Shifting sands

The Paris attacks have been another harsh reminder that the risks the world faces are increasingly global. Being in the West does not make us immune to the threat of ISIS.

Unlike terrorism, however, natural disasters are often assumed to be more predictable; if we don't know when, we can often make good guesses at what and where they might strike. Risk modelling for the likes of hurricanes, floods and – perhaps most all – earthquakes is predicated on that. Nevertheless, it is vital to regularly review supply chain exposures, and keep in mind the uncertainties that should prompt us to be prepared for the unexpected.

This has been a key lesson from previous catastrophes. The Japanese earthquake of 2011 was a good example: the place was not a surprising, but the magnitude – 9.0 on the Richter scale – was far stronger than anything thought possible at the time. And, of course, the impacts were felt worldwide, with US automotive supply chains, for example, suffering impacts comparable to some in Japan.

The US itself is not immune from the danger of direct shocks either. The risk from the San Andreas fault is so well known it has had its own summer blockbuster. In reality, any quake there is unlikely to live up to Hollywood’s imagination, but the devastation that follows, from fires to floods could be significant. Moreover, once activity starts, it could continue for years.

In fact, San Andreas is not necessarily the biggest geological threat the US faces; near it is the Cascadia subduction zone, much less well known but with the potential to produce a quake and tsunami that could kill nearly thirteen thousand people and displace one million, according to the US Federal Emergency Management Agency (FEMA). The 1980 eruption of St Helens, meanwhile, was a reminder of a volcanic risk where understanding is still developing both in relation to St Helens, and Yellow Stone National Park.

The point is that businesses cannot afford to look to their supply chain resilience purely in the light of historic disasters. Resilience is only possible by assuming the worst could happen, and that you probably haven’t yet thought of what the worst actually is.

Supply chain slavery battle sees a regulatory push

Labour is riding up the supply chain agenda. On October 29 requirements under the Modern Slavery Act came into force obliging companies to make an annual statement on their policies for excluding slavery from their own organization and their supply chains. The government has also published guidance on how to adhere to the new regime.

The requirements only affect those with a turnover of more than £36 million (although that includes worldwide revenues), and those with financial years ending after 30 March 2016. That will give most organisations time to get to grips with the regulations. Many will need it.

In reality, if ensuring labour abuses in the supply chain were simple, legislation would scarcely be necessary. For the vast majority of companies, the reputational risks, if not the moral imperative, should be enough to focus attention on the issue. From the supermarket giants to technology leaders the potential for adverse publicity has been well demonstrated.

In fact, obligations to screen international as well as domestic sources under the Act were in part a result of pressure from big businesses for a level playing field for those already taking responsibilities seriously. As the Parliamentary joint committee examining the proposed law noted: “IKEA told us that ethical supply chains were ‘absolutely’ more profitable, Tesco said that a good reputation ‘more than pays for itself’ in the long run, and Marks & Spencer told us that trust was ‘a key part of [their] competitive advantage’.”

So, why is legislation necessary? Well, we have to admit that there obviously are some unscrupulous businesses, even if they are small minority. Two other reasons are probably more relevant, though.

First, many businesses don’t think it’s a problem for them. Inevitably, much of the attention around modern slavery has focused on retailers and consumer goods companies; they’re among the best known household names, with the biggest reputations at stake.

It’s a misconception that other sectors aren’t at risk, however, and it’s good to see this appreciated by the likes of the PSCI (the Pharmaceutical Supply Chain Initiative). It included a discussion of modern slavery in its agenda for its annual AGM this month.

The other reason legislation is necessary, of course, is that it is complex. The commitment required from companies in terms of time, money and technology to drill down and have confidence and visibility of each layer of the supply chain is significant. The regulation tells us that it is exactly what is expected, however.

As the Home secretary Theresa May writes in the foreword to the government guidance: “It is simply not acceptable for any organisation to say, in the 21st century, that they did not know. It is not acceptable for organisations to ignore the issue because it is difficult or complex.”

There will, in other words, be no more excuses.