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14.03.14

Why knowing your suppliers’ suppliers is so critical

Source: Rail Technology Magazine Feb/Mar 2014

Annette Gevaert, Director of Rail and Transport at Achilles, discusses buyer attitudes to supplier risk and
corporate reputation. 

What visibility do you have of your supply chain beyond the first tier? What risks are rail industry buyers exposed when it comes to Health & Safety compliance of second or third-tier suppliers? And what would be the consequences of a fatal accident caused by a tier-three sub-contract worker? Research* just released, shows a large proportion of buyers are blind to these issues.

Many buying organisations have the misguided view that responsibility for what happens at lower tiers stops with the tier one supplier. But in today’s business climate, those doing the purchasing are now expected to not only check for proof of a supplier’s compliance with health and safety requirements  but are expected to monitor their status – and that’s across the entire supply chain, down through all tiers of sub-contractors.

However, cross-industry research from Achilles – which includes companies serving the rail and transport sectors – highlights a gaping hole in procurement professionals’ understanding of the supply chain at tier two and tertiary levels. The independent report conducted by IFF Research into Procurement Trends for 2014 shows over 50% of organisations admit to having less visibility of their tier two suppliers than tier one and a staggering 34% of buyers don’t even know who their tier 2 suppliers are.

Health and safety executive statistics for the construction sector – integral to keeping the railway moving – show 39 fatal injuries to workers in 2012/13 and many more near misses. With all the costs, damage to reputation and possible exposure to litigation, shouldn’t procuring organisations have greater visibility of who their sub-contractors are, at every level, and evaluate the compliance level of those suppliers? Monitoring sub-contractors’ compliance to health and safety regulations is a critical step in mitigating the significant risks that can arise from an errant supplier.

Problems regarding visibility of supplier activities beyond tier one were at the root of the notorious ‘horsemeat scandal’ last year. To prevent equivalent supply chain issues impacting the rail sector, the industry needs to address this core concern by mapping its supply chain – to complete the picture on compliance at every level.

As yet, companies across most industrial sectors are moving slowly on mapping their supply chains. The Achilles research reveals that only 44% of businesses with 250+ employees have mapped out their supply chains to date, 15% are intending to do so, but worryingly, 31% have no plans to gain visibility into the lower tiers of their supply chains.

The rail sector must not lag behind. Across all industries the Achilles report shows that all the average cost per business of supply chain failures was £164,600. This includes the full range of supply chain disruptions – from health and safety, to the financial failure of suppliers and even the cost of natural disasters to the supply chain. 8% of businesses experienced an issue with health and safety, which cost an average of £25,000 per time.

So what is holding back such a high proportion of companies from mapping their supply chains? The answer can be found in the research, some 44% do not have the staff/resources to undertake the required work.

This is why a new collaborative approach to mapping the supply chain makes perfect sense.

The secret is in automation where ‘cascading invitations’ are sent from buyer to supplier and from supplier’s supplier ad infinitum, to gather comprehensive information about the supply chain and supplier compliance within it – protecting buyers and mitigating risk.

Following the horsemeat scandal, it is quite evident that buyer attitudes to supplier risk and corporate reputation need to change – and this is true within the rail industry. Higher levels of due diligence are clearly required and, importantly, we need to know a great deal more about our suppliers and our suppliers’ suppliers than we currently do. Mapping the chain through the tiers is a prerequisite to ensuring supplier compliance and protecting both brand and shareholder value. But why not do this collaboratively? After all, it’s for the good of all.

*Research was conducted on behalf of Achilles by IFF Research in January 2014 amongst 146 directors, procurement managers and buyers of large UK businesses with over 250 employees.

About Achilles

Achilles helps businesses identify and manage potential risks in their supply chain in order to protect people, planet and profit. Achilles identifies, qualifies, evaluates and monitors suppliers on behalf of some of the world’s largest corporations. We carry out thorough verification of supplier data and undertake thousands of on-site audits to ensure the supply chain is compliant. This enables buyers and suppliers to form long-term, mutually beneficial and trusted relationships. We raise global standards by forming communities of buyers and suppliers across a wide range of industries – including automotive, construction, ICT, finance, mining and cement, oil and gas, public sector, service industries, transport and utilities.

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