The challenging pandemic days may be behind us, but the supply chain still hasn’t fully recovered. Experts predict the condition of the supply chain could get much worse because of increasing cyber-attacks, and market uncertainty based on events like the war in Ukraine and developments in China among other risks. Plus, the supply chain issues are already exasperated because of bottlenecks in warehousing capacity and transportation.
So what can you do to make sure your business continues to run as smoothly as possible during this time of heightened supply chain risk? Here are seven red flags you should look for and act:
#1 - Keep Safety Controls Tight
The challenge is safety tends to get sacrificed when money is tight and companies start cutting corners. On January 30, the National Highway Traffic Safety Administration slapped Volvo with a $130 million civil penalty after finding the manufacturer of heavy-duty trucks and buses failed to recall vehicles in a timely fashion—and neglected to submit death and injury incidents.
An Avetta survey found that 38% of Environment, Health, and Safety (EHS) leaders are concerned about the lack of time for workers to engage in safety efforts. I recently heard some good advice from Tim Page Bottorff a senior consultant at SafeStart, that he learned from his father: If you cut a corner, you create two new ones.
Recognize that the solution for Volvo and every company is to double- down on safety on three levels: the company, workers, and job site. These safety controls must include consistent compliance screening processes, worker qualifications, training, and the ability to benchmark incident rates against industry averages. Staying consistent will help you. If you set precedence with one exception, you might open the door for others.
Give suppliers and contractors the ability to React with corrective action and provide resources like templates, policies, training programs, and proper insurance coverage. You should Run if they are unwilling to have open communications and make changes within a specific timeframe. Your contractors must qualify workers for high-risk jobs and obtain proper permits or incident rates will continue to trend up.
#2 - Ensure Proper Insurance Protection
Jackson, Miss., found out the hard way about not having the right insurance when aging water pumps shut down and water service was cut to most of the city. Most of the companies were not covered by business interruption insurance policies---a problem that can and will likely be repeated throughout the U.S.
Recognize the challenge that many businesses are penny-wise and pound-foolish by cutting insurance during downturns. React with the understanding the solution isn’t just a one-time check on insurance for your company, suppliers, or vendors. Policies need continuous monitoring and updating for any large projects on the horizon. Run if the supplier or vendor fails to maintain proper insurance to get the work done.
#3 - Greenhouse Gas Emissions
The regulatory environment is evolving fast. For example, California may require businesses that generate more than $1 billion to disclose their carbon emissions data. The Securities and Exchange Commission (SEC) is considering similar requirements on a national level. Plus,
Germany now requires a 65 percent reduction of greenhouse gas (GHG) emissions by 2030 compared to 1990 levels. Germany intends to be net zero by 2045 and many other governments are likely to follow.
The recent survey of EHS leaders also found 56% of respondents saying their organization’s leadership has made sustainability a strategic priority.
Recognize that companies should prepare now for future regulatory changes. You can start small to get your supply chain on board but you should start a strategy on how to measure and improve your company’s greenhouse gas output. These efforts must be driven top-down by your board of directors or top leadership.
React by training your employees and engaging suppliers about your sustainability strategy and how you plan to measure emissions. It’s critical to have third-party verification of those measurements. Don’t Run yet but prepare for the future by maintaining supplier relationships.
#4 - Diverse Sourcing
Many government contracts now require diverse suppliers, which means more companies are focusing on Diversity, Equity, and Inclusion (DEI). IBM was recently recognized as the top company for DEI. The technology company has its own Be Equal platform that pushes Black, DiversAbility, Hispanic, Indigenous, LGBTQ+, Pan-Asian, Veterans, and Women DEI initiatives.
Companies can Recognize these new goals by creating a baseline of supply chain diversity, then verifying, validating, and setting targets for supplier diversity status, usage, and spending. Once again, this is an area where third-party verification is important.
Business leaders should React by enabling diverse sourcing with internal training, and coaching and by expanding targets for diverse suppliers in bidding. It’s a win-win situation if the supplier is also local. You should monitor all suppliers and Run from any with a history of problems with human rights, modern slavery, or child labor.
#5 - Financial Health
Many companies are tightening belts and major tech companies like Google, Microsoft, Meta, and Amazon have announced layoffs for more than 150,000 workers. The challenge is that it is very hard to know financial health throughout the supply chain and credit checks simply are not enough.
Business leaders should Recognize the need for continuous real-time monitoring of financial health, liens, credit, and litigation. They should then React by doing additional research on red flags and by diversifying suppliers and vendors to limit potential exposure.
You should Run if anyone in your supply chain has recorded bankruptcy filings, a documented history of financial struggles, or leading indicators suggesting a near-term bankruptcy.
#6 - Bad Actors
The U.S. and other democratic nations continue to impose additional sanctions on Russia, China, and countries lending support to the invasion of Ukraine. The supply chain is full of bad actors (criminal behavior, sanctions violations, cybercrime) that can be costly plus kill brand reputations.
Recognize the need to continuously monitor legal issues, Office of Foreign Assets Control (OFAC) sanctions, and criminal activity.
React by digging deeper into negative press and educating your suppliers and vendors about cyber risks. The Foreign Corrupt Practices Act is often cited by federal investigators focusing on bribes that are routinely done by intermediaries. You need to conduct due diligence with a third party to discover if there are bribes hidden in your supply chain.
Run from suppliers on OFAC global sanctions lists, Politically Exposed Person (PEP) concerns or damaging litigation, or other ongoing reputational issues.
#7: Supplier Buy-In
This is the time to build stronger relationships with suppliers and contractors. Recognize the need to create a communications plan that makes it easy for them to understand compliance requirements and the benefits for your company and them.
The best way to React is to solicit contractor feedback on your compliance programs, offer incentives for well-performing vendors, and create regular communication channels. Run
from non-compliant conditions where you will not compromise and align companywide measures to ensure consistency.
In summary, your plan should be safe, sustainable, and secure. You can keep your company safe by insisting on contractor and subcontractor prequalification, audits, and insurance verification. Risk assessments should be made of worksites with high-risk observations and performance reviews. Management needs to make sure workers and contractors are trained and continue to comply with your company’s safety standards.
Your company can be sustainable by having an ESG plan with scoring and evaluations to prevent modern-day slavery, child labor, or environmental problems. Make sure you have an ongoing program to monitor GHG and carbon reporting. And actively keep track of the progress being made for diversity and inclusion.
Keep your company secure by reducing financial risk with supplier credit reports and records of liens and bankruptcies. Monitor for bad actors for litigation, negative press, or appearing on OFAC sanctions lists. Check cybersecurity efforts by vendors and suppliers consistently for threats.
This may seem like a lot of work and there’s an old saying that the best way to eat an elephant: is one bite at a time. You may need people outside of your company to help you keep track of all these steps and information—together you can finish this elephantine task.