Investors put supply chain risk in the spotlight

9 March 2012

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9 March 2012 | Adam Leach

Investors are putting supply chain operations under closer scrutiny due to increasing globalisation, outsourced manufacturing and supply chain legislation.

Procurement: Managing Globalised and Complex Supply Risks, published yesterday by the lobbying and research organisation Eurosif and Bank Sarasin, argued factors such as the rise in low-cost sourcing from countries such as China, has increased the complexity of supply chains and made it more difficult for companies to control them.

In addition, the report suggests the degree to which companies outsource the management of production further complicates oversight of suppliers, while laws such as the California Transparency in Supply Chains Act - which requires companies to publish the steps its taking to combat slave labour and human trafficking - have increased pressure on companies.

These and factors such as where the supply base is located, said Eurosif, have resulted in investors becoming increasingly interested in the action companies are taking to mitigate risk. “As supply chains are getting more and more complex, investors are increasingly scrutinising how companies manage the risks related to the different tiers of suppliers,” said François Passant, executive director of Eurosif.

“The strength of supply chain monitoring varies considerably even in the same sector such as clothing where luxury brands have a very different supply chain risk profile to the mass market retailers and therefore investors should seek to develop robust approaches to supply chain risk assessment.”

Advising investors on what to look for when assessing companies approaches to managing supply chain risk, the report identified to examine the policies and standards a business has such as a supplier code of conduct. It also advised assessing monitoring procedures, how many audits it carries out and whether they are conducted independently, how it collaborates with suppliers to address the issues and the degree to which it works with its competitors to combine efforts to combat mutual problems.

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