Supply Chain Compliance for Risk Mitigation

Supply Chain Compliance

Apple Inc. recently published their Supplier Responsibility Report (PDF) for 2009.

In this report Apple elaborates what measures they are taking to ensure a broad set of goals at the inbound side of their supply chain. They especially address possible problems at their asian suppliers.The Supplier Code of Conduct contains the following topics:

• Labor and Human Rights (eg. fair treatment, working hours, wages)
• Health and Savety (eg. emergeny prevention, ergonomics)
• Environmental Impact (eg. wastewater management, hazardous substance management)
• Ethics (eg. whistleblowing, protection of intellectual property)

Instead of just including the code within supplier contracts, Apple also monitors compliance through audits, and promotes training of the suppliers employees.

Risk Mitigation

Outsourcing is one possibility for a single company to mitigate some supply chain risks by moving the risks to the suppliers. The financial impact of some risks usually will be covered in the contract by the means of penalty payments for non-performance. Apple is making use of this measure for a long time already. The slogan “Designed in California Assembled in China” is printed on each Apple product.

But outsourcing cannot reduce all SC related risks to zero, since many still affect the company. In the following I would like to point out three measures from the Supplier Responsibility Report and their implications for supply chain risk:

Child labor, insufficient waste management,… not only pose an ethical problem, which must not be neglected, but of course also has implications for the public opinion about Apple and its products possibly annihilating the current campaigns for hazardous substance reductions.

Monitoring the suppliers management system can give early warnings for mismanagement at the supplier, possibly affecting the timeliness of deliveries.

Training of the suppliers employees might increase productivity, job satisfaction, therefore reducing quality issues.

Doing a cost benefit analysis on these topics would be myopic, since it neglects the ethical implications of the measures. On the cost side alone measures like training of the suppliers employees or the ban on child labor seem to be quite cheap.

Conclusion

From a research point of view it is important to integrate these efforts into a holistic SCRM approach. This also shows that supply chain (risk) management and ethical / sustainable behavior cannot be viewed separately in a global supply chain. The interactions between risks / opportunities on the one hand and ethical and sustainable behavior on the other are so complex, that both have to be included in the same model to make the best decision possible.