With natural disasters, factory fires, CSR issues and health and safety failures increasingly impacting global supply chains, mapping the supply chain down through every tier is the only way to mitigate a growing burden of risk. To avoid the pitfalls, here are five top tips on mapping out your supply chain:
1. Recognise the risks You may know your first tier suppliers pretty well, but how well do you know your suppliers at tiers two and three? Have you gauged how critical they are to your supply chain? Do you know the factories and the locations in which your branded goods or components are made? What would happen to your business if a lower-tier supplier failed to supply, perhaps due to an earthquake, civil unrest, flooding, fire, or financial collapse? What would be the impact to your brand if a second- or third-tier supplier was exposed as using child labour or treating workers badly? Most would not know, yet a brand’s value could be eroded or destroyed through the errant actions of a lower-tier supplier.
2. Create visibility Independent research commissioned by Achilles indicated 40 per cent of businesses buying only in the UK have no information on second-tier suppliers. The report also revealed one in five (18 per cent) of companies in the UK hold absolutely no information about their tier-two suppliers across the world. Mitigating supplier risk and being able to respond quickly when disaster strikes is dependent upon having visibility of the supply base across all tiers. A prerequisite is to create a co-ordinated global supplier database, before moving on to build an accurate supply chain map detailing every supplier at every level. All too often, companies rely on first-tier suppliers managing the lower tiers, with the result that buyers have no idea who those lower-tier suppliers are and what measure of compliance they hold. This is not sustainable.
3. Build a map The most effective way to gain visibility is to build a map and to do so a standardised approach to the management of supplier information is required. With an accurate database, buyers can request information from everyone involved in their supply chain. This works best when ‘cascading invitations’ are sent down the supply chain. The buyer instigates the action by inviting its first-tier suppliers to join the mapping process. Tier one suppliers pass the invite on to tier twos and so on, right down the supply chain. The key to success is automation – ensuring the person in the middle can link what they sell to whom and details of what they buy link to the next person in the chain. Mapping the supply chain allows the buyer to assess which supplier manufacturing sites are potentially exposed to risk and helps in addressing potential bottlenecks, reliance on single suppliers and companies with long lead-times.
4. Motivate suppliers It is absolutely critical to success that buyers get suppliers’ support in mapping the supply chain by clearly explaining the benefits. A major incentive for the supplier is that they will also be able to understand risk in their own supply chains and improve their own business resilience. Initially, some suppliers may be reluctant to provide information, especially if they feel the information is sensitive. So it is important to reassure suppliers that they can control who has access to their information and can maintain commercial confidentiality.
5. Work collaboratively Mapping a supply chain can be a complex, time-consuming and labour-intensive activity, making it a tiresome exercise for any individual company working in isolation. Most industries share common suppliers, so what may be difficult to do for an individual organisation becomes easier to achieve collectively. The most efficient and effective way to do it is by working within a collaborative community, where effort and cost are shared. Collaborative communities that use a central source of verified supplier data provide a perfect environment in which to map out supply chains – making it simple for independent companies to ‘cascade invitations’. The supplier then determines what information to make visible to whom.
☛ Luis Olivié is global business development director at Achilles