As organisations grow and evolve, supply chains become more complex webs of direct and indirect suppliers. This creates an ever increasing risk on an organisation’s ability to satisfy its customers in terms of quality, safety, integrity, and continuity. Not to mention, meeting customer demand for a higher level of ethical standards both in manufacture and sourcing. Whilst supplier contracts are in place to assist in managing liability, the responsibility for supplier risk can shift, but not the accountability.

Ensuring effective supplier compliance management is more crucial than ever as your brand is often in the hands of your suppliers. This can be achieved through an active monitoring process to manage your supplier’s compliance to your requirements and best practice – in line with specific criteria laid down by you. With international standards moving to a less prescriptive stance, such as the latest release of ISO9001:2015 , organisations have opted for developing their own vendor assurance programs to supplement these internationally recognised standards with criteria which are more aligned to their particular products and specification. This practice, most commonly found in the food retail sector, ensures explicitly defined business risks are being managed.

This paper explores the current challenges of supply chain management largely based on two global research initiatives undertaken by SAI Global last year. Participants in the research were employed across private industry and government organisations, operating either domestically or in a number of international markets.

A common theme from the research was that organisations considered that the greatest challenge in supply chain management is knowing all the supply chain risks and where they arise, and then determine the most appropriate priorities and control methods. As to be expected, product safety and quality of their supply chain were of greatest concern, although sustainability practices and ethical workplaces were also clearly identified as areas of importance. It’s envisaged however, that whilst the innovation challenge was not at the top of the list, this area should grow as organisations seek to extract value out of the supply chain and move towards more collaborative and transparent supplier relationships.

MANAGING DOWNSTREAM SUPPLY RISK

Most organisations generally manage their suppliers through contractual arrangements, placing the onus on suppliers to manage their own supply chain. However, there was some consideration that more formal monitoring of subcontractors or second and third tier suppliers may be required. Whilst key performance indicators (KPIs) for suppliers

are common practice, the challenge for most organisations is ensuring these KPIs are applied throughout the supply chain and ensuring they are the right metrics for the early identification of risk. Globalisation and consistent pressure to improve stakeholder or shareholder returns, has resulted in the common practice of using off-shore suppliers for the manufacture of components or non-core products. Organisations need to perform a fine balancing act of ensuring effective monitoring is in place whilst maintaining cost efficiencies and standards.

EXTRACTING VALUE OUT OF THE SUPPLY CHAIN

For the more mature supply chains, cost is no longer the only evaluation criterion. Organisations are seeking more collaborative innovation projects that will benefit both trading partners. Industry has turned to technology to assist in the process, resulting in the increased adoption of collaborative IT platforms. Collaboration often occurs with the sharing of medium to long term strategic plans to ensure both partners are capable of meeting immediate and long term needs. Determining appropriate metrics, beyond the level of research and development spend, should largely be driven by desired organisational outcomes and there is an increasing trend of these KPIs becoming a part of selection and onboarding process.

GROWING PAINS OF SUPPLY CHAIN MANAGEMENT

AT SAI GLOBAL PROPERTY DIVISION, WE ALWAYS STRIVE TO PUT OUR CUSTOMERS FIRST BY DELIVERING QUALITY SERVICE AND A RE-WARDING EXPERIENCE.

DESPITE THE LEVEL OF COMPLEXITY ORGANISATIONS FACE WHEN MANAGING THEIR SUPPLIERS, 27% ARE STILL USING SPREADSHEETS

27% 51%

HAVE ADHOC PROCESSES IN PLACE MAKING THEIR RISK MANAGEMENT QUITE IMMATURE

DETERMINING APPROPRIATE CONTROLS AND PRIORITIES

53%

KNOWING ALL OF OUR SUPPLY CHAIN RISKS AND WHERE THEY ARISE

60%

ABILITY TO EVALUATE CONSOLIDATED IMPACT OF RISKS

38%

Global Trends in Supply Chain Risks

www.saiglobal.com

THE TOP 3 CHALLENGES ORGANISATIONS FACE WHEN CONSIDERING RISKS FROM THEIR SUPPLIERS OR PARTNERS WAS:

AS ORGANISATIONS SEEK TO EXTRACT MORE VALUE OUT OF THE SUPPLY CHAIN, PRODUCT QUALITY AND SAFETY ARE STILL THE MOST IMPORTANT ASPECT OF SUPPLIER COMPLIANCE. INCREASINGLY ETHICAL WORKPLACES, SUSTAINABLE PRACTICES AND INNOVATION ARE BEING ASKED OF SUPPLIERS

76%

ACKNOWLEDGED A LEVEL OF QUANTITY AND COMPLEXITY OF RISK REGARDLESS OF SIZE OF SUPPLY CHAIN

0 1 2 3 4 5

CONTRIBUTING AUTHORS

PAUL OH, PRODUCT MANAGER, SAIGOL AND DAVID GRAY, LEAD FACILITATOR ISO9001

1 International Standards Organisation (2015) ISO9001:2015 – Just Published!

GROWTH OF IMPORTS

Many organisations reported that they are shifting to a greater percentage of overseas imports for niche or supplementary products, bolstering their core activities. However this leads to an increase in their risk exposure, in what is often unfamiliar territory. Reliance on the overseas supplier can be difficult due to different legislative and regulatory requirements. Anecdotally, the research indicated that management of cultural differences in the interpretation or perception of supplier requirements were a challenge. Some organisations reported additional cost in audit surveillance provided by third parties in overseas suppliers and the difficulty in maintaining consistency.

CONTINUITY OF SUPPLY

This appears to be a growing concern for most organisations, due to an increase in finding niche or specialty products to supplement organic growth. Supplier diversity management is an increasing focus as organisations move from the “preferred supplier” model to a “multi-supplier” relationship model in order to ensure continuity of supply.

PRIVATE LABEL GROWTH IN RETAILERS

The increase of “private label” products, most typically seen in food and consumer goods retailers, is widely known. Whilst there is an obvious financial incentive for these organisations to adopt private labels, allowing them to maintain margins in price competitive markets2, there is an increased risk of product failures and recalls which have a direct effect on customer safety and experience. This is further supported by a significantly higher recognition that brand protection and consumer trust is an important driver of managing supplier risk in the food industry as compared to other sectors.

SUPPLY RISK MANAGEMENT

Adopting the MIT and PwC3 framework for assessing system maturity, a significant proportion of those surveyed relied on ad-hoc or basic risk governance processes to manage supply risk, indicating a general level of immaturity in this area. Despite this, their capacity to effectively manage risk was self-perceived to be sufficient. Some would argue that this perceived confidence is possibly misplaced, given risk management systems are commonly based on lag indicators and recent product quality events have pointed to a failure deeper in the supply chain.

In the mid 1990’s, ISO TC176 developed a series of Quality Management Principles (QMP’s) which formed the framework for ISO9001 and was used as an international benchmark for business. Supply chain risk was a consideration and consequently, one of the principles describes “Mutually Beneficial Suppliers”. Historically, supply chain risk has always been a management concern. The difference is that in today’s environment, there is an increasing recognition that supply risk can no longer be managed via contracts alone and as supply chains become more complex, characterised by a larger geographical spread and varying degrees of relationships, supply risk requires a more collaborative approach to effectively mitigate against threats and vulnerabilities. Such recognition is evidenced by the latest version of the QMPs (2015) expanding the principle to “Relationship Management”.

ISO9001:2015 also provides significant requirements around controlling any externally provided processes, products or services, and considers controls should be provided where an organisation is:

• purchasing from a supplier

• outsourcing processes to an external provider

• has an arrangement with another company

The need for supplier compliance management is appropriately being given more attention. Organisations have moved from only using a periodic audit of their supplier and hoping for the best, to a more collaborative relationship requiring continuous sharing of information in addition to the traditional audit schedule. Furthermore, whilst requirements for suppliers are progressively including selection criteria beyond product safety and quality, certification remains as an important component of a supplier compliance program and was perceived by the overwhelming majority of respondents as still adding value to their operations.

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2 Hurley, M. (2016) IBISWorld Industry Report – Supermarkets & Grocery Stores in the US

3 MIT and PwC Research Study (2013), Supply Chain and Risk Management