In our last post on Playing With Fire: Hidden Risks in Your Supply Chain, we discussed how your supply chain is filled with hidden risks which can bleed your bank account dry and bring your supply chain to a screeching halt if they rise up and rear their ugly head.
But they can do more than bleed the bank account and stop your supply chain in its tracks, they can tarnish your brand and cause permanent damage to your company. A recent study by CIRANO found that while there is an 80% chance of a company losing at least 20% of its value at least once during a five year period as a result of a negative, but well publicized, incident, a major incident that negatively impacts the brand in a significant way can be much worse. Just ask Airbus that had its stock plummet by over 26% in a single day, equivalent to a market capitalization loss of approximately €5.4 Billion, after it announced on the close of trading on June 13, 2006 that issues with the supply and installation of electrical harnesses would lead to a further six-month delay in the delivery of the A380 (and that the impact of the disruption on earnings before interest and tax would be €500M per year for four years).
Or ask BP, which, as a result of the Gulf of Mexico oil spill when the Deepwater Horizon drilling rig exploded on April 20, 2010, saw its stock price fall by 52% in 50 days. Ouch!
But it’s not just supply delays or disasters that cause loss of brand value. It’s reported violations of clean air, water, energy and other environmental acts that get environmentally conscious consumers to boycott your products after environmental activists get up in arms. It’s poor treatment, or even discrimination of, a class of people that can also get a company in trouble. If your supplier is known to regularly subject its employees to unfit working conditions and violate wage acts, that’s a problem. If a CXO regularly goes on record speaking out against minority groups’s rights (include the LGBTQ community or immigrants), that’s a problem. And if there are investigations of corruption, that’s a big problem.
It’s more than just environmental non-compliance risks that you have to watch out for. To find out more, check out Sourcing Innovation’s latest paper on Playing With Fire – 4 Hidden Risks Lurking in Your Supply Chain, sponsored by Ecovadis to find out the major categories of risk you need to watch out for, some major impacts of each type of risk, and just how many zeros they could take off the end of your bank account.