9 Quick Safety Checks for Supply Chain Compliance

9 Quick Safety Checks for Supply Chain Compliance

share this

share this

9 Quick Safety Checks for Supply Chain Compliance

Content
1 2 3 4 5

Prioritize your risk mitigation concerns Regulatory compliance Accounts payable compliance Procurement compliance Conclusion

share this

9 Quick Safety Checks for Supply Chain Compliance

1. Prioritize your risk mitigation concerns

Manufacturers across all industries primarily view themselves as quality-focused organizations, yet reducing overall costs remains their top priority.1 This seeming inconsistency can be explained by the twin demands of the internal economic drivers of an organization and the external customer requirements for quality and efficiency. As the consumer is increasingly empowered and publicly vocal, product quality and safety have become tightly integrated with traceability and supplier scorecards. The horse meat contamination scandal in the United Kingdom in the spring of 2013, for example, publicly highlighted the need for prioritizing supply chain traceability. The news of horse meat found in retail products labeled beef became a global headline, prompting grocery retailer Tesco to reactively implement a traceability system for preventing such problems in the future.2 Unfortunately, much damage has already been done. Bob Ferrari, a leading supply chain consultant, succinctly put it this way: You never want to hear about the guys who run the supply chains for multinational companies. When you do, usually it means something really bad has happened.3 Proactively implementing a comprehensive traceability system before a contamination problem occurs allows you to respond quickly, implement corrective measures, and minimize repercussions to your bottom line and your brand should a problem arise. In addition to safety and quality concerns, compliance regulations can affect the supply chain in finance, shipping, and outsourcing. This eBook provides an overview of key risk areas and quick safety check strategies to help you identify quality improvement and risk mitigation measures for: Regulatory Compliance Accounts Payable (AP) Compliance Procurement Compliance

share this

9 Quick Safety Checks for Supply Chain Compliance

2. Regulatory Compliance
Companies in a variety of industries especially food and beverage, healthcare, chemical, and pharmaceutical are increasingly concerned with serving more customers in an expanding global market while complying with country-specific regulatory requirements. At the same time, they must minimize costs and increase efficiencies in all areas of their business.4 For example, in 2012, 65% of global pharmaceutical/biotech companies ranked regulatory compliance as both a top supply chain and business concern.5 In fact, in both 2011 and 2012, increasing regulations beat cost management as the leading supply chain issue in this industry. While country-specific regulations for serialization/e-Pedigree, RoHS (Restriction of Hazardous Substances) and REACH are adding complexity and investment requirements to supply chain operations, the cost of non-compliance can be significantly higher. For example, when a manufacturer must preemptively remove a product from the market due to non-compliance with a new regulation, the company loses both potential revenue and possibly even market share. Ongoing operating costs may remain higher than before if the company must then manage two versions of the same product the new one that is compliant, as well as the original product in other markets.6 Fines and penalties are just the tip of the iceberg when it comes to the cost of non-compliance: other hidden costs can include the redesign needed for a non-compliant product, and the implementation of new tracking systems if they do not already exist. The rise of global sourcing as a means to minimize costs has had an unintended consequence of increasing risk, in addition to regulation concerns. Dependence on an increasing number of suppliers makes it difficult to monitor their performance without automated metrics.
share this

In addition, unforeseen environmental, political, and economic crises can stop a supply chain in its tracks. A recent incident that halted production for a variety of industries across the globe was the Japanese earthquake and tsunami in March 2011. From the automotive industry to electronics of all types, order fulfillment was delayed for weeks or months, and the worldwide economic impact was severe. While environmental, political, or local economic crises cannot be prevented, companies are nevertheless on the hook to have plans in place for mitigating their risk of exposure to a variety of supplier performance issues. Common strategies include diversifying the supply chain, despite the trade-off of higher cost to ensure lower risk, and holding suppliers to environmental, traceability, and performance standards. Whatever solution is employed, the best long-term strategy is to design an approach that is scalable as well as proactive, with a commitment to invest in necessary processes and systems that will support your unique business needs before a crisis occurs. Quick Safety Checks 1. Does your organizations traceability system allow for current and emerging global compliance regulations? 2. Is someone in your organization responsible for maintaining compliance requirements for varying and changing regulations such as serialization/ePedigree, RoHS, WEEE, REACH and others? 3. Does your organization have compliance management systems in place to ensure materials and supplier certifications are up to date?

9 Quick Safety Checks for Supply Chain Compliance

3. Accounts Payable Compliance

The Sarbanes-Oxley (SOX) regulation of 2002 was enacted in the wake of the Enron scandal, and although there is still some debate as to its effectiveness in fraud prevention among other financial concerns, the required guidelines remain relevant for reducing overall AP costs and errors. The best way to ensure compliance is through automation of an organizations AP functions, especially invoicing. Surprisingly, however, a decade after SOX became law, 39% of AP professionals indicated that paper-based invoices still make up 90% of their total volume.7 Unfortunately, paper invoices can provide a bottleneck of manual labor at the end of accounting periods, risking inaccurate expense and income statements, which in turn leave a company susceptible to cutoff fraud (phony profits) and/or lost invoices.8 Automation of AP functions provides the additional benefit of complete traceability of every step and participant in each process to comply with audit requirements. Powerful systems are available that can be configured to automatically calculate the correct taxes for each location in your system. Completely automated Procure-to-Pay systems provide capabilities such as: three-way matching and managing by exception (MBE) to reduce the risk of non-compliant activities such as duplicate invoices accurate and timely period end closing and account reconciliations, with automated notifications of any policy violations that need to be resolved9

Quick Safety Checks 4. Is your AP system integrated with your Procurement system to allow for automating matching? 5. Are there manual AP processes that require additional oversight to correct errors or create a bottleneck when closing the books?

share this

9 Quick Safety Checks for Supply Chain Compliance

4. Procurement Compliance
Retailers and manufacturers face dual challenges of increasing their supply chain complexity and reducing procurement, transportation, and logistics costs.10 According to a recent supply chain survey conducted by IDC, 58% of consumer products manufacturers and 65% of high-tech companies outsourced some portion of their products, and this percentage is expected to increase as companies expand into new countries. To help with effective distribution in an expanding number of regional markets, retailers as well as manufacturers increasingly rely on thirdparty logistics (3PL) providers to handle international transport of their products.11 This strategy enables companies to both reduce distribution costs and mitigate risk of damage or spoilage to their products, and thereby contribute to their primary business objectives. One industry segment that highlights the issues prevalent in global procurement and distribution networks is the food and beverage industry. Governments, the food industry, and consumers are increasingly concerned about knowing that their food is safe from pathogens, and these interests merge to drive compliance for manufacturers. The CDC has recently estimated that nearly 1 in 6 people are impacted by a food-borne illness each year in the United States.12 Clearly, there is room for improvement. Manufacturers can adopt visibility, collaboration, and traceability systems and processes to meet both regulatory and consumer standards. Quick Safety Checks 6. Does your organization outsource any part of production internationally? If so, do you employ a 3PL provider to mitigate risk, increase customer satisfaction, and reduce transportation costs? 7. Does your organization have a supplier scorecarding system in place to ensure your suppliers meet all local regulations and your quality and/or environmental standards? 8. Do you have an automated system in place to calculate the correct duty amounts in order to avoid fines and penalties for trading across borders? 9. Do you have a system for tracking the variety of country regulations pertinent to your industry, and ensuring that your products meet those standards?

share this

9 Quick Safety Checks for Supply Chain Compliance

Conclusion
Supply chain product compliance is increasingly complex to manage and fulfill, with companies required to disclose detailed information about their products and the substances within those products, including composition, origin, and regulatory status of both the overall product and its individual components.13 Obtaining and managing this data remains a critical supply chain challenge that is necessary to meet in order to comply with a wide array of financial, environmental, and traceability regulations. Best practice solutions for addressing this challenge include: automating processes such as Procure-to-Pay, data input, and approvals using workflows and supplier scorecarding to ensure compliance implementing complete track-and-trace systems to accurately track product data and location throughout the lifecycle

Other challenges that leave an organization open to risk involve the variation in country regulations for global trade and supplier performance in the areas of financial status, shipping performance, and compliance with business processes. In a global economy, risk is also heightened by natural disasters as well as political and economic breakdown. Successful supply chain strategy is dependent upon implementing automated systems for tracking supplier credentials, certifications, and financial and operational performance that includes safety and risk mitigation.

Endnotes
IDC, Perspective: Product Quality, Sourcing, and Logistics Drive Collaboration in the Consumer Products Supply Chain, January 2013. Ellis, Simon. Perspective: Supply Chain Traceability Fall Behind or Get Ahead! IDC, March 2013. 3 Powell, Bill, The global supply chain: So very fragile, Fortune magazine, December 26, 2011. 4 TNS, UPS 2012 Pain in the (Supply) Chain Healthcare Survey, March-April 2012. 5 TNS, UPS 2012 Pain in the (Supply) Chain Healthcare Survey, March-April 2012. 6 Parametric Technology Corporation, How to avoid the high costs of noncompliance, 2011. 7 Crowley, L. and Sears, D., 2012 AP Cloud Study, The Institute of Financial Operations, 2012. 8 Kofax, Top 10 Reasons to Automate Accounts Payable, 2010. 9 Kofax, Top 10 Reasons to Automate Accounts Payable, 2010. 10 IDC, Perspective: Product Quality, Sourcing, and Logistics Drive Collaboration in the Consumer Products Supply Chain, January 2013. 11 IDC, Perspective: Product Quality, Sourcing, and Logistics Drive Collaboration in the Consumer Products Supply Chain, January 2013. 12 IDC, Vendor Assessment: Traceability and Regulatory Compliance in the Food and Beverage Manufacturing Industry, February 2013. 13 Bingham, Jenny, 3E Company Introduces Supply Chain Practice to Better Facilitate Product Compliance and Mitigate Risk, Verisk Analytics, September 24, 2012.
1 2

share this

9 Quick Safety Checks for Supply Chain Compliance

share this share this

6805 N. Capital Hwy | Austin, TX 78731 | T - 512 231 8191 | F - 512 231 0292 | W - onescm.com