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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.