Many businesses are challenged by the dual demands of the internal economic drivers of an organization and the external customer requirements for quality and efficiency. As the customer is increasingly empowered and publicly vocal, product quality and safety have become tightly integrated with traceability and supplier scorecards. Bob Ferrari, a leading supply chain consultant, succinctly put it this way: “You never want to hear about the guys who run the supply chains for multinational companies. When you do, usually it means something really bad has happened.”
In addition to safety and quality concerns, compliance regulations can affect the supply chain in finance, shipping, and outsourcing. This article gives an overview of the key risk areas and provides measures to help you improve quality and mitigate risk.
1. Regulatory Compliance
Companies in a variety of industries are increasingly focused on balancing customer growth with compliance with country-specific regulatory requirements.
Fines and penalties are just the tip of the iceberg when it comes to the cost of non-compliance: other hidden costs can include returns and customer issues resulting from a non-compliant product, and implementing new tracking systems if they don’t already exist. The rise of global sourcing as a means to minimize costs has had an unintended consequence of increasing risk, in addition to regulation concerns. Dependence on an increasing number of suppliers makes it difficult to monitor their performance without automated metrics.
Quick Safety Checks
- Does your organization’s traceability system allow for current and emerging global compliance regulations?
- Is someone in your organization responsible for maintaining compliance requirements for varying and changing regulations such as serialization/ePedigree, RoHS, WEEE, REACH and others?
- Does your organization have compliance management systems to ensure materials and supplier certifications are up to date?
2. Accounts Payable Compliance
The Sarbanes-Oxley (SOX) regulation of 2002 was enacted in the wake of the Enron scandal, and although there is still some debate as to its effectiveness, the required guidelines remain relevant for reducing overall accounts payable (AP) costs and errors. The best way to ensure compliance is through automation of an organization’s AP functions, especially invoicing.
Surprisingly, however, a decade after SOX became law, 39 percent of AP professionals indicated that paper-based invoices still make up 90 percent of their total volume. Unfortunately, paper invoices can provide a bottleneck of manual labor at the end of accounting periods, risking inaccurate expense and income statements, which in turn leave a company susceptible to cutoff fraud (“phony profits”) and/or lost invoices.
In addition, automating AP functions enables complete traceability of both process and participants to ensure audit compliance. It can also improve tax compliance by automating tax calculations for each location in the system.
Quick Safety Checks
- Is your AP system integrated with your Procurement system to allow for 3- or 4-way automated invoice matching?
- Have you automated manual AP processes that have historically required additional oversight or caused bottlenecks?
3. Procurement Compliance
Distributors and manufacturers face the challenge of reducing procurement, transportation and logistics costs at a time when supply chain complexity is rapidly increasing through outsourcing and globalization.
To help with effective distribution in an expanding number of regional markets, distributors as well as manufacturers increasingly rely on third-party logistics (3PL) providers to handle international transport of their products. This strategy enables companies to both reduce distribution costs and mitigate risk of damage to their products, and thereby contribute to their primary business objectives. Businesses can adopt visibility, collaboration, and traceability systems and processes to meet both regulatory and consumer standards.
Quick Safety Checks
- Does your organization outsource any part of production internationally? If so, do you employ a 3PL provider to mitigate risk, increase customer satisfaction, and reduce transportation costs?
- Does your organization have a supplier scorecarding system to ensure your suppliers meet regulations and standards?
- Do you have an automated system in place to calculate the correct duty amounts in order to avoid fines and penalties?
- Do you have a system for tracking the variety of country regulations pertinent to your industry, and ensuring that your products meet those standards?
4. Areas Outside Your Direct Control
In addition, unforeseen environmental, political, and economic crises can stop a supply chain in its tracks. A recent incident that halted production for a variety of industries across the globe was the Japanese earthquake and tsunami in March2011. Order fulfillment in a variety of industries was delayed for weeks or months, and the worldwide economic impact was severe.
While these crises cannot be prevented, companies are nevertheless on the hook for mitigating their risk of exposure to a variety of supplier performance issues. Two common strategies are to diversify the supply chain (despite the trade-off of higher cost) to ensure lower risk and to hold suppliers to specific standards.
Supply chain product compliance is increasingly complex, with companies required to disclose detailed information about their products, including composition, origin, and regulatory status. Managing this data remains a critical supply chain challenge that is necessary in order to comply with a wide array of regulations.
Other challenges that leave an organization open to risk involve the variation in country regulations for global trade and supplier performance in the areas of financial status, shipping performance, and compliance with business processes. In a global economy, risk is also heightened by natural disasters as well as political and economic breakdown. Successful supply chain strategy is dependent upon implementing automated systems for tracking supplier credentials, certifications, and financial and operational performance that includes safety and risk mitigation.
Donna Fritz is VP of Marketing and Product Management at Take Supply Chain. For more information, visit www.takesupplychain.com.