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Supply Chain Management

Is Corporate Spending Being Directed to the Most Effective Areas?

80 percent of chief procurement officers (CPOs) report directly to their CEOs because the CPOs’ decisions now have profound effects on corporate health, intellectual property, environmental compliance, quality, and even sales. 

Participation in reputable continuing education programs, many of which are online and can fit into a demanding day, can help CPOs stay current on emerging risks and ways to proactively manage upstream to keep their supply chains, and reputations, solid and shatter-proof.

A double-edged sword 

Having a lean, agile supply chain network in the hyper-competitive global marketplace is imperative. However, increased reliance on contractors and their subcontractors brings greater risk and, with it, heightened responsibility to closely vet and monitor supplier performance and behavior.

According to CAPS Research in 2015, a whopping 83 percent of all corporate spending went to hundreds of thousands of global suppliers — with only 17 percent going toward corporate manufacturing plants, personnel, and operations infrastructure. Parsing out spending to provide continuing education for CPOs can be challenging. But, this budget re-allocation can save critical resources, including reputation.

High stakes require vigilance 

Today, when they can have as many as 10,000 suppliers under contract, Fortune 1,000 firms face heightened levels of complexity in protecting their ethical imperatives, image, and standing. How those contractors behave while working for the firm can make or break multi-billion-dollar corporations. In addition, government regulations now enforce corporate social responsibility, and consumers punish companies that don’t handle themselves responsibly.

Volkswagen is expected to lose billions of dollars and significant market share because of ethical lapses. But what about suppliers? Chipotle continues to be under scrutiny for its protracted problems finding the weak links in its supply chain that led to contaminated food being served in its restaurants, sickening customers. Walmart and H&M were accused of profiteering from unsafe, inhumane working conditions when a factory that made clothing in Bangladesh collapsed, killing more than 1,000 workers and injuring many more.

These cases, among others, reinforce the imperative for proactively rooting out poor working conditions, loose financial transactions, skirting of environmental regulations, or substandard quality in parts or materials among suppliers (and their subcontractors) to prevent their morphing into scandals that negatively affect the contracting organization. As a result, constantly vetting and monitoring supplier performance and behavior becomes a necessary added responsibility for corporations.

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