The view from the President: Getting smart on supply chains
'COVID-19 has dramatically exposed the weaknesses in global supply chains, and business has been forced to respond.'
How much do you know about every link of every supply chain that makes up your business? Probably significantly more than if I'd asked this question a generation ago. Formerly, supply chains — the back-office systems that magically caused products to appear — were hidden. Were consumers and customers interested in the process that produced the goods or services they were buying? Some maybe, but not the majority.
Sometime in the late 1980s and early 1990s, that changed. Global names such as Nike found themselves battling the fallout from exposés of working conditions in the factories that made their desirable trainers and sportswear. I remember seeing stickers on lampposts berating big name retailers for dubious labour practices: "Nice clothes made in nasty sweatshops". Civil society stepped up its interest in how the products we bought were produced, and what had been in the background was now under the microscope. Coordinated international campaigns to boycott goods were a popular tool to force household names to reconsider their operations.
That was decades ago, and you might think that businesses would be much more alert at least to the reputational risks that opaque supply chains present, if not the ethical consequences. However, supply chain scandals keep appearing. The economic fallout of COVID-19 may generate conditions that incentivise companies to take risks with their business models. Moreover, if the findings of a recent EY survey of employees around the world — the Global Integrity Report 2020 — is indicative, it's clear we have some way to go. It revealed a fifth (20%) of respondents believe that ethical business conduct will decrease following the COVID-19 pandemic. If we are serious about being responsible finance leaders, this should deeply concern us and be a call to action.
COVID-19 has dramatically exposed the weaknesses in global supply chains, and business has been forced to respond. Longer, efficiency-focused models have been superseded by those that are less exposed to the risk of disruption. Stakeholders, from NGOs and governments to consumers, are closely watching how we respond to the pressures on our cash flows. Unlike previously, there is now a great deal of awareness. Being at the head of the supply chain, the decision-makers, we have immense economic power, which we can use to support sustainable operations. We need to interrogate each part of our extended business, making informed decisions about whom we work with (and whom, in turn, they work with) and why. We need to be prepared to invest in these relationships for the long term, perhaps making them less transactional.
Fortunately, it has never been easier to improve visibility of supply chains. For example, you can implement internet of things-based technologies that will integrate with your logistics solutions to provide end-to-end "track and trace" capabilities. Similarly, there are mature tools that support more integrated and rapid scenario planning. These enable you to quickly understand the sensitivities of different elements of your supply chain to different circumstances. They also allow you to test the impact of alternative decisions you might take — such as how close to real time you can continue to operate your supplies.
Other actions you can take include reviewing contracts and meeting with the most strategic suppliers.
Even without a serious global shock, taking a closer look at your supply chain in terms of its wider value as well as its financial costs is an exercise in smart — and responsible — finance. It will safeguard the business's reputation, longevity, and bottom line.
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