Only as strong as the weakest link in the supply chain
A company’s supply chain is inexorably connected to its successes and its failures. It can have material impact on value.
This blog was previously published as "The risk of actual (and perceived) provenance issues". We have updated and republished it, to include some recent developments in supply chain legislation and litigation.
Summary: The further one gets outside of an organisation into the value chain both upstream and downstream, the less control and assurance a business naturally has over activities, intermediary products, raw materials and unexpected events. In Indonesia more than 200 childhood deaths from Acute Kidney Injury (AKI) were the result of medicinal raw ingredients being fraudulently substituted for industrial grade - i.e. originating in the supply chain. Pharmaceutical companies, distributors and even the regulators are potentially being prosecuted. We also look at three case studies of other supply chain / raw material issues - milk, shampoo and luggage.
Why this is important: Stakeholders are increasingly considering the business as part of the broader ecosystem and are less inclined to absolve a business for 'sins of the connected.'
The big theme: Provenance of products and raw materials is a key risk factor for any manufacturer. It is essential that companies have appropriate governance measures for their supply chains (and downstream distribution) and have action plans for dealing with disruption to supply and/or sales.
The details
Extensive and often complex supply chains lie at the heart of our current economic system. For some companies these supply chains go beyond just being a part of their raw material sourcing process - they are an intrinsic element of their competitive advantage.
However many companies have limited knowledge of what happens upstream of their direct operations. This is especially problematic for some companies involved in the agricultural/food production sector, but can also be critical in sectors such as pharmaceuticals which we shall discuss later.
The further one gets outside of an organisation into the value chain both upstream and downstream, the less control and assurance a business naturally has over activities, intermediary products, raw materials and unexpected events.
This is why governance is so important. Having strong policies, procedures and technology in place can help to provide a strong governance environment around a business's supply chain. Change is happening as business leaders become more aware of its importance.
