Danger – sub-suppliers!
Today’s globalised flow of goods often involves long, convoluted supply chains. This means that even small sub-suppliers can become a reputational risk for large companies.
A lot of companies are involved when goods travel around the globe. | Image: Keystone/LAIF/Oliver Tjaden
Companies headquartered in Switzerland should be compelled to respect internationally recognised human rights and environmental standards in all their business activities. This is the aim of the ‘Responsible Business Initiative’ that will probably be put before the Swiss electorate in 2019. But the more complex a product, the bigger the number of suppliers involved in its production. Because of today’s global value chains, no one company just works with a multitude of principal suppliers, but often with several thousand sub-suppliers. Everything might be contractually regulated with the direct suppliers, but the situation can be far from clear with sub-suppliers. “Even if agreements are signed, paper is a patient thing”, says Jörg Grimm, an economist at the University of St. Gallen. He is heading up a study that is demonstrating how a company can prevent its different supply chains from mushrooming into a commercial risk.
Using case studies on supply chains of food and drink companies such as Maestrani Schweizer Schokoladen AG, Schweizer Getränke AG (which today belongs to Bischofszell Nahrungsmittel AG) and Allfood AG, the authors of the study have been able to identify factors that are necessary for a successful collaboration with sub-suppliers. These include a long-term relationship of several years between the supplier and the sub-supplier, incorporating all suppliers in implementing social and ecological guidelines, and a certain market power on the part of the company. Grimm urgently recommends that companies undertake an active analysis of their sub-suppliers. Checks of this kind can result in cooperation agreements being terminated, or in joint endeavours to rectify abuses that are uncovered. Grimm says: “Companies have to proceed selectively in order to identify their most critical supply paths”. If they are successful in this, then there is less risk that NGOs would initiate a campaign against a company that could damage its reputation.
