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How companies can mitigate their African supply chain risks

Africa’s agricultural resources are the backbone of multi-billion dollar industries and support the businesses of many global companies. The continent is a large producer of crops such as tea, coffee, chocolate, cotton and leather.

But sourcing these raw materials is a challenge due to poor infrastructure, erratic weather conditions and limited use of technology that affects the quality and quantity of produce. Another concern for international buyers is the processes taking place behind the scenes during production that pose reputational risks.

The chocolate industry, for instance, has in the past received blame for the use of child labour in West African cocoa fields. And in Ethiopia, concerns regarding the use of cotton grown on land where locals have been forcibly evicted, have prompted European fashion brands to pay closer attention to their Ethiopian supply chains.

“In the US and Europe there is a growing demand for supply chain transparency and responsible companies. Consumers are interested in who is supplying,” says Patricia Chin-Sweeney, senior partner at advisory firm I-DEV International.

Reliance on middlemen

One of the biggest challenges for multinationals, Chin-Sweeney notes, is that they rely on intermediaries to source raw materials in emerging markets.

“That means they are a little bit less familiar with what is actually happening on the ground, and that is a risk. In the textile industry, for instance, there have been issues like factories not adhering to labour practices, even burning down because safety precautions weren’t met. Many times companies didn’t realise that these things were happening because they relied on the middleman,” says Chin-Sweeney.

Through its Insight and Strategy division, I-DEV International works with companies involved in global supply chains. Its past clients include Eileen Fisher, a luxury women’s clothing brand, and Keurig Green Mountain which sources coffee from more than 150,000 farmers, mostly in emerging markets. I-DEV’s work revolves around reducing supply chain risks and strengthening value chains by developing benefit programmes for suppliers and workers to improve their livelihoods.

Minimising risks

“One of the concerns for sourcing in Africa is getting things delivered in general, getting things delivered in time, and then a sense for the quality control,” she says.

Companies can mitigate supply chain risks by offering better pay for farmers and workers to encourage efficiency, as well as scholarships for children so parents would be incentivised to send them to school and not to work in farms or factories.

Multinationals should also strive to build closer ties with its producers in emerging markets, which would help strengthen producer loyalty.

Chin-Sweeney explains how suppliers sometimes halt production without informing their buyers. “By the time the company finds out it is too late, and they are short in their inventory. So you also need backup suppliers just in case some disease affects your supplier’s crops. It is hard to find a good supplier that stays a good supplier,” she says.

Companies should also invest in capacity building programmes to ensure producers understand, and are able to meet global standards. Meeting the high volume needs of multinationals can be challenging, and this sometimes prompts suppliers to use unethical methods.

“It is a responsibility of the multinational company to be involved and to send their staff to provide training and support on how to produce items faster but not compromising [ethics and standards].”

Although implementing such programmes is expensive, Chin-Sweeney says in the long run it helps save money for the company.

“They would have fewer defaults on purchasing agreements, for instance. In coffee and other supply chains a lot of producers don’t know where their product goes and why a certain standard is required. And that increases the likelihood they will fail to meet that standard.”

Although distance and the fact that producers and suppliers are independent entities can be a challenge, Chin-Sweeney says international companies still do have some control. Companies can, for instance, work with local governments to ensure enforcement of issues like adherence to labour standards.

“At the end of the day a lot of suppliers are dependent on big buyers. They won’t have a business if no one is buying from them. So companies can start with addressing what they can, and be very transparent about trying to move their industry in the right direction. They have that weight because they are big companies.”

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