Current challenges in supply chain management

Supply chain management is more important today than ever before. In addition to the challenges of the pandemic, companies are increasingly being held accountable for production conditions. In many places, structures are already being rethought in order to meet the current conditions.

Supply chain management has been a demanding discipline even before coronavirus. With increasing globalization, supply and production chains have become ever longer, more complex and more dynamic. It is now almost impossible for consumers to trace the entire life cycle of a laptop, from the raw material through all the intermediate stages to the point of purchase. The individual components of the device travel a long way around the globe. They move from raw material producers to intermediaries and suppliers, are processed into intermediate products and sent on. And this doesn't just apply to high-tech goods and large corporations. Manufacturers from all sectors, from SMEs to large corporations, have long been part of global production and supply chains.

Even the most efficient systems are not perfect

From a business perspective, the small-scale division of labor within a production chain offers advantages. The parties involved can concentrate on their respective core competencies and optimize a specific process. In addition, global competition offers greater opportunities to reduce costs when purchasing raw materials and preliminary products.

But the system also has weaknesses: On the one hand, the constant flow of goods is extremely susceptible to disruptions caused by external shocks. Secondly, supply chains are becoming increasingly confusing due to their complex structures and interdependencies. This makes it increasingly difficult to collect comprehensive and transparent information, for example on the carbon footprint or working conditions along the chain.

Corporate responsibility - duty of responsibility

Companies are increasingly being held accountable in the area of corporate responsibility. Originally, global production chains were mainly criticized by human rights organizations and environmentalists. Despite the high media impact, these protests were mainly successful in isolated cases, as they were mostly directed against specific issues such as precarious production conditions in developing countries and child labor.

Gradually, many consumers developed a holistic awareness of the problem. As a result, purchasing behavior that was primarily geared towards the cheapest possible mass products has changed over time. Initiatives such as the fair trade seal have emerged as independent third-party bodies to label articles from responsible production. Companies are responding to this with a variety of measures by examining their own production methods and those of their suppliers abroad.

Much accomplished, much still open

However, given the complexity of supply chains, comprehensive testing is extremely difficult. Let's take the example of laptops: manufacturers of such devices simply assemble the end product from individual parts such as keyboards, screens or cameras. They purchase the intermediate products from various suppliers, who in turn purchase the raw materials and preliminary products from other retailers.

In reality, these processes are much smaller. However, it is already clear how many different companies are involved in the manufacture of a single product. As a result, it takes a great deal of effort for sellers to determine whether each individual station along this mostly transnational chain is working under fair and humane conditions.

Trust is good, control is better - New legal framework

This is why many countries are working on regulations and laws to ensure transparent and effective processing. The Responsible Business Initiative, which was defeated by a majority of the cantons, was already aimed in this direction. A counter-proposal was implemented in this country on 01.01.2022. Although this does not contain any additional liability obligations for corporations, it does include due diligence obligations that go beyond the level of the corresponding EU standards, for example.

Accordingly, public companies and large financial institutions must carefully check their supply chains for aspects such as child labor or conflict minerals and report violations. They are also obliged to report on other humanitarian aspects and environmental impacts. Non-compliance can be punished with fines.

Companies operating beyond the borders of Switzerland may also be affected by the legislation of other countries. The EU directive that will apply from January 2023 also affects suppliers from other EU countries, provided they generate at least €150,000,000 in annual turnover. Stricter rules apply to so-called high-risk industries. The threshold here is already €40,000,000.

The German Supply Chain Act, which has been in force since the beginning of 2022, also has an impact on Swiss suppliers. Among other things, it obliges German producers to check for human rights violations along the entire supply chain and contains a comprehensive list of penalties. The then Minister of Labor Heil spoke of the "toughest law in the EU".

Corporate groups take responsibility

Under these circumstances, responsible supply chain management is becoming more important than ever. But a lot has also happened on the corporate side in recent years. In view of the current recession, important issues such as climate and environmental compatibility are being pushed into the background by monetary aspects in many places, as a recent survey by the German Association of Materials Management, Purchasing and Logistics and the company Expense Reduction Analysts revealed.

On the other hand, the latest Gartner Supply Chain Ranking shows that global players are making significant progress in the area of sustainability. Twelve of the 25 companies assessed achieved the top score here, while a further five scored eight out of a possible ten points. SpediFux hopes that this trend will continue and that supply chain management will also change in the long term.