Corporates in food supply chains are increasingly held accountable for the performance of their suppliers. The industry is reacting to 4 drivers: regulations, stakeholder pressure, investor scrutiny and rising costs. We see that several companies are making bold commitments to foster improvements in their supply chains. For example, in the cocoa supply chain, companies have committed to only buy cocoa sustainably by 2020.
RegulationsIn all Western countries, regulations require corporates to improve control on their supply chain. A variety of legislations stipulate requirements for supplier management, including requirements to prevent misconduct of suppliers including bribery and other forms of corruption, slavery, child labour, climate change, financing war-efforts and use of bio-technology.
For example, the UK Modern Slavery Act includes a Transparency in Supply Chains section requiring companies to disclose how they are addressing slavery and human trafficking in their supply chain.
Further government action on supply chain transparency is likely. At a recent meeting of the G7 industrial nations, leaders pledged to apply labour, social and environmental standards in global supply chains.
StakeholdersNext to regulations, stakeholders are also increasing pressure. One only needs to read the newspaper to become aware of this. Non-governmental organizations disclose suspicions of misconduct and social media easily distribute claims that could affect your brand value.
Imagine your company is accused of a violation of human rights in, let’s say, two coffee growing areas in Vietnam. What would your response be when you can’t track within a couple of hours how much coffee you source from the respective areas and what your efforts are to minimize the risk of violations you are accused of?
Investor scrutinyA KPMG survey amongst investment analysts shows that supply chain data management is seen as a contributor to shareholder value. This is exactly why we are scaling up our data & analytics teams worldwide to keep up with the increased demand for services related to master data management, real-time dashboards, big data analytics, etc.
Increasing costsHowever, the strongest argument why food companies need to worry about supplier data management is because of the increasing costs. Companies face an increasing risk of fines and insurance fees. Also, an analysis of the Testing, Inspection and Certification [..TIC…] industry shows that the costs of food companies on audits and testing have doubled in only 6 years’ time. Increasing pressures on consumer goods companies have led to a 100% increase in revenue for the TIC industry and thus a duplication of costs. To manage expenses, corporates need solutions that reduce duplication of efforts (slack), while increasing supplier management capabilities.
Supplier data management
To improve supplier data management, corporates need to handle their internal data flow better. However, effective use of data across different functions is seen as a top challenge for many organizations. This segregation of solutions across business functions is also visible outside of companies. There is a multitude of platforms for collaboration with suppliers. Each of these initiatives has a focus on one business function only, being for example food safety or sustainability. Only a few solutions exist that cross business functions and have global scale.
To be successful, global scale is an important requirement for a supplier data management function. Only solutions that cross national boundaries will help companies to fight the trend of increasing costs for supplier data collection.
Supply chains will need to collaborate to jointly adopt one standard and preferably this standard should be replicated across different supply chains. There are several success stories that have reached global scale. For example, virtually all food safety management systems have now adopted the HACCP approach as the most modular building block of risk assessment. Also, the development of the Codex Alimentarius and the barcode are examples of industry-wide collaboration in the food industry.
In the field of sustainability, a battle of standards has been fought. A study conducted by KPMG in 2011 mentions the existence 410 different certifications; very few of these have reached global scale. In some supply chains, such as those for palm-oil and cocoa, a few standards are now dominating. In other supply chains, such as the fish, soy or cotton supply chains, there is still a proliferation of different standards.
Supply Chain Collaboration & Traceability
Without a joint approach with their suppliers, corporates will not be able to manage suppliers efficiently and to internalize externalities ahead of the curve. The successful examples in the area of food safety show that the development of an industry-wide solution takes many years.
We have seen that food companies face increased pressure to enhance their knowledge of their suppliers and to improve control on their supply chain. To reduce costs, information flows that evolve from the various business functions of companies, including procurement, sustainability and quality assurance, need to be integrated with those of suppliers.
Two things are essential to minimize costs and cut through complexity: 1) high-quality master data and 2) a tailor-made data model that connects individual stream of master data to the requirements of the customer. For instance, the sustainability profile of chocolate milk requires data from a large number of ingredients. Each ingredient goes through a chain with different traceability and sustainability systems and standards.
An integrated traceability system – for instance through the use of specialist supply chain sustainability software - spanning different raw materials, should contribute towards:
- Reducing the cost of audits/certification as it helps to target risk assessments in terms of where and how to audit;
- Increasing the benefits of your supplier management and compliance in terms of better stories to tell to customers, investors and other stakeholders.
ChainPoint is a leading provider of supply chain sustainability software, offering a data model for sustainability information, allowing auditors, suppliers and n-tier suppliers, as well as different business functions, to link their data systems and collaborate towards a more sustainable supply chain.
Corporates will need to consider implementing a strong data management strategy across their supply chain, in combination with specialist supply chain sustainability software in order to cope with the challenges faced in today’s world and the future.
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This Blog is an extract from the "Data Management in Sustainable Supply Chains" webinar. You can request access to the webinar recording by clicking the button.
About KPMG & Jerwin Tholen
KPMG supports companies to improve supplier data management by implementing software solutions on a global scale. We understand sustainability and existing solutions deployed by our clients. With over 152 thousand professionals worldwide, we can offer a global solution and a local presence.
As many of you might already know KPMG provides audit, tax and advisory services in150 countries. And Climate Change & Sustainability services in around 60 countries across all sectors.
I assist clients with the development of sustainable supply chains and have particular expertise in food and soft commodities. We help clients to understand the economics of certification and traceability systems. In addition, I work with specialists across KPMG to streamline supply chains by simplifying the flows of goods, money and, of course, DATA in order to reduce risks and direct costs and enable growth.