A recent Wall Street Journal article about a high profile factory accident, this time in Cambodia, brings new emphasis to the fallout that can arise from supply chain risk. Asics Corporation, the Japanese sport shoe manufacturer, sourced some of its shoes from a factory in Phnom Penh. In April 2013, a mezzanine floor collapse killed a young father and a young woman who, reportedly, was only 15. The incident also injured a number of other workers. Fallout from the incident was almost immediate. Asics instructed its nine suppliers in Cambodia to join Better Factories Cambodia, which keeps tabs on working conditions in the Cambodian garment industry.
According to the Insurance Information Institute, over 50 percent of Fortune 500 companies’ profits come from abroad and catastrophic events in the supply chain are hitting these firms’ profits. Thoroughly evaluating your sourcing partners to identify potential failure spots along your supply chain, including safety and working conditions, you can avoid the fallout from a labor issue such as the event Asics, and other manufacturers, have recently experienced.
But evaluating and choosing your supply chain vendors is just one part of supply chain risk management. One of the surest ways to protect your company’s reputation is to practice Enterprise Risk Management. Taking a “divergent” approach to supply chain risk, a senior business leader asks: “Our reputation can suffer due to the actions of our vendors. What are the events that can impact our reputation and how can we best mitigate those events from occurring?” The ALS Group works with many manufacturing companies to help them mitigate their supply chain risk.
The insurance industry is responding to reputational risks with new insurance products that can help companies repair their name after a public relations debacle. However, for some companies, a factory disaster or other catastrophic event thousands of miles from its home office can, literally, bring a company to its corporate knees. According to a 2012 Aon-sponsored study, of the ten companies that suffered “significant” reputational damage in 2011, two lost almost 90 percent of their value and seven lost more than a third of their value. No organization can afford that kind of risk.
A comprehensive supply chain risk management plan can help to ensure your company is partnering with organizations that embrace the satisfactory safety and labor standards. The ALS Group can help you protect your company’s reputation and, ultimately, bottom line by not only designing such a plan, but also by implementing best practices that are strategically aligned with your organization’s overall business plan.
If you’d like more information regarding supply chain risks or Enterprise Risk Management, please contact me at 732.395.4251 or at [email protected].
