Japan Tragedy Tests Ethical/Environmental Procurement Standards

As the world grapples with the immense impact of the disaster in Japan, attention is turning to the global economic impact of the country’s lost production.  Japan has long been a critical link in the supply chain of many industries – perhaps most notably in the automotive and electronics sectors.

The Financial Times ran a piece today on this which touches on contingency plans to help replace lost production stemming from unforeseen major disruptive events.

In this context, a question arises:  Will companies enforce their procurement requirements for vendor EHS performance during this period?

Elm has long discussed EHS risks in the context of supply chain disruption contingency planning.  In past years, the risks have been more focused on matters related to how production redistribution could cause violations of various environmental permit limits tied to production levels.  However, the rise of ethical purchasing standards – as voluntary and highly publicized corporate commitments – has altered the definition of EHS risks in supply chains.

It may be months or years before some of the Japanese plants are in production mode again.  In the interim, companies impacted by the disruption face a conundrum:

  • Do they attempt a rapid production recovery by quickly engaging second-tier alternative suppliers that may not meet EHS procurement standards (i.e., relaxing their supplier requirements)?
  • Or do they stick to the EHS standards for suppliers, thereby risking potentially extended production downtime while either (a) searching for a supplier who meets the standards, or (b) bringing a supplier up to speed?

Certainly, it is easy to say there is a third option – implementing an existing contingency plan with an existing alternate supplier that already meets the EHS procurement standards.

But few manufacturers have that third option available, as EHS concerns tend to be overlooked in supply chain disruption planning.

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