Note: This article was first published in spanish and can be found here.
A few weeks ago we treated in the article “Responsible procurement: topics of interest, risks and benefits” the need to take into account CSR within the supply or value chain.
Today we will continue with this subject and discuss other related issues such as what the overall status of supply chains in developing countries is, what trends will shape the medium and long term, and what guidelines we can use when implementing responsible procurement in a company.
What is the general status of supply chains?
Among the existing tools to carry out responsible management we can count on social audits, which applied to the supply chain would be the evaluations carried out at the supplier’s factory where the supplier performance is evaluated in relation to the policies and code of conduct of the purchaser.
But social audits are a tool not exempt of criticism, especially when the companies that buy are large multinational companies that outsource or subcontract their production of goods to low-cost suppliers in developing countries.
The “Ethical Audits and the Supply Chains of Global Corporations” report, conducted by the Sheffield Political Economy Research Institute (SPERI) of the Sheffield University, in a summarized way explains how time has elapsed in the adoption of social audits.
In addition, through 25 interviews (in the period 2012–14) with ethical auditors, business executives, NGOs and suppliers in North America, the UK and China, as well as visits to factories in the Pearl River Delta in the region China, the report tells us about the effectiveness of the audits carried out.
The interviews highlight how audits deception is widespread and is also known for corporations.
Some of its conclusions are:
- Respondents explained how decisions about scheduling audit, such as time of year, frequency, and if it is an announced audit or surprise, significantly affect the results. Pre-announced audits enable producers to falsify records and rid facilities of unauthorised agency contractors or exploited workers during audits.
- Corporations control how deep within the supply chain audits are conducted. One auditor told them: “We will audit as far down as the brand wants to go”.
- Many corporations design audit programmes that only inspect Tier 1 suppliers where the final assembly of products takes place. By focusing on Tier 1 suppliers, most audits tend to exclude labour agencies and subcontractors further down the supply chain in low-value activities such as harvesting, processing, dyeing and mining. Evidence from food, clothing and other industries indicates that the most exploited workers (e.g. forced and child labour) tend to be found in sites with complex subcontracting arrangements.
- Auditors can usually only inspect areas that suppliers choose to show them and are often only able to speak to workers they happen to see. Because most audits are announced, or at least semi-announced, the factory usually has the opportunity to tell their people what they have to say.
- Most audit firms have no investigative powers and so have limited capacity to verify that information presented to them, whether about safety conditions, contracts or environmental standards, is accurate.
- Production for multiple retailers often takes place in the same factory, which means throughout a year factories can face many different audit teams, all with different standards and procedures. As a result, suppliers hire former auditors as consultants to help them meet and beat a system of multiple audits.
- A growing number of sites have passed audits only to have major violations discovered or catastrophes take place soon after.
- Within the social compliance world, it is now standard operating understanding that audits don’t work to achieve change within organizations, that they are a diagnostic tool that doesn’t fix things, and that the fact that visiting a factory many times doesn’t mean that the situation is going to improve.
- Auditors are bound by rigid confidentiality clauses and clients exercise full discretion over what audit information is reported. Information about abuses and noncompliance is rarely made available to governments or consumers and, as such, they are rarely resolved.
- Auditors typically offer advice to help factories prepare action plans to address non-compliance findings. However, auditors have no influence over a company’s eventual business decisions; their advice can be ignored; and there is no external accountability for the action plans.
- Audits typically treat social concerns separately from environmental concerns. This divide allows companies to work towards, and highlight, improvements in one sphere — typically the environmental — whilst allowing social standards to persist or even worsen.
As we can see based on the above, it can be quite tricky to know from outside the actual status of the sustainability in the supply chain of a company with suppliers established in these countries.
The report “CSR in the supply chain of large Spanish companies” by Ecodes tells us what are the trends in the supply chains for SMEs in medium and long term.
Among the trends we can find the following:
- We’ll see an evolution in the sophistication of the pressures of CSR on supply chains of large companies, from requirements in the life-cycle assessment and carbon footprint of products to collaboration with external stakeholders and external verification of compliance of CSR standards in the supply chain.
- A strong momentum of transfer of obligations in CSR along the supply chain, especially from large companies to their suppliers, can come from the courts by determining subsidiary liability where partners in a business transaction are responsible for the conduct of the other in joint ventures.
- NGO’s denouncing campains will increase in the coming years and its effects will be more unpredictable due to breakthroughs in information technology and communication and the consolidation of social networks as a communication mechanism and amplifying messages, which will make large multinational corporations more vulnerable.
- We will see a gradual increase in requirements to ensure traceability of products, especially those that come from areas with significant environmental value. This trend reflects the interest and increasing concern from various sectors of society to know and assess the impacts of products in all its dimensions and will come boosted by the gradual but significant increase of consumers who wish to have information about the origin of the products.
- The regulatory pressure in relation to CSR and environmental and climate issues will increase in Europe in the coming years.
- In the near future, all functions of a business will become more coordinated to ensure the strategic direction that is necessary to achieve the integration of sustainability considerations into the supply chain, so that issues related to CSR in the supply chain will not be just a matter of logistics managers and purchasing managers, but also of those responsible for R & D and marketing among others.
At this point, after reading this and the previous related article, it is clear the (current and future) importance and need for companies to make responsible and sustainable practices throughout its value chain and not only in those activities that they perform in a direct way.
For those companies that still have that pending issue there are different published guidelines that can help them in the process and that we’ll mention below.
How to implement a responsible procurement system in a company?
The Spanish Global Compact Network in its document “The company and its supply chain: an alternative management” proposes guidelines for responsible management of the supply chain.
The four major phases for the implementation of responsible management according to this guide are diagnosis (through questionnaires, external rating systems and codes of conduct), joint planning and implementation of a strategy (in which fluid communication, financial support and training providers are very important), monitoring the supply chain (through plant visits and external audits) and decision-making in the development of relations (mainly encouraging suppliers to meet the objectives and rescinding the contract to noncompliant).
This publication aims to “highlight the benefits offered by the proper management of the supply chain from the point of view of corporate responsibility towards the creation of a model of responsible purchases that, on one hand, reduces risks and on the other, generates new opportunities”.
Also it has been analyzed the procurement processes that incorporate sustainability criteria in a pilot sample of 15 large companies and, as a result of this analysis and the joint work of the Advisory Council created for the development of the guide, a number of recommendations are proposed as a roadmap for the implementation of a model of responsible purchasing in a company.
The guide provides several examples of how this type of management is implemented in companies such as Endesa, Cemex, Mahou San Miguel, Spain Holcim, Roche, and Iberdrola, among others.
If we look for guides or less generic tools, I recommend reading the article “Shopping and sustainability: towards the ISO 20400 standard” by Paloma Lemonche, which mentions the BS 8903 British guide and the future ISO 20400 whose publication is expected for the end of this year.
Finally, we must highlight the important repository of theoretical and practical information available on the web “UN Global Compact Sustainable Supply Chains” from the aforementioned United Nations Global Compact.
It is a website designed to help integrate sustainability in supply chains, providing information and resources including initiatives, programs, codes, standards, networks, resources and tools as well as examples of business cases.