Spotlight on supply chain crises

Article

Spotlight on supply chain crises

Forensic Foresight: July 2016

With supply chains becoming larger and more complex; the impact of an upstream or downstream crisis can be catastrophic to your organisation’s workforce, brand and reputation.

“Our people are our greatest asset” is an often used platitude in business these days. But what about when these greatest assets become a business’s greatest risk and trigger a major crisis?

Supply chain crises are well known and documented. Some recent crises have included the Bangladesh factory collapse, in which prominent elite branded apparel was on display within the dirt and rubble. Then there was the horse meat scandal that rocked the leading supermarket chains in the United Kingdom. More recently in Australia, there was the hepatitis A scare that was blamed on imported Chinese berries – which has yet to be confirmed.

These types of crises, involving supply chains, have common elements that relate to the product being of an inferior than purported standard and the potentially dubious work practices of the foreign upstream manufacturer. These elements have a material impact when the brand and reputation of a business are associated with the product, but are often dismissed as being an “over there” problem (while accompanied with an arm waving gesture in the vague direction of the country to blame).

One emerging crisis trigger that cannot be as easily dismissed is the issue of the workforce triggered crisis. Like key business value drivers such as data, communications, facilities, access and good leadership, a reliable workforce is a critical element to most successful businesses. The workforce is a key ingredient in operations of many horticultural, retail, manufacturing, mining and service businesses. If the workforce becomes unavailable, the business will quickly fall off the edge of a financial cliff.

The outsourcing of the provision of the workforce is done through a range of third party providers, but can also be done through the franchise model of business. In the latter case, the workforce is hired by the franchise owner, which is usually at arm’s length and unseen by the franchisor (or head office). Regardless of the model, the risk and any subsequent crisis, remains firmly attached to the brand and reputation of the overall business.Also, the workforce is usually the public face of the business, wearing branded uniforms, engaging with customers, and holding the business’s reputation in their hands when asked by friends and family the perennial question, “how’s work going?” But, with a global economy and a far more mobile workforce, there has been an increase in the need to outsource the supply of this workforce to third party employment agencies. Here lies the foundation of a crisis.

With over 100,000 non-resident workers in Australia holding 457 temporary work visas or student work visas, it is becoming even more important that businesses are alert to the potential risks, should these workers or their employment agencies deliberately (or inadvertently) breach the conditions of the visas.  Such a breach can lead to deportation of the worker and fines from the immigration authorities for the employer and the agency, but it is the brand damage done in the process that is the real cost.

A knock-on impact beyond the brand and reputation damage is the supply chain impact. What has been seen in recent workforce crisis situations is that if these foreign workers become concerned that the immigration agencies will swoop at any moment, they will not attend work, causing a significant workforce shortage and a rapidly approaching abyss for the business.

What do you do about this situation to avoid it and be ready in the event of a workforce crisis?

  • Ensure you are very clear (in contracts) to suppliers of your workforce what you expect
  • Ensure you have clarity and transparency of the employment arrangements third party providers are using
  • Audit providers – remember, you cannot contract away these responsibilities and it is your brand and reputation that is at risk
  • Engage  with experts with forensic financial and data skills, and also workplace health & safety and investigation capabilities for ongoing and rigorous support
  • Establish a workforce whistle blower hotline for all of the workforce, including those supplied by third parties
  • Engage a crisis leadership advisor and include workforce crisis scenarios in your regular and spot-check crisis simulations

Franchising, outsourcing, labour hire – these are all legitimate business arrangements – but in my experience, in highly competitive markets for low-skilled work, they also increase the risk that workers will be underpaid, sometimes quite deliberately. The law can extend legal liability to individuals involved in the procurement and to companies further up the supply chain. So if boardrooms are not considering these procurement and compliance risks involved, then someone is asleep at the wheel.

Natalie James is the Fair Work Ombudsman (Sydney Morning Herald, 9 April 2016)

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