With supply chain scandals on the front pages more than ever, is it time for organisations to take a closer look at how they function and cut out the bad links before it’s too late? By Joanne Frearson | Supply Chain 247
There are no guarantees the horse-meat scandal which rocked Britain last year will not happen again. The problem, says David Noble, CEO of the Chartered Institute of Purchasing & Supply (CIPS), is that it is impossible for CEOs to have an all-consuming knowledge of where things come from in their supply chains.
It is a scary thought: that the world’s biggest and most powerful companies’ supply chains could be involved in such scandals. But changes are underway in the industry – CIPS is on a mission to bring these conglomerates together and is calling for self-regulation of the industry.
Noble is clearly passionate about the issue. “The profession needs to be licensed and we are calling for self-regulation of professionals,” he says. “Not just the state of their enterprise, whether it is public or private and how well they do their job, but also their public good.
Bad supply chain management is affecting all of us in some way. It is certainly becoming much more talked about, whether it is through the damage done by the horse-meat scandal or whether it is factory collapse or modern-day slavery.”
When it comes to promoting standards in the supply chain industry, CIPS is a big player. It is the world’s largest professional organisation in procurement and supply, and big businesses listen to it when it has something to say. Its Markit/CIPS UK Manufacturing PMI index is seen as an industry bellwether, and is closely monitored by the Bank of England and key economists in the UK. And in its push for self-regulation, CIPS already has some of the big industry players on board.
“We have some very strong links to the heads of companies around the world,” says Noble. “They are saying we have to have this licensing requirement in our supply chains. We started our campaign early this year and have engaged in a number of big corporates. The CEO of Rio Tinto is one of our fellows. He is someone who has been in purchasing most of his career before he was promoted to CEO. I would like to think in the next five years it becomes the default, that everyone in this profession has to be licensed.”
Having a CEO with a supply background could be an advantage for a firm. Noble says some of the world’s top companies with successful supply chains have CEOs with experience in the industry. According to Noble, Apple has such a great supply chain because Tim Cook was a buyer before he became CEO.
“The smart companies are recognising that how you execute supply chain management is a real differentiator for success in the corporate world,” Noble explains. “Companies are realising this at the board level – that it is something so strategic it makes a difference to what the company looks like.”
In Noble’s discussions with CEOs he has found the best way for them to add value to their business is through the supply chain. “People copy things very quickly,” he says. “You might come up with an all-singing, all-dancing widget [but] it lasts about a month before someone has copied it. You can be the best marketer in the world, but as we move into the service world it is all about execution and efficiency of your supply chain.”
It is very difficult for a company to keep up to date and have full knowledge of everything that goes on in a supply chain. Noble believes there are no guarantees something like the horse-meat scandal will not happen again, as it is impossible for a company to have control of its supply chain down to the most distant tiers. This is why it is important for companies to be licensed and self-regulated.
He says: “Unfortunately I see a lot of this, where buyers are outmanoeuvred by invidious practices further down the chains. What we are saying to these people is, look, what you have to be able to say is I have done everything in my power to mitigate that sort of disaster happening. I therefore have licensed my professionals, I have put in place procedural controls and data analysis and all the things you would expect that are good practice because the media is quite ruthless.”
According to Noble some sectors are more advanced than others when it comes to understanding supply chain risk. Sectors he believes have a weak link are retail and wholesale. “They still struggle to recognise supply chains as different from product management. That to me is a big mistake,” he says.
“It is a very competitive world we live in. A lot of it is driven by consumer behaviour, ultimately. You have the retail and the wholesale industries that work on razor-thin margins. Consumers are demanding low cost.”
Noble is all for helping companies that need improved supply chains. At CIPS there are numerous certification processes to help supply and procurement departments to assess themselves on process and performance.
“We now have an online ethics test,” Noble reveals. “If you do not pass it then you have to retake it – if you do not get through then you do not get a mark from the institute saying you are ethically qualified for the year. This has to be done every year, because the sad thing about the world we live in, the world of fraud and all these things, is that they morph into something different. It is a tough test and it is designed that way because it is a tough world where you can be taken to the cleaners. We ask corporates to target anyone who is engaged with suppliers to take this test.”
What companies are demanding the most is to how to avoid fraud in the supply chain, Noble says. “Demand for it has gone through the roof because companies are getting worried about fraudulent practices. How do they mitigate against them?” The most advanced sectors when it comes to understanding supply chain risk are the commodities, Noble believes.
“The oil, gas and mining industries are the ones that stand out for us. We have the most engagement with those industries. They have a social role to play in countries and they are far ahead in supply chain management.
“The other sector that I think is very competent is the automotive sector – they invest heavily because they know their reputation is on the line with supply chain management.”
In a world where supply chain management is becoming increasingly relevant, the CEO that understands the risks within their own supply chain will stay ahead of the game. The big players are starting to get involved – perhaps a move towards licensing the industry will see public scandals become a thing of the past.