It’s undoubtedly an uncertain time for the UK. Uncertainty is increasing the level of risk facing most businesses and the fragility of EU-UK supply chains and the importance of supplier mapping is more pronounced than ever. According to a Deloitte Survey from 2014, 50% of businesses, regardless of size, fail within five years of launch and it can often be the case that poor supply chain performance is a big contributor to corporate or business failure. Equally, it’s no surprise that organisations that have reported superior revenue growth are those with high-performing supply chains.
To understand supply chain performance we need to first know what that chain looks like. This is the purpose of supplier mapping. It consists of the documenting of the exact source of every material, every process and every shipment your company uses. It is becoming an essential aspect of understanding and mitigating risk for businesses of every size. If it is not already at the top of your list of priorities, it probably should be.
Consider this: Your company buys raw materials, components and products; but do you know where they come from? Naturally, you’ll reply with the names of your suppliers. Maybe those suppliers are in the UK, or the EU, or perhaps further afield. So far, so good.
But where do those suppliers source those goods? Where do they really come from?
Let me tell you a story
By not implementing robust supplier mapping, we believe that you are placing your business at risk of underestimating the impacts of a limited supply chain and running into potentially detrimental problems. The following stories showcase the need to prioritise a robust supplier map…
Let me tell you a story from the world of car manufacturing. The automotive industry, quite rightly, has a reputation for supply chain excellence. Tight controls over specifications, supplier approval, quality control, supply chain oversight and risk management mean they truly operate a just-in-time supply chain.
So, if I told you that in 2012, a fire at a small factory in Marl, Germany, that made a resin called PA-12, brought the global automotive manufacturing to a near-halt, would you believe me? Well, it’s true. Unbeknown to the procurement teams of nearly every car manufacturer, almost 50% of the global supply of PA-12, an essential element in the manufacture of braking and fuel systems, came from that one small factory in Germany.
Incidentally, it wasn’t just the automotive industry that was affected, PA-12 is essential for the manufacture of solar panels too, and so supplies were at a premium. Worse, the manufacturer affected by the fire, Evonik, predicted it would take three months before its damaged chemical plant could resume full production. The result was a meeting of more than 200 executives from companies including General Motors, Volkswagen, Toyota and Ford to set up six technical committees to assess the impact of the shortage and to seek alternatives for the industry as a whole.
One factory, one fire and one supplier (5 or 6 steps up a supply chain from the car manufacturers) caused a whole global industry to be affected.
How about a more recent story?
Remember the saga of battery fires in Samsung Phones? In 2016, Samsung discovered a fault in its Galaxy Note 7s model, unbeknownst to the company, their lithium-ion batteries were at risk of overheating, catching fire, and even exploding; something that would have been avoided if proper supplier mapping had been carried out.
Samsung took prompt action to recall the 2.5 million affected phones and offer replacements. Then it discovered the problem. Rather than following best practice and sourcing batteries from several suppliers, Samsung had bought the majority of batteries from a single supplier. This meant that as well as having to deal with a brand issue, it suddenly had to find, approve and start-up alternative suppliers for batteries.
If the shortfall in the supply chain, highlighted by supplier mapping, had instigated earlier action, Samsung could have improved its processes and prevented the brand damage caused by the controversy.
So what do we conclude?
That big businesses with limited supply chains face big problems? That big companies get it wrong too? Or should we ask ourselves whether we could face the same problem in our own smaller businesses, but that we really don’t know?
Does the need for supplier mapping really apply to us too? In short, yes. If a similar event took place with a smaller business, it would be much more difficult to cover the financial cost of replacing faulty products, and there would be far fewer funds to protect and improve the brand damage caused by the fragile supply chain. Although Samsung is still experiencing a slump in profits, the 2016 battery fires did not kill the brand off- as it may well have done with much smaller companies.
Understanding supply chains is hard work. All of us can list our Tier 1 suppliers (the ones we directly source from), probably by printing a list from our accounting systems. Finding out who those Tier 1 suppliers buy from is harder. Tier 1 suppliers can be protective of their suppliers (many might worry that we’ll go direct to these suppliers to achieve savings). Getting your company’s Tier 2 to talk about their suppliers (your Tier 3 suppliers) is really hard, and going further upstream is truly daunting.
Maybe you can see a simple solution to keep everyone happy. By asking your Tier 1 suppliers to check and certify their suppliers, you gain increased confidence over your Tier 1 and Tier 2 suppliers. Maybe your Tier 2 could do the same?
Seems workable. But… (and it is a big BUT).
There are some things that you buy indirectly, about which there are really tight laws that you have to be 100% confident that your business is compliant with.
Have you heard of the US Dodd-Frank Act? If you buy metals or make metal products, you should have done. In 2017, the EU adopted this US regulation over conflict minerals. This was intended to help businesses identify and address the risks related to 3TGs (tin, tantalum, tungsten, and gold) in their products. These 3TGs have links to adverse impacts in conflict-affected or high-risk areas around the world. As reported, the due diligence and disclosure obligations of the EU regulation commences on January 1, 2021, but for the US, they are in now.
In short, if your product has adverse impacts on conflict-affected or high-risk areas, and you cannot certify that the smelters and refiners that produce metals are now conflict-free, you are at risk of prosecution.
How does supplier mapping fit in with your Corporate Social Responsibility (CSR)?
It’s not just legal obligations that you need to be aware of; the significance supplier mapping in relation to your brand and your Corporate Social Responsibility (CSR) initiatives can also not be underestimated.
In 2013, a terrible fire destroyed the Rana Plaza in Bangladesh, labelled as a “mass industrial homicide”, caused the building to collapse in less than 90 seconds, along with the loss of 1134 lives. Investigations showed the factory manufactured and supplied textiles to many global clothing brands. The working conditions in the factory were appalling. There is a high likelihood that we, or our family and friends, are wearing clothes sourced from the factory or ones like it.
Quite rightly, many of the companies that bought from the factory compensated families of the victims, but it was too late, the tragedy had already taken place, and the brand damage was done. Brand damage was heightened by the actions of the Clean Clothes Campaign. The international workers’ rights pressure group led a campaign to “see all brands who were sourcing either directly or indirectly from factories housed in Rana Plaza commit, and implement, the payment of full and fair compensation for all victims’ families and the survivors of Rana Plaza”. The simple fact is that these companies did not take care to ensure their suppliers were operating in a way that was safe and fair for workers and which would meet the expectations of their customers. If at this point, you don’t think the imperativeness of supplier mapping applies to you, you may remember a challenge in the UK food supply.
In 2018, many UK food manufacturers discovered they were at huge commercial and legal risk by supplying meat products that used meat imported from Brazil. They had sourced the meat from UK/EU based importers. However, that was no defence against the fraud taking place in Brazil in which food standard certificates were being issued fraudulently on substandard meat. The companies that had unwittingly bought the raw meat found themselves at the heart of a scandal that required recall of products with all the cost and brand damage that comes with it. The consumer believed that they’re buying meat that meets EU, but instead, they’re being lied to, damaging consumer trust.
Furthermore, another Brazillian meat scandal unfolding in 2019 found that the UK purchased £1billion of beef from firms tied to the Amazon deforestation. It was uncovered by Trase, a supply-chain initiative run by the Stockholm Environment Institute and NGO Global Canopy, who discovered the ties through supplier mapping. If you don’t take the initiative to map your suppliers, someone else might.
While I have relayed the tales of woe from big business, the chances are that we’ll never hear about an SME experiencing these challenges because the news isn’t significant enough to be reported on. But that doesn’t mean that the impact will be any less damaging to your business. Our businesses depend on global supply chains, and we need to be sure that we understand and map them.
Taking action to strengthen your business
It should be clear that you need to act on supplier mapping because if things go wrong, it will pose a significant risk to your business. However, we think that taking the time to get the right help to map your supply chain is a positive step in the right direction because you:
- Reduce your Risks. Knowing your suppliers and the supply chain that connects them are the essential ingredient for reducing risks. As you build knowledge, you gain visibility of the parts of the supply chain that could be a problem. This visibility allows you to act. Risk management is a big topic and if you want to learn more, have a look at our insight here.
- To Reduce your Costs. Knowing your supply chain allows you to understand the costs of supply. You might discover that the things you purchase come from long and complex chains that could be made simpler. Simple often means lower risk and lower costs – boosting your bottom line. We have discussed this in more detail in our insight here.
- To Demonstrate your Brand. None of us would stand up and declare that our businesses deliberately sourced goods from suppliers with a poor record in safety, child labour, conflict minerals or modern slavery. But not being able to stand up and say your business hasn’t done everything possible to ensure it doesn’t is just as bad. You cannot claim to be an ethical business ethical if you don’t know who your suppliers are. We talk more about this in our insight here.
What do you need to do?
- Build a supply chain map: Quite simply, start with the list of your suppliers (your Tier 1) and make sure you understand them – where are they and how important are they to you?
- Then start talking to these Tier 1 suppliers and find out where they get their goods from (their Tier 1, your Tier 2), and do the same.
- Repeat with your Tier 3. If you have an effective supplier relationship management (SRM) process, this shouldn’t be too complex. See our article here; the SRM process might be easier than it sounds. If you don’t have great SRM, it’s trickier, but it can be done.
- Next, assess the risk of each supplier or link between them in terms of the potential impact on your product, impact on your costs and impact on your brand. This will tell you where you need to focus on.
- Finally, start the process of dealing with the “Reds”, the suppliers and supply chain links that could threaten your business’s reputation and profitability.
If you feel like you’re stood at the foot of a mountain without clear sight of the path to the top, don’t worry, you can get help. Get in touch and walk you along the path to a clear supply chain map.
P.S. I managed to write this paper without mentioning Brexit! Before you groan, while many businesses have checked to see what the impact on supply chains might be in terms of potential extra duties and shipping delay, it’s worth checking again. It’s never too late to start taking action across your suppliers.
At Bromley Wood Associates, we have extensive experience in conducting quick diagnostics of client’s businesses and giving them options they can act on. If you would like to learn more about creating an effective supplier map to reduce risk and protect profitability, get in touch at email@example.com or call 0333 733 1353.