The supply chain is one of the most critical aspects of any business. It’s where the majority of products or services are produced, distributed, and sold. Most companies depend on their supply chains to function properly and be successful. However, they should also recognize that risks are associated with each link in the supply chain, including human rights violations, environmental hazards, labor abuses, and more.
Zippia reports that US retail businesses only have a supply chain accuracy of 63%. It results in re-stocking products and delays in deliveries. The most common supply chain error reported was selling a product that was not available in stock, and such errors account for 34%.
Supply Chain Due Diligence (SCDD) is an important process to overcome such issues for companies. It helps identify these potential issues before they occur to prevent them from happening or mitigate their impact once they do arise.
Importance of Supply Chain Due Diligence
One of the most important issues businesses and organizations face is avoiding risks. A company should be able to assess potential risks, such as financial, environmental, or social impacts, that its supply chains may pose to the organization and its stakeholders.
Companies must also ensure that their supply chain is adhering to their codes of conduct and corporate responsibility policy. However, there are many challenges in assessing potential risks in a company’s supply chain due diligence (SCDD).
SCDD aims to identify ways an organization can reduce its exposure by improving transparency across its supply chain, from suppliers down to distributors and retailers. It helps to manage risk better while protecting reputations and maintaining profitability.
In fact, the upcoming German Supply Chain Act (GSCA) can set SCDD standards globally, which aims to come into action from 1st Jan 2023. The GSCA introduces human rights and environmental safety as the supply chain due diligence core points.
The following are the key points to learn more about the GSCA:
- Taking preventive steps that ensure to defend human rights.
- Maintaining environmental standards for aiming for sustainability procedures.
- A reduction in costs associated with litigation.
- Reduced risk exposure related if any adverse impacts occur within your value chain.
- Improved reputation among consumers who will perceive your brand favorably.
- Providing annual reports on supply chain due diligence.
Training
One of the most important parts of supply chain due diligence is training. A LinkedIn study on learning states that 68% of employees prefer learning and training while on the job. At the same time, 49% of employees will undergo training if it is required for handling a particular job or position.
Training is an essential part of the process and has several benefits:
- It helps staff be aware of the risks that they face, so they can mitigate them appropriately;
- It allows them to learn about best practices for handling those risks; and
- It increases their awareness about the consequences of poor handling.
Data Collection
Data collection should be a continuous process. Of course, it is true for any process, but it’s especially important for SCDD as it allows your company to track and analyze various trends.
It should be ongoing. The data you collect today will help you better understand your risk exposure in the future, so don’t stop collecting information just because an audit or investigation has concluded.
Data collection should be done in collaboration with suppliers. You can only get reliable information if you ask the right questions, so you work closely with your suppliers during this process. Hence, they know exactly what information will help them improve their processes.
The suppliers should be responsible for gathering and providing required documentation during data collection efforts.
Defend Human Rights
Human rights due diligence (HRDD) requires businesses to conduct regular assessments of the risks their products may pose for human rights violations. The purpose is not only to prevent human rights abuses from occurring within their supply chains but also to identify potential areas within the supply chain where abuses could occur. It can help them to take steps to mitigate those risks.
HRDD involves a series of steps:
- identifying the issues relevant to your business;
- mapping out your supplier relationships;
- conducting interviews with key stakeholders;
- setting up monitoring systems;
- evaluating whether each supplier is meeting all requirements; and
- finally, reporting back on what was learned from all these processes.
Minimize Environmental Risks
To reduce the environmental impact of your operations, you can:
- Use renewable energy sources. It is likely one of the easiest ways to reduce your carbon footprint. By using solar energy or wind power, you’ll be able to avoid contributing to greenhouse gas emissions. You can also look into programs that allow companies to buy renewable energy credits (RECs). These certificates represent clean energy produced by a third party and sold on the open market.
- Reduce water use in manufacturing processes and other operations where possible. It will help conserve natural resources and prevent pollution from wastewater runoff simultaneously.
- Reduce waste through recycling initiatives. It would help protect our environment from harmful chemicals and toxins that would otherwise end up in landfills or waterways if they weren’t recycled instead. It’s also good for businesses because it saves money by reducing transportation costs associated with waste disposal.
According to a stat published in CleanRiver, an average employee in the US uses 500 disposable plastic cups every year. It also states that US employees dispose of around two and a half million plastic bottles every hour. If you can find ways to recycle this waste done by your employees, you are doing your bit.
Risk Assessment
The risk assessment process involves identifying and assessing the risks associated with your supply chain. A risk assessment is a comprehensive process that identifies and evaluates the likelihood of certain events occurring in your company and their potential impact on your business objectives.
In SCDD, this can be done at multiple levels, from a global perspective to an individual supplier level. It’s usually not necessary to hire separate people for each level; it just depends on your organization’s needs.
Risks can come from external sources like competitors or customers and internal factors like employee productivity or product quality issues. The more detailed you are about what happens in every step of production and how those steps affect each other, the better able you’ll be to identify potential risks ahead of time. In addition, it will help to avoid derailing important projects down the road.
Monitoring and Remediation
The monitoring and remediation process is continuous, as anomalies are discovered during the due diligence investigation. Therefore, you must be flexible enough to adjust your approach based on new information. For example, in some cases, it may be necessary to reexamine entire portions of your supply chain if you find that certain suppliers could pose a risk going forward.
The monitoring and remediation stage is an important part of the overall due diligence process because it allows you to improve both internal processes and external relationships with suppliers.
Reporting and Communication
Reporting is an important element of supply chain due diligence. The purpose of reporting is to communicate the findings and recommendations discussed in your report. When someone reads through your report, they should understand what happened, why it happened, and what you recommend they do to improve their processes.
This communication process should involve all the key stakeholders at each step in the process:
- First, prepare a draft report for review by your client or customers.
- Next, review their feedback on their draft report.
- Make any necessary changes based on their feedback and finalize the document.
- Finally, share with all relevant parties within your company and outside stakeholders such as vendors, suppliers, or regulators.
Conclusion
The supply chain plays a vital role in ensuring that companies can continue to meet the needs of their customers. It’s where products come from, how they are transported, and sometimes even who is responsible for bringing them to market. Since everyone depends on this process working smoothly, companies need to pay close attention to the factors which impact it, especially when they have a stake in more than one location.
Also Read: Crocs reports record revenue despite supply chain disruptions
