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Supplier audits not up to the challenge.

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Over the last week world headlines has been dominated by the news of the collapse of a garment factory complex in Bangladesh, leading to questions about the effectiveness of supplier audits.

 

According to reports on The Wall Street Journal, at least two of the buildings in the Rana Plaza complex, a series of factories located 20 miles outside the capital Dhaka which collapsed killing 382 people, at last count, and injuring many more, had passed international labour and safety standard audits carried out by a European trade organisation.

 

It is believed that the owner of the complex, local politician Sohel Rana, had not obtained the correct building permits and constructed the building on low-lying, swampy land that was unsuitable for such a building.

 

This begs the question whether simply relying on that kind of audit for suppliers is enough. If you believe the answer is yes then you may want to review the media’s prolonged probes of who bought what from companies that were set up in that complex. 

 

If you believe this isn’t enough and you need to go deeper, then you may ask yourself how can you possibly do this. One approach that deserves attention is mapping out your supply chain, from your key tier one strategic suppliers all the way down to find out who the suppliers to your tier three suppliers are. Returning to the fire at a clothing factory in Tazreen, Bangladesh, it was astonishing to see that global retailer Wal-Mart didn’t seem to know that it had suppliers involved. Of course, Wal-Mart has a huge number of suppliers, and when you go down a tier, that expands again. Still, that lack of knowledge was costly in several ways. 

 

By using mapping, effectively let’s assume, you will be able to build up a picture of not only where your goods and services come from, you will also be able to identify where any potential problems could arise and also uncover whether there are any companies in your supply chain that you didn’t know existed. Mapping and audits go hand-in-hand here - but the beauty of quality mapping is that it can direct where and how audits need to operate. 

 

Many are now doing this, from Apple through to European food & beverage firm Jordans and Ryvita.

 

Speaking to Procurement Leaders for a recent [members access only] analysis of supply chain mapping Alison Farrar, procurement director at Jordans said, "Supply chain mapping is something that we have been looking at, but this hasn’t been driven by the horsemeat scandal, we were already doing this work from an ethical standpoint."

 

She did, however, explain that in some areas, such as flavourings, it is difficult for companies to get back to the original source. Some suppliers meanwhile haven’t been as receptive to the process as others and it has been a time-consuming process for the team.

 

While there clearly are challenges in such an undertaking, the risk of not knowing what is going on in the supply chain is simply too big and too important to ignore. Take conflict minerals: legislation in the US last year made it clear that the ’We had no idea where they came from’ defence wouldn’t apply any more. 

 

When you look at the various scandals in supply chains that have implicated purchasers thousands of miles away, it’s a safe bet that if there isn’t greater governance in place that places the responsibility on purchasers, there is at least a growing awareness among consumers that businesses should have a handle on their supply chains. 

 

Mapping and auditing are the beginning, but the implications for low-cost sourcing strategies and the relationships with first-tier suppliers will continue to push risk up the agenda. 

 

Tim Burt is premium content writer for Procurement Leaders. To subscribe to the magazine, click here.  

Tim Burt
Posted by Tim Burt