Retail supply chain risks

BY Australian Retailers Association
01 February 2015

logistics-stock-room, supply chain, warehouse, DCAs retailers seek new products and improved margins in a highly competitive environment, some are increasing their proportion of goods imported directly from overseas. The risks and responsibilities assumed through importing must be clearly understood.

Australian retailers who import goods assume the legal status of a manufacturer, taking on the responsibility of ensuring quality and safety is maintained and meets Australian standards. Importing products of inferior or unproven quality can lead to increased regulatory, financial and reputational risk and ultimately loss of customers. Conversely, a high quality and safe product can enhance a retailer’s market position and strengthen its customer loyalty.

To manage these risks retailers must ensure the supply chain from which these products are sourced is regularly checked and tested. This can be problematic for a retailer that doesn’t have the experience or access to global resources. However, regulators, the law or consumers have little empathy when a faulty or dangerous product is sold in Australia. The due diligence and product assessment by retailers should be even greater when goods are being sourced from countries where quality assurance requirements are not typically at the level expected in Australia.

What can a retailer do to manage their risks?

  1. Know your supplier - network within your industry, banking connections and government agencies such as Austrade to ensure your supplier is reputable. Also establish and/or review contractual conditions between yourself and the supplier.
  2. Quality assurance checking – source and use professional independent companies that audit and monitor the quality of overseas products. Organisations such as SGS Australia (www.sgs.com.au) and Intertek (www.intertek.com) can audit and monitor product quality, safety, design and regulatory compliance of products retailers are having manufactured overseas.
  3. Alternative suppliers – over recent years, retailers have been impacted by an interruption of product supply due to natural disasters or the closure of factories within Australia and overseas. To prepare for these types of supply interruptions you should review your business continuity plan and establish relationships with alternative/additional suppliers.
  4. Insurance is part of the solution to supply chain risk and if correctly designed is a key risk management tool in any retailer’s armoury.
    • Public & Product Liability insurance policy will protect you from actions bought by customers and other third parties that have been injured or had their property damaged by a product purchased from you.
    •  A Product Recall insurance policy will provide cover for the cost of replacement stock, recall expenses and loss of profits. In addition, it can also cover the costs involved in dealing with customers and government authorities as well as provide for public relations expenses to limit the financial and reputational impact.
    • Marine Cargo insurance covers the loss and/or damage of goods imported while being shipped by air or sea.
    • Business Interruption/Loss of Profits insurance extended to cover the impact to your business if your supplier suffers insured losses at their locations.

For additional information regarding risk and insurance please contact ARA Insurance services on 1300 1660 423

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ABOUT THE AUTHOR

Australian Retailers Association

Founded in 1903, the Australian Retailers Association (ARA) is Australia’s largest retail association representing Australia’s $310 billion sector, which employs more than 1.2 million people. As the retail industry’s peak representative body, the ARA works to ensure retail success by informing, protecting, advocating, educating and saving money for its 7,500 independent and national retail members throughout Australia. For more information, visit www.retail.org.au or call 1300 368 041.

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