Supply Chain Scandals: being on the right side of history

A supply chain scandal hits companies where it hurts the most – in the pocket.

Fashion retailer Boohoo had £1bn wiped off its value the day after an undercover investigation by The Sunday Times reported unacceptable working conditions and modern slavery at a Leicester garment factory that appeared to have links to the company.

Claiming that the factory was not one of its suppliers, Boohoo nevertheless quickly sought to rebuild consumers’ trust. It launched a QC-led investigation of its supply chain, hired an independent factory auditor, and announced the creation of its own “model factory” that would demonstrate best practice in terms of workers’ rights.

Today it announced that its suppliers have been given a deadline of 5 March to stop using outside labour and bring all clothes-making work in-house.

The incident dramatically illustrates the value that consumers attach to the way in which retailers act. Moreover, it emphasises how they do not differentiate between operations that are owned or outsourced. ‘It’s the supplier’s problem’ does not cut it in the court of public opinion and when incidents surface, the household name gets the blame even if it has not necessarily been irresponsible.

Ultimately, if supply chain incidents are not addressed effectively, perceptions build that a company is poorly managed or unethical. These are existential threats that destroy value and in, some cases, can be terminal for even the most well-established brands.

So what’s the good news? If there’s any during a pandemic, it is that Covid-19 has created an unprecedented opportunity to drive real change in the system. Where it has shaken, or in some cases completely disrupted supply chains the world over, everything is under review. As re-assessment to build resilience and manage future disruption takes place, now is the time to properly understand suppliers and uncover the reputational landmines.

It is also a time to rethink the underlying processes that govern procurement. Whereas priorities may have previously been quality, delivery and pricing, retailers should now ensure ethics are at the top of the list. Setting expectations for suppliers to operate responsibly in key areas – human rights, corruption, the environment, and waste – will help to mitigate reputational risk.

This is also an opportunity to proactively meet consumer demand for transparency and set out your stall in public. Things may not be perfect, and the road ahead may be long, but getting your house in order is always better than scrambling to clean up a mess. Existing consumer awareness of an ethical position will establish the context for future crises and provide an invaluable platform from which to manage them.

Of course, this is not all about risk management. The world is changing faster than ever and there are positive brand opportunities for those willing to embrace new suppliers and new ways of doing things – from renewable energy to plant-based materials, there is a lot to be said for being on the right side of history.