5 risks of neglecting your value chain

In our previous blog posts, we introduced the intricate connection between ESG and the value chain, as well as existing and upcoming regulations focusing on the value chain. This means that there are legal & regulatory compliance risks (including fines, penalties, and litigation) if you don’t get your value in order.

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But are there other risks of neglecting your value chain? Or vice versa, does strong value chain management bring opportunities?

No, and that’s the end of this blog post. Of course, there are! I’ll highlight 5 here 👇🏻

The 5 risks of neglecting your value chain:

1. Reputation Damage and Stakeholder Backlash

2. Employee Dissatisfaction and Turnover

3. Supply Chain Disruptions and Operational Vulnerability

4. R&D - Lack of Innovation and Competitiveness

5. Financial Risks and Investor Concerns

1. Reputation Damage and Stakeholder Backlash

Human rights violations or environmental issues in your value chain can lead to negative publicity and stakeholder backlash. In this age of heightened social awareness, a company's reputation can suffer if it is perceived as neglecting environmental responsibilities, fair labour practices, or ethical governance.

Similarly, a haphazard ESG approach concerning your value chain may cause your company to overlook potential business opportunities. Many consumers and B2B clients actively seek partners with strong sustainability practices, and a lack of commitment to ESG in your value chain may result in lost business opportunities. Vice versa, actively making an effort to abide by ESG legislation, gives you an advantage in your tenders, RFP processes and general sales efforts if you get it right.

2. Employee Dissatisfaction and Turnover

A second risk in the category of reputation damage is towards a specific and extremely vital stakeholder group: internal employees and new talent you want to hire.

Modern employees often seek employers with a commitment to ethical environmental practices and social responsibility, and a failure to meet these expectations may lead to talent loss and increased turnover.

Vice versa, a thorough sustainability vision, which includes your value chain, can do wonders for keeping your people motivated and attracting the best new talent. What such a sustainability vision exactly entails and how you can grow towards it, will be explained in more detail during my keynote at Contractify’s Contract Management Day on 27 May 2024.

 

3. Supply Chain Disruptions and Operational Vulnerability

Climate breakdown drives up prices and reduces the availability of certain raw materials (e.g. cocoa or electricity). This can cause operational costs to rise and lead to financial losses. Or even worse, it can completely halt your operations if the materials you need to build your product or deliver your service aren’t available anymore.

From an opportunity side of things, having a clear view of your value chain’s risks can increase the resilience of your operations. If your company realizes that there is a potential material unavailability or price hike, it can prepare accordingly. By increasing its stock size, finding alternatives or proactively communicating about slower delivery and higher prices to clients. This means it’ll be smooth sailing for your company when your non-value chain focused competitors are in rough water.

 

4. R&D - Lack of Innovation and Competitiveness

Elaborating on risk #3 above, companies not integrating ESG into their value chain may miss opportunities for innovation. Having a clear view of the risks in your value chain will highlight specific areas for innovation. If material X is becoming more and more rare or can only be found in one location in the world, that is the perfect area to innovate for resilience. 

That way, you mitigate potential risks in your value chain, and grab the possibility of innovating past your competitors. It all starts with this clear view of your value chain. Join me at Contract Management Day to learn just how you regain a grip on your value chain and abide by ESG regulations. 

 

5. Financial Risks and Investor Concerns

Investors increasingly prioritize ESG factors when making investment decisions. Inadequate ESG integration in your relationship with your value chain can lead to financial risks as investors may view the company as less sustainable and responsible, potentially affecting stock prices and access to capital.

Vice versa, a strong sustainability approach (including your value chain) opens up your company for more investors and better interest rates.

 

This list of 5 risks & opportunities shows the importance of your value chain and everything ESG-related that goes on in your value chain. It’s not just about regulatory compliance, but about your operational and financial success as a company. In the next and final blog post, we’ll zoom in on how contract management can play a vital role in managing these risks and grasping opportunities.

 

Want to learn how to shield your organisation against ESG risks? 

Attend Hans van Dam's keynote at Contractify’s Contract Management Day on 27 May 2024 and get hands-on advice on how to tackle your ESG challenges.

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