Since the Evergreen got stuck in the Suez, it seems that barely a week has gone by without supply chain issues making the headlines in one way or another. From continual availability struggles to increased costs, driver shortages to increased governance requirements - there are many challenges in keeping our warehouses and stores stocked.
While Brexit has not assisted matters, we are actually yet to see the full impact of the supply chain issues that it will cause for those trading with UK based business. The inward UK border is still not fully operational and there are more paperwork and checks process developments still to come. This isn't the only major trade development impacting global consumer businesses, with the US holding a diplomatic boycott of the Chinese Winter Olympics there will be more to come.
We know that clients are working very hard in order to ensure that they can maintain supply chain in very tough conditions where prices are fluctuating wildly. These conditions appear likely to continue for the foreseeable future as a global driver shortage and shortage of certain components combine to create incredible press. Despite the hard work, UK supermarkets in particular are struggling to have pre-COVID levels of availability and stories of supermarkets chartering ships and other logistics enterprises are becoming more common.
The issues with supply chains were not helped by COVID closures as seasons of stock were not sold in the same ways as usual, and while consumer businesses have largely adjusted to a new pattern of consumer spending, there is still learning to be undertaken to ensure that the right products are available at the right times as behaviours adjust. This in turn has led to ranges being adjusted and a greater focus on the availability of core lines and solidifying the position in relation to them. Inevitably it has also caused all to look inwards to ensure that inventory management and every stage of the supply chain is as optimised as it can be.
Unfair trading practices
Price pressures will ultimately be borne by customers, attempts to pass the impact onto the suppliers may fall foul of regulation. While the UK has had GSCOP in the grocery sphere for some time and EU member states like Ireland and Spain have similar laws, the EU's Unfair Trading Practices Directive is currently being implemented and will provide similar protections to a wide range of other businesses in the food supply chain. It regulates the way in which parties in the food supply chain contract and addresses a range of common practices across the sector. For instance, it requires a written contract which has not been common. It also prohibits a range of other behaviours including: unless specifically set out in a supply agreement that the Buyer cannot require the Supplier to be required to pay for marketing or advertising costs and the Buyer is prohibited from cancelling orders at such short notice (less than 30 days) where the Supplier cannot find an alternative outlet for the products. As this regulation applies when only one party is in the EU and when both are in the EU the parties can choose the nation where it should apply, this gives rise to a range of further issues due to the different way that the legislation is implemented, but these are yet to be explored.
Time to increase supply chain due diligence?
This is not the only regulation impacting supply chain. The Act on Corporate Due Diligence in Supply Chains becomes effective in Germany on January 1, 2023. The law obliges companies to comply with human rights and environmental standards in their supply chains, e.g. the prohibition of child labour, slavery or the causing of soil or air pollution. Supply chain refers to all steps to manufacture a product or provide a service. The law applies to all products of a company or group of companies with a minimum of 3000 employees in Germany. From 1 January 2024 the law will apply to companies or group of companies with a minimum of 1000 employees in Germany. Companies will be required to prevent human rights or environmental violations by implementing relatively comprehensive measures in their supply chain organisation. These measures include establishing a risk management system, conducting regular risk analyses and embedding preventive measures, such as implementing human rights and environmental standards within the companies' supplier and producer agreements. Violations of the law can lead to fines of up to 800,000 euros.
These obligations together with a focus on ESG, are causing business to look closely at their supply chain from end to end. It is all too easy for the practices of an errant supplier elsewhere in the globe to act inappropriately and that impact the brand at home. Whether it be child labour or using environmentally unfriendly practices, sourcing from Xinjiang or locations with human rights abuses or from areas where there might be sanctions - the global nature of the supply chain has never had more issues and more for consumer businesses to consider.
If you have any questions about navigating supply chain issues and regulation, get in touch with our experts.
