A hasty purchase may prove a costly mistake. In business, this popular saying rings particularly true: procurement teams are faced with multiple challenges and poor risk assessment in supply chain management can have disastrous consequences.
These challenges have intensified over the past few decades as globalisation and improvements in digitalisation have driven a majority of companies to rely increasingly on outsourcing, often with a view to cutting costs.
This trend means companies have become increasingly dependent upon their main suppliers and has greatly added to the complexity of outsourcing chains.
As a result, 50% of all companies admit to having limited visibility on problems that may affect their logistics providers and suppliers. The centre for advanced insurance studies estimates that companies having experienced disruptions in their supply chain lose on average 40% of their market capitalisation. This alarming observation justifies our increased emphasis on the analysis of outsourcing since the introduction of SPICE.
Beyond the operational consequences, the growing complexity of the supply chain has frequently had disastrous social and environmental impacts, as recent controversies have reminded us (Nike, Mattel, Apple, Rana Plaza…). Companies responsible for questionable procurement practices often suffer from denunciation campaigns and boycotts, which greatly increase the negative impact of the controversies.
Sensitivity and awareness of these issues are rising for all stakeholders of a company (consumers, governments, investors, ONGs, media).
Against this backdrop, we welcome the law on Duty of Care, which encourages companies to improve their prevention of environmental, human rights and corruption-related risks.
Some companies, including Système U, have already anticipated these new requirements and have initiated ambitious responsible buying policies. However this new regulation should encourage a wider adoption of the best procurement practices highlighted in this Newsletter. It should also give further weight to the engagement policy that we apply with companies whose practices we consider to be unsatisfactory.
