Brand protection: engaging with suppliers for a more ethical supply chain
While most businesses have an understanding of what's happening with their first-level suppliers, it can be much more difficult to gain the same amount of insight from further down the supply chain, says Jon Williams.
For example, whether there are slaves or child workers running 11-hour shifts in your suppliers' factories. Or it may be unclear whether the components used in your office computers are free from conflict minerals - natural resources sourced in areas that fund terrorism or war.
However, if shareholders or customers ask those questions, a business would need to respond. The consequences of uncovered breaches of ethical policy could be catastrophic to a company's reputation.
On the first year anniversary of the Rana Plaza garment factory collapse where more than 1000 workers died, are we as businesses any the wiser on the ethical standing of our supply chains? Has anything changed?
The Rana Plaza disaster resulted in negative press coverage for some 40 global fashion and retail brands, and this could well happen to other businesses if they are not checking the ethical credentials of their suppliers.
An independent report conducted by IFF Research on behalf of Achilles interviewed 146 companies with 250+ employees on Procurement Trends for 2014. The research showed that only 51% of manufacturers are regularly auditing their tier 1 suppliers in terms of ethics, or checking their claims that they do not use child workers, slaves or conflict minerals.
Even worse, only 38% of manufacturers are auditing their tier 2 suppliers on the same criteria.
So why are businesses still struggling? The issue may be that most companies know their tier 1 suppliers pretty well and therefore trust them. According to the report, around one in five large manufacturers said they were confident in suppliers' ethical compliance purely because of personal relationships. Whereas 80% of UK manufacturers said they were 'very confident' their tier 1 suppliers did not use slave labour.
However, what is this confidence based on if only 51% of manufacturers regularly audit their tier 1 suppliers and less than 40% audit tier 2 suppliers on ethical issues? How can such trust be warranted when corporate reputation is at stake?
It may be common practice that the level of due diligence undertaken depends on the perceived risk from the supplier, but those risk assessments and elements of 'trust' may soon need to change.
In recent weeks The Home Office published a draft version of a Modern Slavery Bill, which aims to reduce the number of slavery cases, increase prosecution against perpetrators and protect those affected. Businesses will also be required to disclose steps they have taken to eradicate modern slavery from their supply chains. With legislation sure to follow, businesses will need to act now to ensure their supply chains are ethical and sustainable.
The problem for many businesses is that visibility of suppliers beyond tier 1 is poor. The research showed that more than 50% of organisations admit to having less visibility of their tier two suppliers than tier one and 34% of buyers don't even know who their suppliers are at this level.
The only way of gaining a greater understanding of a supply chain, down through the tiers, is to map it. As yet, companies across most industrial sectors are moving slowly on mapping their supply chains. We know that only 44% have mapped out their supply chains to date, 15% are intending to do so and 31% have no plans to map their supply chains.
The reason behind such a high proportion of companies mapping their suppliers can be found in the research. Some 44% do not have the staff/resources to undertake the required work. But this should not hold back manufacturers.
A collaborative approach to supply chain mapping allows companies to maintain accurate data and map their extended supply chains. Cascading invitations are sent from buyer to supplier and from suppliers' suppliers ad infinitum, gathering comprehensive information about the supply chain and supplier compliance within it.
Once companies know the identity of all its suppliers, they can ask consistent questions around ethics and CSR. This works best with a relatively straightforward and quick to answer questionnaire, where suppliers are asked questions relating to health and safety, ethics, bribery and corruption and compliance. A score-card allows buyers to benchmark suppliers' performance and make sourcing decisions based on their sustainability credentials.
Through this process due diligence can be carried out, followed by on-the-ground audits where necessary. Audits produce tangible evidence and can demonstrate to corporate stakeholders, partners and customers a determination to pursue ethical compliance throughout the supply chain.
With consumers, investors and now governments demanding greater assurance over the ethical standards by which individual corporate supply chains are run, it's clear that higher levels of due diligence are required.
Critically, we need to know a great deal more about the sustainable performance of our suppliers and our suppliers' suppliers than we currently do and that means mapping the supply chain through all tiers and then applying due diligence/audits at every level - that is if we wish to protect both brand and shareholder value.
Jon Williams manages Sustainability and Corporate Social Responsibility at Achilles