Don’t Let Your Customers Eat Horsemeat

Regulatory agencies in Ireland recently reported finding traces of horse DNA in burger products being sold in the UK. The incident raised concerns and served – as one expert put it – as a “wake-up call” to both suppliers and retailers of food products to improve their ability to assess and mitigate risk within their supply chains.

While the prospect of tainted food may be particularly striking, managing supply chain risk is a growing concern for a wide range of industry sectors. In the Financial Services space, enterprises increasingly rely on elaborate networks of first-, second- and third-tier suppliers, and in response regulators are taking an increasingly hard line on regulatory audits to ensure that institutions have adequate oversight of suppliers and that effective governance processes are in place to ensure transparency and mitigate risk.

Is your organization prepared to face today’s stricter regulatory environment? In my experience as a supply chain executive and consultant, enterprises spend a great deal of effort early on the process of sourcing and contracting with suppliers. They conduct due diligence and financial and capabilities analyses, and do all the right things. The trouble is, with today’s three-year contracts with one-year options, all the data collected at the outset of a relationship has a limited shelf life, and three to six months in, those early days assessments are outdated.  So what the business ends up with is a binder that defines rules and standards for what the business should be doing in terms of governance and risk management. But what’s actually practiced is quite different from what’s in the binder.

So what’s the solution? Over the short term, businesses need to assess their environment and identify their top priorities in terms of where the risks lie and where the immediate solutions can be found and how they can be implemented. Over the long term, they need to move away from viewing risk management as a tactical exercise that addresses discrete problems when they arise, to a holistic view that assesses interrelationships between and within suppliers, as well as the cause and effect linkages throughout the supply chain.

A key characteristic of this holistic perspective is the standardization of reporting and taxonomies around risk management and governance.  Today, however, the onus of defining mandates generally falls on the client – the result is a hodgepodge of processes and frameworks that accommodates each client, to the detriment of all.  Service providers have a significant opportunity here to proactively drive standardization, and I believe clients would welcome providers who came to them and said, “Here’s the standard way of doing things.”

A new ISG white paper looks at some of the emerging issues and trends around governance, supply chain risk management and regulatory compliance. While the paper focuses on the Financial Services sector, the issues raised are relevant to businesses that range from those that process loans to those that process burgers.