RESILIENCE AND ADDED VALUE: SUPPLY CHAIN TRANSPARENCY FOR A MORE CRISIS-PROOF ECONOMY
The adoption of a nationwide supply chain law is currently not only hotly debated in Germany, but also keeps the industry on its toes internationally. However, the topic is by no means new: As early as 2016, the German government sent a similar impulse towards business players with the National Action Plan for the Implementation of the UN Guiding Principles for Business and Human Rights (NAP). Companies are called upon to respect human rights and to comply with due diligence obligations – albeit on a voluntary basis, which is why many companies have not yet fully complied with these demands. At the same time, the increasing work of companies on SDGs shows that the development of resilient supply chains is not only a one-sided investment but can also make the economy more resilient in the long term.
The National Action Plan for Business and Human Rights (NAP) is based on the UN Guiding Principles and was welcomed by many companies in Germany when it was adopted in 2016. It sets out five core elements of due diligence that companies must fulfill:
- Public declaration of respecting human rights
- Procedures for identifying actual and potential adverse human rights impacts (risk analysis)
- Measures to avert risks and checks on the effectiveness of these measures
- Establishment of or participation in a complaints mechanism
In a monitoring process from 2018 to 2020, the German government has examined how companies with more than 500 employees based in Germany comply with these requirements. The result is quite sobering: in 2020, only 13 to 17 percent of the companies examined met the NAP requirements, while a further 10 to 12 percent were on the right track but still had deficits. These are the findings of the final report of the NAP monitoring process. Binding measures are now to be derived from this; non-compliance with the requirements by at least 83 percent of the participating companies is a strong argument for a supply chain law.
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ANALYZING AND MINIMIZING RISKS
These results raise the question of why companies are not pushing the issue more strongly and ensuring greater resilience in their value creation processes. One main reason for this is the costs involved, since a comprehensive risk analysis is time-consuming and thus demands work resources and also money. The Covid 19 pandemic is also causing slow progress in the work on the NAP requirements. However, it is precisely in such crises that a resilient supply chain reduces the susceptibility to risk and helps to minimize negative consequences such as supply bottlenecks or a drop in sales. A risk analysis is therefore used to identify and evaluate potential risks in the supply chain in order to derive a decision.
Here is a simple example: A supply bottleneck occurs with a single supplier. Since he is the only supplier for this part of the value chain, his failure delays the entire production process enormously. The company could counteract this by switching from a single sourcing to a dual sourcing strategy at this point: In this way, the risk is spread over the shoulders of several suppliers and capacity bottlenecks can be prevented. In the best-case scenario, risk analysis is an ongoing process in which developments are continuously re-evaluated in order to limit the negative effects. A risk analysis not only serves to weigh up risks – it often also reveals opportunities for optimizing business processes.
RESILIENCE AND ADDED VALUE
In order to avert risks and at the same time identify potential for improvement, reliable data and supplier monitoring across multiple levels of the supply chain are essential. However, many companies lack transparency in their own partner management. But by digitizing their own supplier network with TRUST&TRACE, companies can take action: The software makes it easy to integrate new business partners and manage the data of existing suppliers in the network in a secure manner. Each company maintains its data independently and makes it available to its business partners – the data is therefore only entered once and used several times, while at the same time all participants retain control over their own data. In addition, the company data can be verified by third parties in order to bring trust to the data and thus to digital business relationships. Proof of social, environmental and quality data can also be verified in the software by providing certificates. In this way, companies not only keep track of their suppliers’ compliance, but can also use the data as a basis for risk management. This not only increases the resilience of their own value chain, but also makes the entire company prepared for future crises.
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