Masters of Supply Chain

Supply Chain Trust – Duty of Care

By Jaya Moorthi, Vice President of Logistics, East Asia & Japan at Schneider Electric

The entire value chain is going through a “stress test” that she has never experienced before. It is judgement day for leaders all over the world who are being asked to make tough calls and decisions between employee’s safety, health, corporate objectives and their own moral inclinations. The context has been vastly altered warranting a departure from the traditional  thinking and decision-making processes which may prove to be inadequate as a pandemic response.

Trust, in simple terms, is when there is a firm belief or confidence in the honesty, integrity or reliability of another person or a thing that we rely on. In the context of supply chain trust, consumers look upon and rely on companies that their products are environmentally friendly, that the labour going into their products are treated and paid fairly and that no children, distressed labour or unhealthy working conditions are utilized in the process of manufacturing. Similarly, we look upon enterprises to finance their business legitimately and not through inappropriate or illegal sources of funds. 

Corporate reputation takes a new twist in the pandemic situation. This pandemic before us has given us a new stress test to Supply Chain Trust. I call it the Trinity of Supply Chain Crisis

Trinity of Supply Chain Crisis

In the past, crises that we have seen and experienced were contained to limited geographies. Health and physical value chains were not disrupted simultaneously and some business sectors and parts of the economy escaped unscathed. Covid 19 amplified our lens of what and how a “supply chain crisis” can unfold. In most cases, we could well manage and mitigate the supply chain by pumping money, resources, multi-source or dual source to salvage the performance and output.  However, today we have a unique trinity of a crisis that encompasses nearly all the geographies, across all industries & economies and touches all domains of the society. This cascades to another form of trinity in the value chain, one where it is a constrained supply/demand environment, higher costs to serve across value chains and lower satisfaction and customer value. Truly, survival of the fittest. 

Supply Chain Trust is poised to a new level of scrutiny. Just as the electorate and citizens will look upon their leaders to lead them across this and listen to their assessment and advice in earnest, the leaders in the value chain are now entrusted with similar questions. The notion of ‘duty of care’ within the value chain will be seen in a new light in breadth and depth. 

Factories and businesses around the whole world are either on full, partial or skeletal workforce. We are starting to see countries gradually de-escalating and coming out of their respective lockdowns.

During the lockdown, how do you ask employees to come back to work when the popular wisdom is to stay at home to contribute to the containment of the virus in those countries where there are movement controls? 

It is a tough sell and if executed wrongly it may seem self-fulfilling to one’s own interest and will spiral downwards. Firms must take steps to ensure social distancing, mask availability and ensure a host of measures are deployed satisfactorily before calling in their workforce. Companies must demonstrate focused measures of staff safety, health and other containment measures to win the hearts and confidence of their staff and public. As the situation unfolds and companies prepare for a new norm, accountability is humungous on every employer. The design of workspace and working environment is a new additional responsibility of real estate functions in companies. This in turn will affect or force companies to revisit their labor force strategy and decide on a new equilibrium of work from home, nearshoring, contract staff and a host of other tactics to manage a new norm. 

Masks are becoming the most sought-after consumption item.  Fearful of shortage hoarding and “modern day piracy” has started to unfold. How should businesses respond? How do we ensure every employee coming to work in the value chain is equipped with this basic need before we open our factories and businesses? This is a challenging burden as to ensure all the companies are ensuring that their staff is not exposed to any risk in the process of coming to work. While we refer to staff, employees and labor force interchangeably, we are talking about families and our dear ones. 

It is safe to assume such enormous burden is manageable by larger corporations. How about smaller companies? The challenge cascades even deeper as you peel into a variety of suppliers behind each business and factories. These are new considerations that are not usually in one’s immediate radar.  Are we putting the people in the value chain at greater risk?  It is beyond corporate objectives but a moral obligation that leadership must shoulder. Never in history, has the “duty of care” been called to question to such an extent. Crisis of the past, floods and MERS did not threaten the business in such a fashion nor has the conflict of business sustainability and workforce safety been raised to this level. 

Governments and business federations are also in the spotlight. What is the governance process here? If we have rent controls, labor laws, non-hazardous content and various other laws enacted that companies are legally tasked to ensure the products they produce are safe and legal, can we stretch the same principles in this pandemic? Governments may now require companies to demonstrate “duty of care” in a more legalized fashion. Workplaces may be obligated to ensure safe work environments that are “Covid ready”. This “duty of care” may take a higher importance and expectation by employees in the future. As the learned Lord Atkin in Donoghue and Stevenson, famously quoted the “neighbour principle” as a duty of care standard. 

Will consumers be confident that enterprises are exercising their moral and social obligations to ensure that all their staff are duly taken care of or are they liberally taking a risk, given it is a matter of bread and butter for the employees? 

Just as we have a green label on packaging signifying that materials are environmentally friendly in nature, do we need a “label” for companies to declare that their controllable upstream suppliers as well as their own enterprises have taken all the appropriate safety action in the context of pandemic? Fresh questions that warrants a different thinking and response.  

Prices of freight have risen four fold, driven by lack of capacity due to reduction in commercial flights. How much of the increase is real derivative increase or its plain profiteering? As an old saying goes, “When the house is on fire, it is the best time to loot”. It may sound harsh but the transparency of these increments are ever more blurred. For the freight forwarders, do they prioritize food and medical supplies before consumer goods and luxury? Similarly, should business retreat where it is necessary to support critical health replenishment? Have business federations or associations come forward to declare and support by giving priority to essential needs first before other cargo or even setting a governance with authorities to prioritize health and food supplies before commercial goods? It was however refreshing to see New Zealand authorities spurring a new initiative to support essential goods movement with other authorities and airlines, facilitating pooling of cargo for food suppliers to allow sufficient critical mass to uplift air freight. 

On the demand side, customers- big or small, may start to hoard critical parts and goods in shortage to have an advantage in the short term. Others may be tempted to artificially inflate demand to be ready for uptick when the virus settles down. Sales team will face the ultimate task of deciding to counter this behavior or join in the bandwagon to fuel their sales target. 

The epic of trust in this pandemic is the fact that we cannot ignore this obligation to stakeholders, directly or indirectly. Failure or below par standard or duty of care in any part of the value chain will inadvertently affect the larger ecosystem and society. It would appear that if we are to succeed, all of us in the value chain must dance together dutifully, transparently and committed. 

How then should organizations respond to Supply Chain Trust and the obligations of “duty of care”?  It should now take a higher plane of importance than sustainability and ESR with the Board of Directors and senior executives of the companies. The nature and danger of pandemic is now and present and it requires management to declare they are going to step up and own their responsibility downstream and upstream of their supply chain ecosystem. 

Trust, accountability and responsibility will be under watchful eyes. Enterprises and their leaders will be judged. Those who lived off feeble trust foundations will have rocky times ahead. Where relationships were built on solid mutual understanding, they will side-step the headwinds. Our decisions and actions will be read in history books for years to come.

Jaya Moorthi
Vice President of Logistics, SEA

Jaya is a supply chain professional with 25 years of experience in broad areas of supply chain and logistics. Presently, he is the VP Logistics, EAJ for Schneider Electric. Jaya has an impressive, eclectic academic background – Bachelor of Business Administration (BBA), Bachelor of Law (LLB Hons), MBA with California State University. In addition, he is a certified Neuro Linguistic Programming (NLP) with American Board of NLP and has Certificate of Management (CMA) accounting with University of Monash. Jaya is also a keen reader of non-fiction books ranging from business, psychology, history amongst others. He plays soccer, does yoga and runs often. He is married to a lawyer wife with two children.

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