That report supports what I often find when I’m speaking to groups of supply managers – that they have strong ethical policies within their own companies and perhaps their first tier suppliers, but below that their supply chains are mostly out of sight and out of mind. The risk in that kind of myopia is that somewhere in the chain is a tight spot – a single company that supplies the whole industry, a proprietary process or an environmental abuse that could shut down your production or embarrass your company if something goes wrong at that link.The only way to seriously address the situation is to map your supply chain – identify the sources of everything that goes into your final product all the way back to raw materials. Some companies are doing it now.
Cargill recently announced efforts to literally map 725 square miles of cocoa plantations in five countries to better track its sustainable agriculture initiative. BMW has announced it will be purchasing cobalt directly from mines for the same reason.More companies would likely follow suit, except the actual work of mapping a supply chain is hard. Your suppliers often do not want to provide the names of their suppliers; they may fear you will cut them out as middlemen or reveal proprietary relationships or processes. Or they may not know the origin of a commodity they buy. For example, consider how brokers or co-ops work in the food industry. They are aggregating product from dozens of farmers or groups of smaller co-ops. In the fishing industry, once a boat dumps its catch and it’s weighed, it may go into a single storage area with the catch of every other boat in the fleet.
Step one in supply chain mapping, then is to get the buy-in from your suppliers. That generally requires deep discussion, time and resources to address supplier issues and build the trust you will need to get the information you seek. The only opportunity for that might come at a contract renewal time, or when specifications change because of market conditions or an innovation in a product or process.
Step two requires a data collection and management system to identify raw material lots and track them from farm, boat or mine through the supply chain to your customer. The challenges in some supply chains are the small businesses that are most upstream – the family farmers, single fishing boat owners or artisanal miners. You have to create a system robust enough to get reliable data in field conditions that are both remote and often hostile to sensitive electronic devices that you might use to collect data on each lot. And you have to educate all those small enterprises on how to use the systems.Sometimes a market-wide initiative in an industry is the only way to create a system that can reliably trace the path from raw materials to finished product. The Sustainable Forestry Initiative is an example of that approach. It is building a coalition of landowners, manufacturers, customers, conservation groups and government agencies across the U.S. and Canada to certify sustainable forestry practices and track lumber from those forests through mills and distributors to customers.
Step three may be the most important – creating audit and other compliance procedures to ensure your chain of custody is reliable. Resources spent here are your insurance against a breakdown in the system and the risk that creates. While many companies don’t like to spend on travel, I’ve found that visits to remote suppliers can be extremely helpful to ensure compliance.
At one point in my career I was sourcing anchovies from Spain and Portugal. It was a fragile commodity that has a short shelf life, so it needed speedy processing and trans-Atlantic shipping in refrigerated containers. Once or twice a year when I visited our suppliers I would find wide variations in their factory conditions. Some would be moving fish around in what looked like rusty coffee cans while others had beautiful stainless steel manufacturing plants.
The lesson here is that you can’t source from your desk. As a procurement person, I want consumers to get the best we can get for them and to do that I had to know where our fish were coming from.In spite of the challenges, mapping your supply chain is a crucial part of your risk management. I had a pharmaceutical client once that mapped one of its critical components to a single factory. That was a risk it could not tolerate so it looked for an alternative. When they found one, it immediately lowered their production yield from 80 to 68 percent. It was a high initial price for insurance, but the company felt it was worth it. Over time that gap diminished so the move paid off. As that company discovered, if you want to find a path to success, start with a good map.
By Bill Michels, VP Operations, CIPS Americas