ESG Feature – Supply chains Big problem
Dyson is not the only household name to be hit by such allega- tions. In 2016, retail giant Marks & Spencer was found to have children as young as seven-years-old making clothes in Turkey to be sold in its stores on Britain’s high streets. The manufac- turer, which also made products for online retailer ASOS, was also found to have unsafe workplaces.
There have also been allegations of human rights abuses at overseas companies supplying sportswear behemoth Nike, which has been accused of employing suppliers in China that use slave labour, while a facility in Vietnam was deemed unsafe for its workers. Nike faced a small protest at Charlestown Uni- versity in Washington DC, which refused to renew its sports- wear contract agreement.
unless the company signed a compliance
These are just two instances of the supply chain issues that have impacted big name brands. Such scandals, true or not, can prove costly. Indeed, it can hit a company financially through loss of productivity, increased legal and public rela- tions spend and the costs of adapting the business to ease any fears of the scandal happening again. Professor Sabine Benoit from Surrey Business School, who has studied this issue, said in a release: “Customers will blame major firms for supply chain scandals – and this inherited blame will affect whether they buy from the firm in the future. “Our research has found that taking one action – either moni- toring and supporting suppliers to do better or moving on from them – will help to build trust and confidence in the major firm but purchasing intention only returns to 75% of what it was before the scandal hit.
“The best option, if a scandal does hit, is for companies to dou- ble-down on their response by sacking the supplier who caused the scandal and work to support their remaining suppliers, then consumer trust will start to rebuild, resulting in the best outcome possible – with purchasing intention rising to 85% of what it was before the scandal hit.
“What this means for major companies is that consumers expect their brands to be doing good in the world – and there’s a right way and a wrong way to handle supply chain scandal with a direct impact on the company’s bottom line,” she added.
New thinking Yet supply chains are changing. When China became the “workshop of the world” every company you passed on the high street seemed to have some connection to a factory in the world’s second largest economy. This was a big economic game-changer which helped keep costs low. However, Covid has changed this. The world is getting smaller as deglobalisation is becoming the new strategy with supply chains starting to retreat from the
34 | portfolio institutional | November 2022 | Issue 118
The risk in supply chains is increasing. If there is an incident, the damage to your brand could be significant.
Fred Isleib, Manulife Investment Management
developing world. The impact that the lockdowns ordered in response to Covid had on the world is one driver behind such a change in thinking. Indeed, six in 10 chief executives surveyed by KPMG last October said their supply chains are under increased stress. They were working to build a resilient chain to prepare for any further lockdowns or disruptions to global supply lines.
Isleib says the importance of supply chain visibility has grown during the past five years. “It has gone into hyperdrive thanks to Covid,” he adds. Political tensions between the West and East are also strained, something Isleib is seeing reflected in the corporate world. “Companies are reconstructing their supply chains; they are making them shorter. We are seeing nearshoring and onshor- ing of suppliers where appropriate,” he says. But investors must not get complacent if companies have sup- pliers closer to home. Remember Boohoo? In 2020, the online clothing retailer saw £1bn wiped off its value the day after The Sunday Times alleged that staff at a factory in Leicester, which made garments for the company, were paid £3.50 an hour – less than half of the £8.72 minimum wage for those aged over 25. It was also claimed that there was little evidence of action being taken to stop the possible spread of Covid.
Eyes on the ground
The developing world has a ready and abundant supply of workers, but if there is not the will from the authorities in
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