One of the realities of the modern business environment is that Chief Procurement Officers (“CPOs”) and their teams increasingly must dive into the murky and ever expanding waters of supply risk and get their hands dirty. The further they dive, the dirtier their hands can get; but this is not only their job in 2016, it is also their opportunity to position their companies as market leaders in corporate social responsibility (“CSR”), human rights, and sustainability and find and retain the best talent in the marketplace. These were the main themes during a panel discussion at SAPAribaLive 2016, co-chaired by Stan Brown, Vice President of Global Supply Chain and Chief Procurement Officer at CA Technologies, and Michael Posner, former diplomat and current Jerome Kohlberg Professor of Ethics and Finance and Professor of Business and Society at New York University’s Stern School of Business.
It is a rare opportunity to have leaders from academia, government, and industry sit down together and discuss both the dangers and the opportunities for businesses today in supply risk management. Together, they wove experience, concepts, and strategies together that other CPOs and supply management leaders would be wise to consider and adopt, particularly as risk management increasingly becomes ingrained within the CPO’s job description, and the breadth and depth of supply risks continue to expand.
All Hands on Deck
For Brown, supply risk is part of a larger scope of enterprise risks, including accounting fraud, natural disasters (floods, tornadoes), and labor issues, like conflict minerals and modern slavery. “You put that all together and you ask, ‘How could I not do something about vendor risk?’” said Brown. In this context, he and his team instituted a vendor management program at CA Technologies that is both mandatory and inclusive. Everyone must play a part, however large or small.
Brown and his team began by defining what roles were needed for the program, starting with compliance officers who “set the strategy for what the risk should be or the area that they have responsibility for,” but they do not get involved in the tactical, day-to-day operations. That’s the process owners’ job; they monitor internal and external stakeholders in real- or near-real time and ensure that all parties are adhering to the policies established by the compliance officers. Critically, this is not a “set it and forget it” supply risk management program; it is a dynamic operation that is conducted year round and is responsive to the evolutionary nature of global regulatory environments. This goes for audits, too, which are conducted and reviewed regularly. “Once you stop being proactive, you’re going to be in the news just like everybody else,” said Brown.
“Head in the Sand” is not a Strategy
In the wake of the April 2013 Rana Plaza factory fire and collapse in Bangladesh, in which more than a thousand textile workers perished, a dozen retailers, like Wal-Mart and Benetton, were caught off guard when their products were found at the scene. They had no idea that their supply chains extended all the way to Rana Plaza via sub-contractors, and they suddenly found themselves in the news for all the wrong reasons. This is according to Michael Posner who, prior to joining NYU as a professor, served as Assistant Secretary of State for Democracy, Human Rights, and Labor at the U.S. Department of State from 2009 to 2013. He recently concluded a two-year project in which he and a council examined global supply chains and the relationships between buyers, suppliers, and the countries and governments in which they operate. As Posner said, “The strategy to keep your head in the sand works only until it doesn’t work; and then it’s too late.”
These trends are only accelerating, with conflict minerals in the Congo, conflict diamonds in West Africa, human trafficking and modern slavery in the cotton and shrimping industries, and myriad other supply risks throughout the global supply chain. Risk is everywhere for the modern enterprise, and CPOs are on point to manage it. “The idea that you’re going to somehow fly under the radar while not risking your brand reputation is just not realistic,” said Posner. These are major, complex, and far-reaching problems, for sure, and they can overwhelm even the largest and savviest enterprises. But leave it to a seasoned diplomat to find a diplomatic solution to the problem.
Supply Risk Management: A Shared Responsibility
“Industry leaders are coming together and finding common standards and metrics so they’re operating with a common platform.” And for those enterprises that operate within countries that lack the support of many Western governments, he and his team also advocate the notion of “shared responsibility” where enterprises, suppliers (first tier and beyond), governmental and non-governmental organizations collaborate and pool resources in order to mitigate supply risks up and down the supply chain.
Given the volume and variety of data and information available today on supply risk, and that everyone is looking at companies’ supply chains – academia, media, non-governmental organizations (“NGOs”), and regulatory bodies – gaining visibility into a company’s supply chain is the prudent thing to do. It is not just the threat of legal action and/or negative publicity. As Posner pointed out, there are numerous supply chain-related transparency laws currently on the books – from Dodd-Frank and the California Transparency in Supply Chains Acts, to the Modern Slavery Act in the UK, to upcoming supply risk reporting legislation in the EU. As a result, there is too much supply risk for companies to not take it seriously.
Supply Risks: Dangers, or Opportunities?
Companies that “view these supply chain risk issues as part of their core business” – rather than flashpoints for lawsuits or bad press – tend to lead their industries and recruit and retain the best talent, said Posner. For industry leaders, like Intel and Unilever, “it’s not marketing, it’s not ‘corporate social responsibility,’ it’s how they operate.” This creates a symbiotic relationship of sorts between such companies and the leaders of tomorrow who are graduating from business school and want to work for companies that not only care about the issues, but also push the industry forward on them. Industry leaders want the best and brightest to work for them, and the best and brightest increasingly want to work on the right side of history. They want to lead the charge on environmental issues, human rights, sustainability, and other mainstream CSR issues.
Brown agrees, adding that people who believe the old saying, “there’s no such thing as bad press” are not the right fit for a company’s supply risk management program. On the contrary, “to keep their name out of the limelight,” companies need to “put the right program in place manned by the right people with the right training,” said Brown. This will put companies on a path towards effective supply risk management.
CPOs and procurement leaders in 2016 have a unique opportunity to lead the charge on supply risk throughout the organization. Leveraging smart and driven people and a network of governmental and non-governmental resources, enterprise procurement teams can commit to doing right by not just the shareholder or the consumer, but also by the environment, the laborer at the far end of the supply chain, and their own people.