This is a contributed op-ed written by Sylvain Guyoton, senior vice president of research at EcoVadis, a supply chain sustainability solutions firm. Opinions are the author's own.
As society continues to adjust to the strange new world brought on by COVID-19, we need to react in a way that prioritizes the health and well-being of people and society while ensuring business continuity. Maximizing supplier visibility and health while trying to mitigate disruptions is key for success. This highlights a new challenge as ongoing travel restrictions and quarantines are requiring many companies to cancel on-site supplier audits, inhibiting progress and increasing risk exposure.
The dangers of canceling audits
Audits offer critical insight into suppliers’ compliance with codes of conduct, brand values, sustainability performance and more. While it’s hard to fault a company for canceling audits during a pandemic, it’s important to understand what’s at stake, and have a plan in place to mitigate the new risks.
Canceling audits hinders a business’ visibility into its supply chain, negatively impacting its ability to uncover and respond to new issues, which can threaten both short- and long-term resilience and business continuity. For example, some European buyers have experienced a major supply chain crisis because some of their suppliers in China were not compliant with local environmental regulations. This could have been avoided by anticipating and carefully looking at the supplier’s environmental practices.
Most suppliers face their own burdens from the pandemic and are under increasing pressure to deliver beyond their normal capacity. Whether ramping back up too quickly with limited capacity, or pushing hard to meet rising volume demand, it’s natural to take short cuts, even if they are made with the best intentions. Yet, any compromises made in operational execution could be detrimental to the supplier’s reputation and survival, and the resilience of the clients they serve.
In other words, what’s the risk of a supplier forcing employees to work longer hours to get up to speed and meet volume demands? Or, a small and mid-sized supplier that unintentionally introduces employees to health and safety risks associated with COVID-19 because they don’t have the necessary resources to procure personal protective equipment (PPE)? With no on-site audits to implement due diligence, the deepest parts of the supply chain are at risk.
The answer: Digital assessments and supplier ratings
In a post-pandemic market, the companies that thrive will be the ones that are resilient, fully digitized and understand how to drive sustainability and business harmony, regardless of economic conditions.
A virtual assessment that delivers actionable data is an effective means of gaining visibility in every industry market, and a smart alternative to on-site audits during this pandemic. They allow for procurement teams to gain deeper visibility into their supply chain without having to visit physical locations.
Some of these assessments can include collecting and analyzing data and opinions from local stakeholders, including NGOs, trade unions, and administrations, which are essential in understanding a company’s sustainability, labor or financial health outlook.
While not an identical replacement to on-site audits, digital ratings offer a strong alternative, especially in times of crises, and an actionable and intelligent means to improve supplier performance and reduce risk. When implemented correctly, they provide newfound visibility and equip leaders to gain insight into supplier practices and preparedness. Another way of looking at it: they provide clarity in an otherwise unclear situation.
Developing a remote supplier auditing system based on a robust methodology will also aid post-pandemic recovery. By understanding which suppliers are performing well and which are at risk, procurement teams can continue to make better decisions, as well as prioritize the suppliers and vendors that require on-site audits when the economy comes back online.
Both on-site audits and digital assessments are critical components of a complete vendor compliance program as they offer an evidence-based roadmap for supplier due diligence and performance improvement.
COVID-19 has been called the black swan that will force companies to re-evaluate their current and future supply chain practices. While times like these can be seen as threatening, for those who take advantage of this time to innovate, they also provide an opportunity to adjust business strategies and emerge smarter, more digital and resilient than before.
This story was first published in our weekly newsletter, Supply Chain Dive: Procurement. Sign up here.