Five tips to manage FMCG supplier risk

By Paul Carr, Director of FMCG at Achilles – a global supply chain management company

The Rana Plaza tragedy and the horsemeat scandal have shown that risk lies deep within the supply chains of retail companies.

The consequences are devastating. More than 1,000 people died in Bangladesh and we have also seen share prices plummet, twinned with a significant loss of public trust and associated reputational impact.

Here, Paul Carr, Director of FMCG at Achilles, a global supply chain management company, offers five top tips on how to manage supplier risk within the retail industry.

1.Know who your suppliers are

It sounds simple, but while most businesses know their own suppliers, what about their suppliers’ suppliers? And further down the chain?

With components of products now sourced from all over the world, it’s becoming more difficult to know exactly who is involved in your entire supply chain. This means less visibility of potential risks and a struggle to ensure compliance with specific laws and regulations in each country. We would urge retailers to adopt one global approach to managing their supply chains – coordinating data on all suppliers in terms of people, planet and profit – irrespective of geographic location.

2.Work collaboratively to reduce complexity

Recent events have shown that tackling supply chain risk cannot be done by single stores in isolation; it needs whole industries to collaborate.

In Bangladesh, 70 retailers signed a pact to improve protection for factory workers. In the UK, the National Farmers’ Union called for greater collaboration in making the beef supply chain transparent.

It would be even better if whole industries formed global ‘supply chain communities’ as retailers are often interdependent on the same suppliers. Implementing one standardised approach would allow all retailers to be alerted in the event of a serious risk. Suppliers would only apply once to be eligible to work for all retailers.

3.Map all tiers of your supply base

With a coordinated information system in place, retail businesses can map the supply chain through the many tiers to identify and mitigate risk.

The automotive industry recently introduced a supply chain mapping tool, which sends automated requests for information from buyer to supplier, and then to suppliers’ suppliers, via a cascading invitation. This allows businesses to gain visibility of their entire supply chain and take proactive action to mitigate risk.

4.Check the information provided by suppliers

Information provided by suppliers is only truly useful if it is verified and maintained. Suppliers must be assigned a risk profile, with lower risk suppliers required to undergo a desktop audit to check responses and high risk suppliers required to have a physical inspection of premises. This allows communities to implement clear improvement plans.