9 Quick Safety Checks for SC Compliance

8/13/2019 9 Quick Safety Checks for SC Compliance

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9 Quick Safety Checks for Supply Chain Compliance

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Content

Prioritize your risk mitigation concerns

Regulatory compliance

Accounts payable compliance

Procurement compliance

Conclusion

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1. Prioritize your risk mitigation concerns

Manufacturers across all industries primarily viewthemselves as quality-focused organizations, yetreducing overall costs remains their top priority. 1 This seeming inconsistency can be explainedby the twin demands of the internal economicdrivers of an organization and the externalcustomer requirements for quality and efficiency.As the consumer is increasingly empowered and

publicly vocal, product quality and safety havebecome tightly integrated with traceability andsupplier scorecards.

The horse meat contamination scandal in theUnited Kingdom in the spring of 2013, forexample, publicly highlighted the need forprioritizing supply chain traceability. The newsof horse meat found in retail products labeledbeef became a global headline, promptinggrocery retailer Tesco to reactively implement atraceability system for preventing such problemsin the future. 2 Unfortunately, much damage hasalready been done. Bob Ferrari, a leading supplychain consultant, succinctly put it this way: Younever want to hear about the guys who runthe supply chains for multinational companies.When you do, usually it means something reallybad has happened. 3 Proactively implementing

a comprehensive traceability system before acontamination problem occurs allows you torespond quickly, implement corrective measures,and minimize repercussions to your bottom lineand your brand should a problem arise.

In addition to safety and quality concerns,compliance regulations can affect the supply

chain in nance, shipping, and outsourcing. ThiseBook provides an overview of key risk areasand quick safety check strategies to help youidentify quality improvement and risk mitigationmeasures for:

Regulatory Compliance Accounts Payable (AP) Compliance Procurement Compliance


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2. Regulatory ComplianceCompanies 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 whilecomplying with country-specic regulatory requirements. At the sametime, they must minimize costs and increase efficiencies in all areas oftheir business. 4

For example, in 2012, 65% of global pharmaceutical/biotechcompanies ranked regulatory compliance as both a top supply chainand business concern. 5 In fact, in both 2011 and 2012, increasingregulations beat cost management as the leading supply chain issuein this industry.

While country-specic regulations for serialization/e-Pedigree,RoHS (Restriction of Hazardous Substances) and REACH are addingcomplexity and investment requirements to supply chain operations,the cost of non-compliance can be signicantly higher. For example,when a manufacturer must preemptively remove a product from themarket due to non-compliance with a new regulation, the companyloses both potential revenue and possibly even market share. Ongoingoperating costs may remain higher than before if the company must

then manage two versions of the same product the new one that iscompliant, as well as the original product in other markets. 6 Fines andpenalties are just the tip of the iceberg when it comes to the cost ofnon-compliance: other hidden costs can include the redesign neededfor a non-compliant product, and the implementation of new trackingsystems if they do not already exist.

The rise of global sourcing as a means to minimize costs has had anunintended consequence of increasing risk, in addition to regulationconcerns. Dependence on an increasing number of suppliers makes it

difficult to monitor their performance without automated metrics.

In addition, unforeseen environmental, political, and economiccrises can stop a supply chain in its tracks. A recent incident that

halted production for a variety of industries across the globe wasthe Japanese earthquake and tsunami in March 2011. From theautomotive industry to electronics of all types, order fulllment wasdelayed for weeks or months, and the worldwide economic impactwas severe.

While environmental, political, or local economic crises cannot beprevented, companies are nevertheless on the hook to have plansin place for mitigating their risk of exposure to a variety of supplierperformance issues. Common strategies include diversifying thesupply chain, despite the trade-off of higher cost to ensure lower risk,and holding suppliers to environmental, traceability, and performancestandards.

Whatever solution is employed, the best long-term strategy is todesign an approach that is scalable as well as proactive, with acommitment to invest in necessary processes and systems that willsupport your unique business needs before a crisis occurs.

Quick Safety Checks

1. Does your organizations traceability system allow for current andemerging global compliance regulations?

2. Is someone in your organization responsible for maintainingcompliance requirements for varying and changing regulationssuch as serialization/ePedigree, RoHS, WEEE, REACH and others?

3. Does your organization have compliance management systemsin place to ensure materials and supplier certications are up todate?


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3. Accounts Payable Compliance

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 tocorrect errors or create a bottleneck when closing the books?

The Sarbanes-Oxley (SOX) regulation of 2002 was enacted in the wakeof the Enron scandal, and although there is still some debate as to itseffectiveness in fraud prevention among other nancial concerns, therequired guidelines remain relevant for reducing overall AP costs anderrors. The best way to ensure compliance is through automation of anorganizations AP functions, especially invoicing.

Surprisingly, however, a decade after SOX became law, 39% of APprofessionals indicated that paper-based invoices still make up 90%of their total volume. 7 Unfortunately, paper invoices can provide abottleneck of manual labor at the end of accounting periods, riskinginaccurate expense and income statements, which in turn leave acompany susceptible to cuto fraud (phony pro ts) and/or lostinvoices. 8

Automation of AP functions provides the additional benet ofcomplete traceability of every step and participant in each processto comply with audit requirements. Powerful systems are availablethat can be congured to automatically calculate the correct taxes foreach location in your system. Completely automated Procure-to-Paysystems provide capabilities such as:

three-way matching and managing by exception (MBE) toreduce the risk of non-compliant activities such as duplicateinvoices

accurate and timely period end closing and accountreconciliations, with automated notications of any policyviolations that need to be resolved 9


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Retailers and manufacturers face dual challenges of increasing theirsupply chain complexity and reducing procurement, transportation,and logistics costs. 10 According to a recent supply chain surveyconducted 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 intonew countries.

To help with effective distribution in an expanding number of regionalmarkets, retailers as well as manufacturers increasingly rely on third-

party logistics (3PL) providers to handle international transport oftheir products. 11 This strategy enables companies to both reducedistribution costs and mitigate risk of damage or spoilage to theirproducts, and thereby contribute to their primary business objectives.

One industry segment that highlights the issues prevalent in globalprocurement and distribution networks is the food and beverageindustry. Governments, the food industry, and consumers areincreasingly concerned about knowing that their food is safe frompathogens, and these interests merge to drive compliance for

manufacturers. The CDC has recently estimated that nearly 1 in 6people are impacted by a food-borne illness each year in the UnitedStates. 12 Clearly, there is room for improvement. Manufacturers canadopt visibility, collaboration, and traceability systems and processesto meet both regulatory and consumer standards.

4. Procurement Compliance

Quick Safety Checks

6. Does your organization outsource any part of productioninternationally? If so, do you employ a 3PL provider to mitigaterisk, increase customer satisfaction, and reduce transportationcosts?

7. Does your organization have a supplier scorecarding system inplace 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 correctduty amounts in order to avoid nes and penalties for tradingacross borders?

9. Do you have a system for tracking the variety of countryregulations pertinent to your industry, and ensuring that yourproducts meet those standards?


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Supply chain product compliance is increasingly complex to manageand fulll, with companies required to disclose detailed informationabout their products and the substances within those products,including composition, origin, and regulatory status of both theoverall product and its individual components. 13 Obtaining andmanaging this data remains a critical supply chain challenge that isnecessary to meet in order to comply with a wide array of nancial,environmental, and traceability regulations. Best practice solutions foraddressing this challenge include:

automating processes such as Procure-to-Pay, data input, andapprovals

using work ows and supplier scorecarding to ensurecompliance

implementing complete track-and-trace systems toaccurately track product data and location throughout thelifecycle

Other challenges that leave an organization open to risk involvethe variation in country regulations for global trade and supplierperformance in the areas of nancial status, shipping performance,and compliance with business processes. In a global economy, risk isalso heightened by natural disasters as well as political and economicbreakdown. Successful supply chain strategy is dependent uponimplementing automated systems for tracking supplier credentials,certications, and nancial and operational performance that includessafety and risk mitigation.

Conclusion

Endnotes

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IDC, Perspective: Product Quality, Sourcing, and Logistics Drive Collaboration in the Consumer Products Supply Chain, January 2013. 2Ellis, Simon. Perspective: Supply Chain Traceability Fall Behind or Get Ahead! IDC, March 2013. 3Powell, 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.

6Parametric Technology Corporation, How to avoid the high costs of noncompliance, 2011. 7Crowley, L. and Sears, D., 2012 AP Cloud Study, The Institute of Financial Operations, 2012. 8Kofax, Top 10 Reasons to Automate Accounts Payable, 2010. 9Kofax, Top 10 Reasons to Automate Accounts Payable, 2010. 10IDC, Perspective: Product Quality, Sourcing, and Logistics Drive Collaboration in the Consumer Products Supply Chain, January 2013. 11IDC, Perspective: Product Quality, Sourcing, and Logistics Drive Collaboration in the Consumer Products Supply Chain, January 2013. 12IDC, Vendor Assessment: Traceability and Regulatory Compliance in the Food and Beverage Manufacturing Industry, February 2013. 13Bingham, Jenny, 3E Company Introduces Supply Chain Practice to Better Facilitate Product Compliance and Mitigate Risk, Verisk Analytics, September 24, 2012.


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9 Quick Safety Checks for SC Compliance