A growing sense of global responsibility is prompting consumers to make supply chains more ethical – one purchase at a time. There’s at least one organic food aisle in most grocery stores. Coffeehouse baristas are brewing fair-trade coffee. Food distributors and apparel retailers are offering products that are socially conscious and sustainable. Even natural resources providers are showing their commitment to the delivery of conflict-free supplies and removal of any hint of a connection with bribery and corruption.
Despite this wave of consumer activism, I am routinely surprised that many businesses have no idea how their supply chains impact the environment and entire societies. Far too many businesses still accidentally fall victim to the discovery of abuse and neglect somewhere within their supply network, which can lead to regulatory, operational, and reputational damage, not to mention the impact on those affected.
Globalization brings greater risk to the supply chain
As businesses onboard new vendors and providers outsource their operations to third parties, this adds not only complexity and depth to the supply chain, but also greater risk from an ecosystem that is largely unknown to the primary supply-chain owner.
Consider a global firm that leverages a network of local resellers. Most likely, there is little information on sales agents that operate as one-person businesses because they do not have an online presence. With no data available in-house, the company relies on a Web search to carry out compliance checks and stores data on sales agents and suppliers on spreadsheets.
For many businesses, such incomplete due diligence is all too familiar. The lack of management, transparency, and monitoring – from the procurement office to the end consumer and everything in between – is exposing many businesses to increased risk of regulatory noncompliance, reputational damage, adverse financial impacts, and operational inefficiency. According to Thomson Reuters 2016 Global Third Party Risk Survey, on average only 62% of suppliers, distributors, and third-party relationships are stringently reviewed. Also, only 36% of all those surveyed thoroughly monitor their suppliers for ongoing risks, while 61% have no knowledge of the extent to which third parties are outsourcing.
Exercise accurate and timely due diligence with business partner screening
When a company does not communicate with its entire supply chain, there are most likely things that are happening undetected. Some of these activities may be safe and compliant, but others may be dangerous and illegal. Nevertheless, it’s always a bad sign when the company behind the brand name on the label cannot tell what’s happening – or not happening – in its supply chain.
Although there is no “one size fits all” approach to supplier and third-party risk management, here are six opportunities to infuse data and intelligence into your existing procurement and supply chain processes to build awareness and safeguard operations.
- Supplier onboarding: Automate onboarding management to increase process efficiency. By connecting your enterprise resource planning (ERP) system with a global database that details supplier performance and compliance records, you can conduct due diligence and business partner screening with greater accuracy and speed.
- Risk assessment: Gain data-driven insight into the political, economic, and criminal risks of your suppliers and their country of origin. Support a risk-based approach using these data points, including access to a database that tracks global media coverage, helping ensure that you are aware of the most current negative news on the individual vendor or supplier entity under review.
- Third-party screening: Evaluate third parties to reveal connections and potential changes in risk status using a structured, up-to-date, and highly auditable risk intelligence database. This approach identifies and checks potential risks, including sanctions and politically exposed persons, as well as ultimate beneficial ownership – information that is typically hidden in business relationships and extended partner networks.
- Investigation of suppliers and third parties flagged for risk: Conduct further due diligence on heightened-risk individuals or entities. This step focuses on not only the supplier’s owners, operations, and litigation history, but also key management and decision makers.
- Ongoing monitoring and reporting: Check all saved database entries on a continuous basis for immediate alerts on any changes in risk status. Customizable searches lead to a simplified and accelerated due diligence process that increases the accuracy of name matching and lowers remediation time.
- Employee training and education: Raise enterprise-wide awareness of potential threats. A regular stream of education throughout the year to employees and third parties helps build awareness about compliance policies and regulatory updates, while bridging the knowledge gap.
Running ethical operations is the right thing to do, but it is the consumer who is the real force behind this change. Brand reputation alone no longer sells; people want to know what they’re buying no matter the name on the tag.
Luckily, data is on your side. The rise of 24×7 news cycles, government databases, and watchdog organizations has created a perfect environment for accessing risk data and intelligence. With this information, you can improve oversight of suppliers and other third parties to better anticipate and deflect potential regulatory, reputational, and operational risks; embed processes to detect and resolve them; and take action immediately.
Gain more insight on using Data – The Hidden Treasure Inside Your Business.