Overview of governance, risk and reputation issues affecting the complex and multifaceted corporate supply chain

1. ANATOMY OF SUPPLY CHAIN RISK
Andrea Bonime-Blanc, JD/PhD
CEO, GEC Risk Advisory LLC
NACD Board Leadership Conference – October 2013
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2. Major Kinks In The Supply Chain I
EXCERPT FROM A NEW YORK TIMES STORY*: CHINA
“Inspectors came and went from a Walmart-certified factory in Guangdong Province in
China, approving its production of more than $2 million in specialty items that would land on
Walmart’s shelves in time for Christmas.
But unknown to the inspectors, none of the playful items, including reindeer suits and Mrs.
Claus dresses for dogs, that were supplied to Walmart had been manufactured at the factory.
Instead, Chinese workers sewed the goods — which had been ordered by the Quaker Pet
Group, a company based in New Jersey — at a rogue factory that had not gone through the
certification process set by Walmart for labor, worker safety or quality, according to
documents and interviews with officials involved.
To receive approval for shipment to Walmart, a Quaker subcontractor just moved the items
over to the approved factory, where they were presented to inspectors as though they had
been stitched together there and never left the premises.
Soon after the merchandise reached Walmart stores, it began falling apart.”
*The New York Times, “Fast and Flawed Inspections of Companies Abroad”. September 1, 2013
© GEC Risk Advisory LLC 2013. All Rights Reserved. Confidential & Proprietary Information.

3. Major Kinks In The Supply Chain II
EXCERPT FROM A NEW YORK TIMES STORY*: BANGLADESH
“Fifteen hundred miles to the west, the Rosita Knitwear factory in northwestern
Bangladesh — which made sweaters for companies across Europe — passed an inspection
audit with high grades. A team of four monitors gave the factory hundreds of approving
check
marks.
In
all
12
major
categories,
including
working
hours, compensation, management practices and health and safety, the factory received
the top grade of “good.” “Working Conditions — No complaints from the workers,” the
auditors wrote.
In February 2012, 10 months after that inspection, Rosita’s workers rampaged through the
factory, vandalizing its machinery and accusing management of reneging on promised
raises, bonuses and overtime pay. Some claimed that they had been sexually harassed or
beaten by guards. Not a hint of those grievances was reported in the audit.”
*The New York Times, “Fast and Flawed Inspections of Companies Abroad”. September 1, 2013
© GEC Risk Advisory LLC 2013. All Rights Reserved. Confidential & Proprietary Information.

4. Supply Chain Governance, Risk & Reputation Management
Multiple Multiple 3d Transportation
Manufacturing Product Distribution Retail &
sources Parties
& Logistics both & Assembly
Quality
Sales &
Customer
Internal/external
Controls
Re-sales
I
II
III
IV
V
VI
VII
VIII
A weak link in the chain exposes risks that if unattended or ignored can grow into
material reputational risks too
 QUALITY
 FRAUD
 EXPORT CONTROLS
 ENVIRONMENTAL IMPACT
 AUDIT FAILURE
 HEALTH & SAFETY
 CORRUPTION: PRIVATE & PUBLIC
 INTERNAL CONTROLS FAILURE
 CLIMATE CHANGE
 LABOR RIGHTS
 MISREPRESENTATION
 CYBERCRIME
 IMPORT CONTROLS
 THIRD PARTY DUE DILIGENCE
 HUMAN RIGHTS
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5. Checks & Balances Required Throughout The Supply Chain
Business
Continuity
Enterprise
Risk
Management
Internal Audit
Procurement
& Operations
Business
Ethics &
Compliance
Import/Export
Trade
Compliance
Crisis
Management
AntiCorruption
Specialized
Audits
External
Audits
Board of
Directors
ISO / other
Certifications
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6. Supply Chain Governance, Risk & Compliance Fundamentals
1. Supply Chain Risk Baseline Assessment and Continuous Risk
Management
2. One Corporate Owner for Overall Supply Chain Risk
3. Cross-Functional Supply Chain Risk Management Team
4. Clear Global Supply Chain Communications, Policies, and
Training
5. Supply Chain Third Party Pre-Screening
6. Supply Chain Third Party Checking, Testing & Auditing
7. Speak-Up Culture about Risks Generally and Supply Chain
Risks Specifically
8. Board Oversight and Reporting
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7. Resources on Supply Chain Risk Management
Ethical Corporation Magazine - The GlobalEthicist Monthly Column:
http://www.ethicalcorp.com/users/andrea-bonime-blanc
© GEC Risk Advisory LLC 2013. All Rights Reserved. Confidential & Proprietary Information.

8. For Further Information
Andrea Bonime-Blanc, JD/PhD
CEO, GEC Risk Advisory LLC
New York, New York USA
http://www.gecrisk.com
The GlobalEthicist
Ethical Corporation Magazine Monthly Column:
http://www.ethicalcorp.com/users/andrea-bonime-blanc
T: +1.917.848.4448
F: +1.212.501.8326
abonimeblanc@gecrisk.com
www.linkedin.com/in/andreabonimeblanc
7
© GEC Risk Advisory LLC 2013. All Rights Reserved. Confidential & Proprietary Information.