Geopolitical risk has been ratcheted up a few notches recently with North Korea’s missile and nuclear weapons tests. But, while CPOs will be considering the impact heightened tensions will have on their operations, they should also be carefully studying where exactly their supply chains stretch to or they could find themselves on the wrong side of new UN-backed sanctions.
After each of North Korea’s recent missile tests, the UN has condemned the action and has sought to try and put pressure on the country’s leader, Kim Jong-Un, and his regime through economic sanctions. These have included a ban on exports of coal, iron and lead ores, seafood, and most recently textiles, from the nation.
Many procurement chiefs, especially those in the apparel industry, may not be concerned because they know they do not source anything from North Korea. However, a quick scan of export data and recent headlines would suggest otherwise.
In 2016, textiles was the second biggest North Korean export, according to the Korea Trade-Investment Promotion Agency. Almost 80% of those exports were sent to its neighbour China, a hub for firms producing clothing and footwear for western retailers.
While reports suggest that the sanctions are being strictly enforced along the border between China and North Korea, there are concerns that some production may slip through the net because of the porous between the two countries. These goods will continue to feed into the supply chains of the world’s retailers whether they know it or not. If they are not aware, this is when problems will arise.
As an example, in 2016, extreme sports apparel company Rip Curl was forced to apologise after it was revealed that some of its ski gear, which was labelled as ‘Made in China’ had been produced in North Korea.
The company said it was unaware its Chinese supplier had outsourced production to North Korea.
The issue is that these sanctions now mean that it isn’t just damage to a reputation that businesses risk, it is breaking international law.
Trusting suppliers not to outsource production will leave retailers vulnerable to trouble. Procurement professionals need to take it upon themselves to conduct stricter due diligence of their supply chains, especially when those supply chains extend close to China’s borders with North Korea. Supply chain audits are essential here but so too are unannounced visits to your suppliers to ensure that nothing untoward is happening.
Taking no action and hoping for the best is simply not an option.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.