Uncovering the risk hidden deep inside any supply chain is something every company’s procurement department can and should do, every day of the year. Experts at a roundtable during the recent SAP Ariba Live event shared three ways buyers can build their company’s ethical, sustainable supply chain.
Vote with your procurement budget
Procurement can have a massive impact on ethical supply chains provided they use the right data to act responsibly.
“Consumers vote every day with the products they purchase, and so do corporations — except people in procurement are buying goods and services that are worth billions. It’s a unique impact,” said Emily Rakowski, Chief Marketing Officer at EcoVadis.
Rakowski’s company provides supplier risk assessments based on 21 criteria across environment factors, fair labor practices, ethics/fair business practices, and supply chain. The objective is to help procurement scale sustainability efforts for impact.
“This is actionable information that category managers and buyers can take and do what’s right with it,” she said. “Our customers stratify their suppliers into the long-term innovative partners that score well with sustainability, and suppliers they need to guide to improve their scores. For those suppliers that don’t score well, customers have hard decisions to make about whether they want to work with them to improve or not. Every company is voting with their procurement dollars.”
Don’t wait for something bad to happen
Erin McVeigh is Vice President of Products and Data Services at Verisk MapleCroft, a global risk analytics company, that allows companies to understand their inherent or potential risks around reduced child labor, forced labor, decent wages, manage environment risk and climate change.
“It’s not that customers don’t have access to data. It’s that they can’t use the vast amounts of data they have,” said McVeigh. ” With an in-depth understanding of what’s being sourced and how, companies can move away from reactivity or worse, inaction. They can have a targeted approach to understand their risk factors, and where they should be asking for information to reduce risk in their supply chain before something happens,” said McVeigh.
McVeigh added that she was most excited about the ability to integrate data seamlessly with SAP Ariba. “The power is in the aggregation of additional business metrics. You can peel back the onion and understand what’s driving the risk factors specific to industries.”
Take action based on facts
Flagging something as high risk allows buyers to have a conversation and co-develop a solution with suppliers. It’s the kind of evidence-based action exemplified in a fintech tool called FRDM that’s embedded in the SAP Ariba business network.
“When it comes to topics like risk and compliance, you need to collect the right data and make it contextually relevant to procurement for insights that drive actions,” said Padmini Ranganathan, Vice President of Products and Innovation for Supplier Risk, Compliance and Sustainability Solutions at SAP Ariba. “The FRDM tool maps data from suppliers to forced labor risks worldwide, allowing companies to assess their exposure all the way down the supply chain by country. With these insights, organizations can understand where the problems are, and work together with suppliers to find solutions aligned with their socially responsible, sustainable, purpose-led business commitments.”
Size is no excuse for inaction
In a global market, risk isn’t confined to multi-national manufacturers. Small and mid-size companies need to operate just as responsibly. “The best way for any company to operate is at the lowest cost margins at lowest risk,” said McVeigh. “We want to reduce the risk without putting anyone out of business.”
At the same time, Rakowski encouraged buyers to consider the size of the supplier. “We’re not going to look at small suppliers and assume they have same system in place as a large supplier. We have different sets of questions for them. Supplier engagement is critical to make sure we’re accurate in our assessment so they have the documentation, and we know that we’re being fair and accurate,” she said.
Connect data silos
There’s growing evidence that environmental and social governance factors drive long-term advantages for companies. “It’s not just about cost savings or impact on process efficiencies,” said Tony Harris, Vice President and General Manager of Supplier Management Solutions at SAP Ariba. “It’s just as much about making a positive contribution in the world. Customers have the ability to balance cost with conscience.”
Bringing data from different places together helps entrench sustainability and risk management into other business process. “The Ariba network has an important role in pulling siloed information together, bringing shared insights across risk topics such as forced labor, the environment and finance to other parts of the company too,” said Harris.
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