March 31, 2014 7
Risk management is often considered ‘boring’
because it smells of “grey suits” and “playing
it safe”
March 31, 2014 9
The trade environment challenge: Supply chain blind spots
The less you see, the less you know.
The less you know, the greater the risk.
March 31, 2014 11
Newsworthy risks; Ethical “Disconnect”
Social issues Product recalls
Cargo theft and terrorism
Environmental issues
March 31, 2014 13
Let’s say we identify 5 Major Suppliers in 5 Cities in 3 High Risk Countries in this risk assessment
March 31, 2014 15
You contact Intertek to work on scheduling audits of these 3 suppliers… Intertek Offices reach out
=
March 31, 2014 17
…discover production is actually occuring in 9 locations…
…Harbin
…Tianjin
…Beijing
…Wuhan
…Chengdu
… Suzhou
March 31, 2014 18
This happens often…
40% … of Intertek Audit requests from global clients have
something wrong with the audit request entity… address, contact at production facility, etc.
March 31, 2014 19
We need to understand the difference…
SUPPLIER / VENDOR
PRODUCTION FACILITY This is where your risk lies
March 31, 2014 20
The dangerous reality:
Many companies do not know the full extent of their supply chain… up to
70% In a recent survey
?
March 31, 2014 21
Sustainability & CSR Heavily Regulated
2
1
• Increasing disclosure of non-financial due-diligence areas such as climate change (SEC)
• Disclosures on Human Trafficking and related labor issue areas (California Supply Chain Act SB657) and possible Federal Legislation
• Department of Labor Country Lists for ‘Child Labor’ and Forthcoming policies around Farm Labor
• UK Bribery Act
• Conflict Minerals Reporting
• USA: Section 1502 of SEC Requirements
• Australia due diligence guidelines
• European Commission proposal for EU
March 31, 2014 22 22
1970 1980 1990 2000 2002 2004 2006 2008 2010 2012
Early independent ESG
research & ratings
companies launch
Enhanced Analytics
Initiative launched
Formation of
established SRI/ESG
money managers:
Calvert, PAX, Walden,
etc
Rio Earth Summit,
coining of term
“Sustainable
Development”
Carbon Disclosure
Project launched*
DJSI launched Principles for
Responsible
Investing
initiated**
Modern roots of SRI
industry, including
negative screening on
tobacco, ‘sin stocks’,
apartheid,
UNEP Finance
Initiative begins
Bloomberg ESG
Product launched
Consolidation of
ESG data providers
INCR
launched
Pa
st
Fu
ture
• Increasing penetration into non-ESG/SRI motivated investor markets
• Broadening of ESG integration beyond equities into financial institutions, commodities, other securities
• Focus on data quality, standardization, and materiality
ESG to breakout in mainstream analysis
March 31, 2014 23
Socially Responsible Investors are on the Rise
2
3
Significant growth in both the number of firms disclosing ESG as well as the proliferation of ‘environmental ‘ and ‘socially
responsible ‘fund category on the terminal further supports the trend
Co
mp
an
ies
Re
po
rtin
g E
SG
S
RI/
ES
G r
ela
ted
Fu
nd
s
2005 2006 2008 2007 2009 2010
300
600
900
1,200
1,500
700
1,600
2,500
3,400
4,300
+84%
2005 2006 2008 2007 2009 2010
+219%
•SCALE: UN PRI signatories (783); UNGC participants (8,474); GRI participants (1,000+); CDP respondents (2,456)
•HSBC, Barclays, Goldman, UBS, Merrill, Credit Suisse all managing ESG-related funds
•VALUE: DJSI $8 trillion; FTSE4Good; S&P Carbon, HKSE Sustainability Index
March 31, 2014 24
Exposure can have material consequences:
85 percent of companies with global supply chains had experienced at least one supply chain disruption in the previous 12 months.
1. Sudden demand change (53 percent)
2. Margin erosion (42 percent), such as due to a cost increase, lost
revenue, or unanticipated taxes/regulatory changes.
3. Physical product flow disruption (37 percent)
4. Product quality failure (28 percent)
5. Regulatory non-compliance and/or worker-safety failure (20 percent),
6. Social responsibility failure (18 percent).
One study suggests that companies have experienced 30% lower shareholder returns compared to their peers in the wake of a publicly-announced disruption.
March 31, 2014 25
Complexity of global supply chains and increased regulation create challenges:
Complex supply chain • Facilities • Vendors • Licensees • Wholesalers
Constantly changing facility locations and contact details
Traceability and accountability challenges
Supplier information that is time consuming and difficult to verify
A Holistic Solution is needed…
March 31, 2014 26
4 Essential pillars for Effective Supply Chain Management
1. Visibility
2. Flexibility
3. Collaboration
4. Control
March 31, 2014 27
Intertek saw a market need for…
A complete solution – people & platform
A consistent process and system
A collaborative tool
✔
✔
✔
March 31, 2014 28
Global Supplier Management The 4 steps for better visibility & control :
Collection and cleansing of supplier information
Business profile completion
1
2
March 31, 2014 29
Step 2 Business profile completion
• Company Profile
• Operational Controls
• Capabilities
• 4 Compliance Areas:
• Quality
• Social
• Environmental
• Security
• Integrity & Anti-Corruption Practices
• Additional Modules
March 31, 2014 30
Global Supplier Management The 4 steps for better visibility & control :
Collection and cleansing of supplier information
Business profile completion • Additional Modules
Verification services
Risk-based analysis
1
2
3
4
March 31, 2014 31
GSM Case Study 1: Chemicals, Netherlands
The challenge:
• Need to capture water and carbon foot printing within their top 250 suppliers.
• Essential for managing preferred supplier relationships and reporting needs for Dow Jones Sustainability Index, and maintaining innovation in their business
• Education Key, but also Score, analyze, benchmark in one place
• Outsourcing Key
The Solution and Take-Away:
• Online website based system with 24/7 access
• Option to invite all their suppliers onto the system and automate communication to them, supported by in country Intertek staff
• Customized questionnaire to ask key information designed by Intertek Environmental team
• Scoring based on business needs
• Full reporting options to see results defined by their reporting needs
• Risk reporting of Strengths and Weaknesses for supplier guidance
March 31, 2014 33
GSM Case Study 2: Automotive, Germany
The challenge:
• Wanted a risk screening platform for new suppliers and management of current suppliers with regards to sustainability needs
• Important to have multiple modules depending on supplier type for relevance
• Important to be used in compliance management decisions
• Suitable to share with other clients
The Solution and Take-Away:
• Designed multiple modules within the sustainability area to meet different supplier types
• Scoring made relevant and similar within each module to ensure comparability
• Results designed to make clear where the supplier has compliance issues to ensure clear next steps
• Incentivization steps explained to all suppliers during on-boarding to encourage completion
• Option to show improvement during the year and adjust scoring
March 31, 2014 35
1. The less you see, the less you know; the less you know, the greater the risk.
2. If you don’t know, how can we expect supply chain partners or agents to? Do we?
3. Supply chain complexity must be acknowledged but not ‘crutched’: Consumer Retailer/Customer Subsidiary/Brand Agent Production Facilities Subcontractor
4. … Because the pressure to comply goes ‘all the way upstream’
5. Information Management and Enforcement Key
Key Takeaways
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