Nowadays, everyone is on the hunt to reduce their logistics costs. Many take the cost-effective choice of building their manufacturing or distribution facilities in countries known to be cheaper. However, there are several things to consider before using such markets. Even if it is economically workable and beneficial to merge with a local firm, a company still must pay attention to their reputation. Certain countries (such as post-soviet countries) have gained a less-than-desirable reputation for rampant corruption. Linking your company to such a location might damage the company’s image. Also, bribery within the supply chain can occur and become a problem.
Learning How to Reduce Corruption in the Supply Chain
Entering an emerging market in Europe or Asia is never an easy decision. You want to set up your business’s global presence, but you need to ensure that your central control is tight and that you support behavioral control systems every step of the way.
Traditionally, you would choose suppliers based on price and services but in an emerging market, depending on the location, such steps might not be proper.
Let’s examine a fictional incident that could very well be reality. You are a well-known furniture retailer/manufacturer from western Europe. The opportunity has presented itself to reduce the cost of production by as much as 30 percent if you start to manufacture in Ukraine.
Obviously, the first significant price reduction is the fact that you will have lower paid employees.
The second cost savings is the benefit of having access to cheaper wood. Now ask yourself, would you accept this opportunity?
Of course, you will check the wood to figure out why it’s so cheap. However, you might have 150 suppliers and they all have sub suppliers so it’s hard to check all of them to decide why the wood is priced so low.
Before you enter an emerging market, you’ll need to check your suppliers and sub-suppliers to make sure they are connected to officials and government enterprises. You’ll want to make a list of reputation harming factors that can change your business before going forward. The harming factor is corruption in the supply chain.
Preventing Supply Chain Corruption
If you decide to enter the post-soviet markets, then you’ll want to take anti-corruption measures. You’ll need to reduce the risk of bribery within your supply chain. You’ll need to invest in cutting-edge IT systems for suppliers that are designed to track the progress, double check documents, perform both internal and external auditions and have an integrated anonymous whistleblower supply for your supplier employees.
- IT Systems: An IT system will track all progress within the foreign market with immediate data collecting applications. Software such as Procurement Flow is an ideal choice to help you manage RFP, RFI and RFP’s. It functions as Procurement savings and automation software.
- Double Checks: Always double check the company’s resources for both paper and electronic documents.
- Perform regular internal and external audit: One of the best ways to execute an audit is to send your main representative to perform the audit. You should not use local key employees who might try to hide something or be on the ‘take’. Only use a representative that you can trust to perform an audit.
- Maintain a Whistleblower System: You should have an anonymous whistleblower system in play for your supplier employees and workers. You should regularly encourage your workers to inform on any unethical situations. Offer proper training on how to use the whistleblower system. It should be easy, quick, and always supply the guarantee of complete anonymity.
Additional Ways to Avoid Supply Chain Corruption
You should continually change key procurement employees, so they do not have time to build long-standing personal relationships within your company’s supply chain.
When partnering with someone new, always sign a contract. Also, make sure that whoever you are signing a contract with is not related to any of your employees. Ideally, you should always hire key employees who are from other regions of the country than the operations location.
If you feel that a foreign country offers a lucrative ROI, then you might want to consider creating a new brand within the post-soviet market so that the reputation of your main brand is not harmed by any potential corruption that might occur. You can create a global strategy with the same product but a different package so you can enjoy the potential profits with truly little risk.
