Your promises and your ability to deliver is in the hands of your suppliers. The risk of reputational damage represents a significant cost to companies, and underestimating its impact can be an expensive mistake.
Some factors in the delivery of your commitments, such as catastrophic events and problems associated with third parties, may seem out of your control. But their impact is very much within your control. Sound decision-making and diligent checking of suppliers can play a large part in mitigating risk.
One key area is in supply chain management, because, as Jonny Michael of Manchester-based, JMCL Consulting explains, one of the hidden costs in choosing the wrong supplier can be the risk to your reputation.
“When choosing suppliers, you must continue to monitor and police your supply chain, to ensure, among other things, that your supplier adheres to your own values”
“Corporate social responsibility (CSR) significantly contributes to a business’s reputation, both socially and legally,” explains Jonny. “However, the social aspect of reputational risk has taken on a whole new dimension with the rise of social media, with many millennials judging businesses – both as a customer and potential employee – primarily on the perceived credentials of their corporate social responsibility.”
High Heels and Low Reputations
Jonny pinpoints the example of how not matching your outsourced supplier’s values to your own can have serious implications for your business’ reputation, and how social media magnifies these issues.
“In a headline-making case, a receptionist was sent home from global accountancy firm, PwC, for not wearing high heels,” Jonny says. “This became a hot topic because of its discriminatory and sexist overtones.”
The issue caught fire on social media, and the receptionist launched a Facebook petition to prevent companies forcing women to wear high heels. It quickly gained 11,000 signatures, helping to keep the story in the news.
“PwC had outsourced its reception services to a company called Portico,” Jonny explains, “so the policy was actually Portico’s. But the reputational damage was to PwC.”
The true cost to PwC has involved months of crisis PR management, potential risk to both existing and new client contracts, and the possibility of a damaged reputation when it comes to recruiting new graduate talent.
Lessons for Supply Chain Management
“Cut-throat competition and the growing demand for low cost products can lead to companies making poor decisions when it comes to third party suppliers,” suggests Jonny. “Ethical supply chains require the proactive sourcing of goods and services using watertight procedures and processes.”
“If there is an ethical lapse, it is the reputation of the company that will suffer the most, not the third-party supplier”
On an official blog, PwC’s Head of People and Executive Board Member Gaenor Bagley explained that PwC had “learned the hard way it is critical that the employment policies and values of our supply chain reflect our own.”
There is also the question of what services a business should outsource in the first place, because the perceived benefits in savings may turn out to be much higher costs.
“In the case of PwC, should you outsource your reception services at all? They’re often people’s first impression of you, so why wouldn’t you want direct control over this?” Jonny asks.
“Do you know what the policies are of the companies you work with? You should ensure that your suppliers’ activities don’t clash with your values, or risk costly, reputational damage,” Jonny concludes.