

The longer the supply chain—with more levels of suppliers, disparate geographies and other middle men—the more complex and challenging compliance becomes. Companies must work with suppliers to ensure regulatory, brand and corporate social compliance or risk lost profits, product recalls and customer erosion.

By enabling a holistic, integrated approach to managing these three global supplier risks companies can protect brand integrity, improve customer service levels and reduce global supply chain costs. Below are some ways a holistic approach can reduce or eliminate these global supplier risks.

1. Manage regulatory risk

Are your products safe? Are you doing business with safe supplier or terrorists? Government regulations are ever increasing, placing additional burdens on monitoring, documenting and remediating any violations. New laws regarding social responsibility and environmental impacts from production, such as chemicals in the production process, and doing business only with known, trusted partners and suppliers make the costs of noncompliance high.

To side step potential problems companies must be completely transparent about how they do business along every stage of their supply chain process. They must evaluate facilities before doing business with a company and continue due diligence efforts throughout the production and supply chain process.

The best way to manage regulatory risk is to have a single version of the truth, which increases visibility, lowers errors and reduces costs associated with supplier noncompliance. Using automation to centrally store and manage this data increases supply chain visibility to all relevant parties, both internal and external. A company can send a test request to a supplier and receive the results electronically, which can then be viewed by all relevant parties. Corrective action can then be taken quickly and easily if necessary. Audit results can be used to generate compliance certificates that will become part of the import/export filings.

In addition to supplier compliance, companies must also screen potential customers against restricted party lists, determine license requirements, perform import/export compliance checks and generate international trade documents.

2. Adhere to product standards

Today’s increasingly globalized market requires a strong brand to remain competitive and the best way to manage brand image is to avoid having issues occur in the first place. Adhering to product standards ensures products are produced ethically, safely and profitably.

Most companies have third party labs test products for compliance to brand standards. These standards compliance tests are usually complex, thorough and vary by country. Using a single information platform with automation technology allows all data necessary for standards compliance, such as audits, questions and linkage relationships, to be easily accessible, with fewer errors and at a lower cost than manual efforts.

Adhering to product standards is a key piece of managing brand reputations, which are among the most prized assets major corporations have. While a reputation can take years to build, it can be battered or ruined in a very short time. Once a brand image is tarnished it can take a long time and a lot of effort to win back a positive image.

3. Follow ethical business practices

Not only is failure to comply with regulations and ethical standards questionable from a moral point of view, it’s bad for the bottom line. Workplace conditions, child labor practices, production processes and chemical/conflict mineral usage and sustainability, for example, are increasingly scrutinized by both the consumers and governments—and failure address these issues can result in fines, brand erosion and lost customers. In short, adhering to ethical business practices is something any company should take seriously.

Collaboration with suppliers and within the organization is essential to ensuring ethical business practices. These key parties include the sourcing department, which needs to know which purchase orders are in jeopardy of being non-compliant, to suppliers, which may need to provide on corrective actions they have taken to address an issue.

Today most companies perform these actions manually or by using Excel spreadsheets. These audits are often extensive and a cornerstone to most companies’ operations. However, this strategy requires many people, is error prone, and doesn’t connect the audit to the purchase order, so the sourcing department may not even know if there is a problem with a particular supplier or factory.

A better solution is a collaboration portal where all parties have access to the information they need. With an information portal, everyone can instantly see what is happening and what needs to be done. Time lags and information gaps are dramatically minimized. As a result, a company can have tighter control over its operations, decreasing the potential for questionable lapses of social integrity.

Conclusion

A single version of the truth and visibility throughout a global supply chain can only be achieved by accurate and timely information. A holistic approach is needed to empower all parties to immediately address issues. By having a centralized approach to managing global supply chain operations, a company can increase its compliance to trade rules and regulations, follow ethical business practices and conform to product standards. By using automation to manage global supply information, a company can not only reduce these risks, but do so in a way that reduces costs, errors and time.

By Gary Barraco, senior director of supply chain solutions, Amber Road

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