Customers have long expected the products they buy to be durable, easy to use and to perform as advertised. Today, however, many consumers also expect their products to be responsibly sourced, and demonstrating a responsible and/or sustainable sourcing for your product requires a transparent supply chain.
A recent report from Thomson Reuters highlight the need for companies to implement or review their current approach to third party risks in their supply chain. Author Tom Fox notes that “customers are becoming increasingly concerned with not only the authenticity of the goods they purchased but also the ethics of how the goods were manufactured. Companies have long been concerned with the quality of goods and services they receive from their supply chain vendors and tracking this information can provide assurances of high quality control. Increasingly the third prong of the triumvirate, the government, is now requesting such information and such transparency in the area of anti-corruption and anti-bribery compliance.”
Risk ranking of the supply chain
The categorization of the risk level of a supplier should be based on factors including whether the supplier is (1) located, or will operate, in a high risk country; (2) associated with or recommended by a government official or representative; (3) currently under investigation, the subject of criminal charges, or was recently convicted of crimes, including any type of corruption; (4) a multinational publicly traded corporation with a recognized system of compliance and internal controls that has not been recently investigated.
A High-Risk Supplier is an individual or organization engaged to provide non-project specific goods or services to a company. The risk is higher because of: (a) It is based or operates in a country (including the supply of goods or services) that poses a high risk for corruption, money laundering or bribery; (b) It supplies goods or services to a company from a high-risk country; (c) It has a poor reputation in the business community.
A Low-Risk Supplier is an individual or a nonpublicly held firm such as a sole proprietorship, partnership or privately held corporation located in a Low-Risk Country. Some typical criteria of Low-Risk suppliers include: (1) supplies goods, equipment or services directly to a firm in a Low-Risk Country; (2) a company has an annual spend of less than $100,000 with the supplier; and (3) the supplier has no involvement with any foreign government, government entity or official.
Minimal-Risk Suppliers generally provide goods and services to a firm that are non-specific to a particular project and the value of the transaction is typically $25,000 or less. For example, the routine purchase of fungible items and services including office supplies, such as paper, furniture, computers, copiers,and printers; or industrial or factory supplies, including cleaning materials.
Government Service Providers include entities who interact with a foreign government on behalf of your firm. Some examples include customs brokers, those who help obtain and process business permits, licenses, visas, work permits or other clearances government agencies; perform lobbying services; obtain regulatory approvals; negotiate with government agencies regarding taxes Fox notes that these government-related third parties often represent the greatest supply chain risks, so all these transactions should have both a high level of scrutiny and careful post contract-signing management.
Fox concludes his report by urging businesses to stay focused on the transparency of their supply chains in the future: “All of these legislative and executive initiatives make clear that the Supply Chain is becoming one of the highest risks in any business organization. The management of the Supply Chain will be a critical element for businesses going forward.”