It is simply not enough in today’s world to just set out a CSR policy or a supplier code of conduct or total up the number of sustainability initiatives in the supply chain and think you are doing the right thing. The days of accountability by case study are fading fast. Companies must actually do the work and invest the capital to create lasting (and profitable) change in their supply chains.
For today’s multinational, extended supply chains span continents, industries and issues. The social, environmental and economic impacts of the company’s relationships are complex. Coming to grips with all these interactions and complex layers means that having a “sustainable” and transparent supply chain can at first appear daunting. With so many suppliers, issues, methodologies, standards, and certifications, where do you start?
Whether it’s sweatshops in Cambodia, conflict minerals in the mining industry of the Democratic Republic of Congo, unsafe factory conditions in Bangladesh or egregious working hours in China, there are no shortage of thorny issues that companies get stuck into.
Based upon fifteen years of advising companies on responsible business practices, Corporate Citizenship advocates a systematic approach to simplifying sustainable supply chains, prioritising actions and focusing on rigorous impact measurement.
The choice of issues and standards
The avalanche of issues that companies face is particularly challenging because they change over time. New issues are always emerging. For example, human rights issues have shot up the agenda – thanks, in part, to the UN’s Ruggie framework as well as the proliferation of social media where video and photo documentation of human rights violations are at your fingertips. Many of the large companies that we work with have recently made new commitments in this area. Paying a living wage, deforestation, biodiversity, fire safety, land and tax transparency are also hot topics we are seeing more companies being asked to measure and report on.
Then there are the standards themselves. According to one estimate, there are more than 450 consumer-facing eco-labels across the world. Standards that aren’t even communicated to the public number many hundreds more.
- Which is most robust?
- Which will customers and consumers really engage with?
- Which can actually be validated?
- Which one is most practical and cost-effective for the business?
Selecting the right standard can seem challenging when it’s not clear which issues are most important for the company.
Simplifying through prioritization
To unravel all these different issues and standards, companies need to take a systematic approach to simplify their supply chains. Materiality is about focusing on what matters most – for the business and its stakeholders. For supply chain management, prioritization is crucial: no company can tackle everything so it must focus on the issues that mitigate the most risk and have the greatest impact.
A mapping exercise can identify the most salient areas on which to focus attention. That might mean prioritizing particular commodities, or countries, or types of supplier, amount of supplier spend, or specific issues of high risk.
Armed with the information on where the greatest risks might be, companies can then make decisions about what actions to take. Scarce resources can be targeted. The most appropriate schemes can be identified and joined where appropriate.
A common mistake is to only think about risk. New ways of working, like Inclusive Business models or collaboration with competitors, known as Co-opetition, are quickly gaining ground. Take for example the unique collaboration between car manufacturing giants (and competitors) Toyota and BMW who are collaborating on joint research for more efficient and greener fuel cells and electric car battery technologies.
These emphasize the opportunities from creating value for society as well as the company, such as sourcing from smallholder farmers or involving entrepreneurs in distribution and retail. Sourcing goods in a secure and sustainable way and creating additional value for local communities is a potentially powerful combination for any company.
It’s all about that impact
A second solution to complexity is to focus on impacts. Companies that want to tell a coherent and convincing story about their supply chain need data – and that means investing in programs to measure real impact.
- What is the long-term change that has resulted from an initiative?
- How is value created for society from the supply chain?
- How are my social or environmental audits actually making a difference in people’s lives or practices in the supply chain?
- How do the investments made compare with the outcomes and impacts?
Measuring positive (and negative) social, environment and economic impacts in the supply chain can provide crucial insights for the purposes of both communications and management. By management, we mean sourcing with long-term security in mind, to enhance resilience, reduce costs, build secure lasting relationships with suppliers, improve your reputation and invent collaborative win-win solutions.
Having mapped the risks and identified meaningful metrics, the business can focus on a strategy of engagement and collaboration with key suppliers that is truly effective.
Hyper-Transparency means it’s harder to hide
All this is going to become more and more important due to the trend we’re seeing towards hyper-transparency.
According to Merriam-Webster dictionary, the word “transparent” means “able to be seen through; easy to notice or understand; honest and open, not secretive”. The word “hyper” means “extremely active”.
That’s a pretty accurate summary of how we see hyper-transparency having an impact on companies in the coming years. NGO pressure, consumer interest, investor burdens, regulatory intervention and new technologies are coming together to make it harder for companies to hide, and more likely that issues in the supply chain will be scrutinized – no matter where they are in the world.
Take this example. Around 6.8 billion mobile phones are use today. From Egypt to El Salvador, well over 60% of the population now use a handheld device. Increasingly, farmers, miners, drivers and packers in business supply chains are going to use these devices to photograph, video and share their experiences. This is being deployed today in Bangladesh where workers can call an anonymous hotline to report abuse or unsafe working conditions.
If current trends continue, it means we will see a sharp acceleration of documented violations in the supply chain. This will hurt brand name value over the long run. Major supply chain scandals are one of the things that scare a Fortune 500 CEO the most.
Ready to move beyond good intentions
Those managing businesses with complex supply chains will want to proactively understand exactly what is going on so that effective action can be taken. Turning these risks into opportunities is where the most game-changing innovations in the supply chain will come from in the years ahead. Hyper-transparency means that ignoring these issues is rapidly disappearing as an option. By prioritizing relevant issues, focusing on impact and preparing a resilient response, sustainable supply chain management can create genuine value for the business and its stakeholders.