In past decade, global market has witnessed multiple instances whendisruptions in supply chain have impacted the performance of FMCG sector. Mostof the times such disruptions are caused by issues that are deep-rooted insupply chain. As a result, unceasing operation of business needs identificationof these risks, assessment of their impacts and developing mitigation strategy.
What is responsible sourcing?InternationalChamber of Commerce (ICC) defines responsible sourcing as “a voluntarycommitment by companies to take into account social and environmentalconsiderations when managing their relationships with suppliers1”. Responsible sourcing goes beyond traditional approach where cost reductionis the primary concern and focuses on healthy and safe working environment,fair labor practices, environmental impact and ethical business practices inday to day operations. It provides multitude of benefits to the businesssuch as risk mitigation, brand reputation, competitive advantage and innovation. Risks in FMCG Supply Chainsü LegalRisk: Non-compliance to local social and environmental regulatoryframework may result in fine and penaltiesü ReputationalRisk: Issues pertaining to human rights, child labor, unethicalpractices and environmental degradation by suppliers will severely impact the brandreputationü QualityRisk: Substandard quality raw material will reduce resourceefficiency and produce poor quality final products, resulting in loss ofrevenue and customer dissatisfactionü SupplyRisk: Any disruption in supply of raw material may stallproduction and impact the performance ü TechnologyRisk: If suppliers do not adopt latest technologicalinnovations, the company might lose its market share by losing its competitiveedge or because of not keeping up to customer’s expectationsü Operational Risk: Break-downof internal systems, accidents, exposure to hazardous material, and otherhealth and safety concerns affect production cycle Opportunities created by Responsible Sourcingü Riskidentification and management: Ethical sourcing entailsidentification of wide range of supply side risks, not limited tomanufacturing. It prepares resilient supply chain to address these issuesü Costreduction: Strategically planned responsible sourcing policy canavoid unnecessary costs, such as fine and penalties or stock out cost, andreduce overall cost of raw materialü Brandreputation: Transparency in supply chain, commitment to socialand environmental values and strong ethical culture can help organizations inachieving internal & external sustainability goals and meet expectations ofall stakeholdersü Innovation:New solutions such as recycling, circular economy, alternative materials, andeco-labeling are getting popular in business marketFirst mover advantage:Gain competitive advantage by following regulations and becoming mostsought-after supplier