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Boats on the beach

Managing social accountability risks responsibly.

LR’s sustainability technical manager Ged Farmer discusses how businesses can ensure responsible sourcing in their supply chains.

The pressure on businesses to ensure their supply chain is responsibly sourced is increasing. Stories of companies using suppliers with unethical working practices make headline news, leading to reputational damage and questions over whether products really can be produced responsibly at such low prices. As a result, stakeholders are increasingly asking organisations if and how businesses are sourcing responsibly – and whether it’s proving effective or not. It may not be easy - ensuring a responsibly sourced supply chain takes investment, time and money. Leadership needs to accept it as a business risk to make it happen. Effective management will focus on the business benefits in managing the risk and establishing a stable and consistent supply.

What can businesses do to ensure their supply chain is responsibly sourced?

  • Map the supply chain so you can see exactly what’s involved. Only by knowing the details of each tier can you really start to see if there may be risks and where they might be
  • Risk assess the suppliers in the chain
  • Make sure you understand the local and international requirements/legislation to ensure these are adhered to – they change from country to country
  • Establish the right levels of communication within the supply chain
  • Establish and manage processes for data and information sharing at the relevant levels so you have a holistic view across the chain
  • Build in a requirement for suppliers to perform relevant internal and external checks and audits to establish the current situation (this could include SMETA audits for example)
  • Continually monitor those suppliers, for example through your own independent audits. Supply chains are not fixed and any changes need to be managed and monitored
  • React to the data and information that your systems give you – build in a process to ensure this happens on time every time

How can businesses get a real-time view of what’s happening in their supply chain?

There are several approaches businesses can take. Some demand specific types of reporting from their suppliers – if issues or prosecutions occur in a supply chain business for example, the supplier must report it to the buyer under the terms of the supplier agreement. Others use KPI measurement criteria built into the reporting process to help them access the relevant information quickly and manage any risks in real time.

Some buyers adopt a zero-tolerance stance to risk and take immediate action to cut that supplier out of the supply chain, while other businesses will choose to work with the supplier to put better processes in place. Audits can help with verification of practices and ensure businesses are meeting certain standards but you must remember that an audit is only a snapshot in time and not a real time, continual method of assessment. Reporting provides a continuous stream of communication which can strengthen an audit programme considerably.

More businesses are realising that this must be seen as a real business risk and not just an add on.

Ged Farmer

Sustainability technical manager, Lloyd's Register

Which sort of businesses have supply chains most at risk?

The level of risk is related to the number of suppliers in a chain and the size and spread of the supply chain. For example, some countries can be seen as low risk and some high risk – this is because acceptable levels of risk are viewed differently for different countries. Local culture and economics can impact the perceived risk, for example.

What implications can irresponsible sourcing have on an industry?

Some companies have always been very good at managing responsible sourcing, let’s not forget that. However, there have been many examples of irresponsible sourcing in the press in recent years. This isn’t just an issue in developing countries. Take the UK for example, if we look at the agricultural sector, there have been examples of debt bondage, or workers’ passports being taken by the employer, which restricts free movement. It happens all over the world – people who are desperate for work can be most at risk. Consumers are driving change to some degree – they can make a conscious decision to pay more for a product because they trust that it’s been processed in an ethical way. Often however, price is the key driver and that’s a real challenge.

Are there audits specifically looking at this issue?

Sedex has been raising awareness of the issue for some time and its Members Ethical Trade Audit (SMETA), which was updated last April, is one of the most widely used ethical audit formats in the world. It’s an audit methodology, providing a compilation of best practice ethical audit techniques and according to their website, there’s been 280,000 audits completed in more than 150 countries.

Other food standards bodies are also looking to add ethical supply chain elements into their standards. For example, BRC made a senior appointment last year to develop a range of ethical products and services to complement their own range of quality and safety manufacturing standards.

Is it easier for smaller companies?

Smaller companies can have a better grasp of their supply chain risks – especially those who have had this mission instilled as a core element in their ethos right from the outset. Other larger organisations who have grown and grown have seen ethical practices become more significant – and they’re now ‘retrofitting’ ethical working practices into their operational models, which can be difficult. Conversely, some have been investing in the management of these risks for many years. The bigger the supply chain, the more challenging it can be. It’s all about risk management – and to do that well, you need to really understand the component parts of your supply chain. It also needs to be a commercial decision. Consumers may pay more for quality and confidence that ethical practices are adhered to, but for a lot of businesses, low cost is at the heart of their offer so this is a real challenge for them.

Are you seeing other trends when it comes to ethical supply chains?

More businesses are realising that this must be seen as a real business risk and not just an add on. As such, it needs to be managed effectively. It works best when buyers work with their suppliers and help them improve – but this can drive the cost of the product up and therein lies the biggest challenge for high volume, low cost industries.

 

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