There is no question that supply chain management is a complex and daunting task for any company, big or small. But when you factor in the need to keep tabs on the carbon footprints, biodiversity impacts, and working conditions of thousands of suppliers, the challenge becomes much greater, especially for multinational corporations. This is compounded by the fact that many suppliers are based in parts of the world where information is scarce and labor and environmental laws are fall short compared to European standards.
The shortcomings of the just-in-time model, which optimizes supply chains for efficiency in terms of delivery times and cost at the expense of political, social, and environmental risks, are now evident. Upon reflection, supply chains have their work cut out for them regarding the improvement of general supply chain management operations. By closely examining the challenges and opportunities that have both transpired and have been revealed over the past two years, European companies can make considerable progress in resolving and transforming their SCM.
So, why is it important to reassess and address company supply chains? Recently, there has been a dramatic increase in the attention of companies' suppliers and their supply chains. Companies must be aware of their suppliers and ensure they are being held to the same high standards that they hold themselves to. Carbon footprints, biodiversity impacts, and working conditions are all issues frequently discussed in the media. Not only are there legal risks companies face by not addressing each of these topics, but their commercial and reputational safety is at risk as well.
Germany is setting an example of how not addressing the supply chain can impact your business. A new supply chain law goes into effect in Germany at the beginning of next year, requiring companies with at least 3,000 employees to establish systems that confirm their suppliers are not violating human rights. If they don't comply, they face fines of up to 8 million euros or 2% of their annual global revenue.
Supply chains have a huge impact on the environment and the economy. By addressing supply chains and performing thorough supplier due diligence early on, organizations can protect their brand and fulfill initiatives to reduce pollution, conserve resources, and create jobs. For example, companies that are working with their suppliers to cut down on packaging can significantly reduce waste. By investing in energy-efficient practices, organizations can save money with sustainable goals that meet the demands of new laws and protocols.
As a result, in order to avoid legal, commercial, and reputational harm, businesses must take action to remedy these concerns in their supply chain and mitigate risk as proactively as possible.