The transformation of supply chains is in full swing. As in many other areas, an awareness of sustainability and social responsibility is developing.
Modern logistics, which has evolved over the past decades and led to more complex supply chains, is now being put to the test. The interaction between the many suppliers, transport companies, production and distribution sites must not only function smoothly. In addition to compliance with legal and social standards throughout the entire value chain, risks must also be identified and minimized in good time.
Outsourcing: You can't hand over responsibility
The distribution of individual tasks or entire company divisions to subcontractors and service providers is a popular means of saving costs, among other things. Here in particular, a comprehensive analysis is necessary in order to better assess risks. In addition to the economic factors, it should be checked in advance whether the cooperation at all levels meets the company's own requirements and values.
Because risks and violations that you can't see at first can quickly become your own problem. If the upstream supplier has a problem, it becomes the supplier's problem. This in turn becomes your own problem over time.
Risk analysis starts in your own company
The central requirement of the Supply Chain Sourcing Obligations Act (LkSG), which was passed in June 2021, is to conduct a risk analysis and implement adequate
Measures within risk management. If already in place, the compliance management system or the risk management system is supplemented, otherwise it is established.
The risk analysis of the entire supply chains involves a cross-company audit and is accordingly complex. In the process, each company with which there is cooperation must be individually and systematically scrutinized in order to identify, evaluate and minimize potential (compliance) risks. This includes, among other things, the risk of default, especially with external suppliers.
The current status can be determined by means of a questionnaire, for example, and the results are evaluated and prioritized by experts. The individual results together form the overall risk potential.
Implementation of the risk analysis
The findings of the analysis must subsequently be converted into preventive measures and the risks actively dealt with. The goal is always effective risk minimization within the supply chain. The relationship between cost and effort plays an important role here, as does the question of whether certain measures could give rise to further risks.
If a concrete breach of the duty of care occurs or threatens to occur, measures must be initiated immediately after becoming aware of it, which will lead to a cessation of the breach.
If this cannot be implemented promptly, for example at a supplier, a concept must be developed. In the case of serious violations, the termination of the business relationship may also be considered.
The analysis, measures and correction of possible violations is not a one-time matter. The audit should be repeated annually as part of an overall risk assessment or on an ad hoc basis.
Because only continuous supervision leads to successful supply chain risk management. For example, the introduction of a new product or a new collaboration with a supplier is a suitable opportunity to go through the process again.
Strategic risk management
Unforeseen events can paralyze entire supply chains. In recent months, the Covid 19 pandemic has shown how quickly such a state can be reached and what is then really in focus: basic supply. Strategic planning and sound risk management can prevent the collapse and also prepare the company for such crises.
Strategic planning and sound risk management can prevent the collapse and also prepare the company for such crises.
Even if at first you think that events such as pandemics or natural disasters cannot be planned, a closer look will quickly reveal that such or similar crises have already occurred in the past. India in particular is the perfect training camp for crisis management. Lessons and consequences for future crises must be drawn from every event experienced.
Agility plays a crucial role in this. As required in the entire working world, supply chains must also be adaptable and flexible. Changes in the environment should not lead to collapse, but to (business) development. A focus on a cost-optimal supply chain will not work in the long run. A focus on sustainability and flexibility, together with strategic risk management, will enable stable supply chains.
Have you dealt with the issue yet?
Do you know the risk potential of your supply chains? Have you already dealt with the supply chain due diligence law?
We help you identify and mitigate risks along your supply chain. Write to us a message or just give us a call!
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