Don’t just play it safe – try something creativeJuly 2011
Supply chain ethics is not solely about managing risk, it’s about seeking opportunities, says Daniel Hsu
Recent headlines from China have included a deadly accident at Foxconn, a product recall that took meatballs off retailer shelves, and chemically induced ‘exploding’ watermelons that cast doubts on produce quality in Jiangsu Province. For the many firms that source from China, stories such as these are reminders of the many risks inherent in complex supply chains. Given this, it is not surprising that most companies take a risk-management approach to their supply chains.
Yet there is another dimension of the supply chain that is often hidden or left out of business considerations—opportunities. Companies that look for opportunities in their supply chains, rather than just risks, can find ways to bolster margins, enhance reputation, and increase competitiveness.
In my recent work I’ve seen first hand examples of innovative supply chain strategies that go beyond managing risk to creating competitive advantages in the marketplace as well as positive environmental and social impacts.
For instance, one hotel of a well-known international chain was located in a remote tourist location, making it difficult to obtain the standard decor from the franchise’s centralized source. Instead, management decided to purchase crafts from local artisans to decorate the hotel, taking advantage of the area’s cultural distinctiveness. This approach reduced overall costs, strengthened ties with the community, and created a unique experience that was well received by hotel guests.
I’ve also spoken to a pharmaceutical company recently which has developed a policy to engage suppliers in designing new manufacturing facilities. When suppliers plan expansions, the company offers its own engineering team to help the suppliers incorporate the most energy-efficient technology as well as the highest environmental, health, and safety standards into the new buildings’ design. In the end, this policy helps minimize production costs, improve supplier relationships, and establish long-term competitiveness in a fast-changing regulatory environment.
In another example I’ve witnessed, a major retailer is beginning to source directly from agribusinesses, eliminating several intermediate steps between the farm and the store. By shortening its supply chain, it is reducing costs, securing a more stable supply, and ensuring greater quality control. It is also promoting greener farming practices and raising supplier incomes.
The actions in the above examples are not necessarily simple or cheap to implement. They require creativity, investment, and adaptation to local situations. But stepping out from behind a risk-focused lens and taking a different perspective can reveal opportunities that can build long-term business success with positive wider impacts.
So if both risks and opportunities exist in the supply chain, why consider only the former?
Daniel Hsu is a manager in the Beijing office of BSR and may be contacted at email@example.com
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