Responsible sourcing has moved from being a fringe topic to a serious board-level issue that can impact share price and consumer demand. Now customers and shareholders consider businesses responsible for every step of their supply chain. This shift stems from visibility of incidents such as the Rana Plaza collapse, and the role of social media in giving customers a voice.
The social impacts in a supply chain start with the sourcing of raw materials and ends with their disposal. The complexities faced at every step were discussed at KPMG and Sedex’s 2017 Responsible Sourcing Conference in Sydney. Opening keynote presenters – Jonathan Ivelaw-Chapman, CEO, Sedex, and Sally Freeman, Partner in Charge, Risk Consulting, KPMG – exemplified how important responsible sourcing is for businesses today. Here are some of their key discussion points.
Data is now central to supply chain management. It can be collected through self-assessment and audit on what happened in a particular factory at a particular time.
However, Ivelaw-Chapman acknowledged that while this is useful for an audit, the real challenge is to start using data to predict and mitigate the identified risks. By combining 14 years of empirical data with analytics, Sedex can identify whether a risk has been seen before, predict future risks, and identify where an organisation’s main interventions should be.
Along with geolocation (GPS) technology that can validate whether or not a company’s auditor attended the correct site over a specific timeframe, or can identify that goods are not being manufactured by a shadow factory, data means you can now monitor your suppliers continuously.
“With smartphone technology and blockchain, companies have fewer excuses for being hoodwinked today,” Ivelaw-Chapman said.
Compliance fatigue is a major issue for suppliers and buyers, partly due to the oversupply of protocols and standards. Partners such as KPMG can help companies choose the right mix from more than 200 existing supply chain related standards. While Sedex is standard agnostic, it is contributing to the development of professional standards for social compliance auditors.
The conference featured a discussion on the complexities of monitoring global supply chains, which included Amanda Steele, Managing Director of Asset Services, CBRE; Walter Lin, Operations Director China, Sedex; and Kevin Franklin, Senior Vice President, Elevate. The panel discussion was hosted by Richard Boele, Partner, Human Rights and Social Impact, KPMG.
Boele asked what leading global practice in terms of responsible sourcing looked like. The panel agreed that it was about real world experience and not just numbers on paper.
Amanda Steele said a push towards responsible sourcing in CBRE hadn’t come from head office in the US; it came from large tenants and landlords that demanded their offices were managed to their own social responsibility standards as well as the relevant OHS metrics.
Gen Y companies like Google had also been instrumental in pushing CBRE. Steele said Google’s global commitment meant CBRE had to be on top of anything they committed to.
“That means we rarely wait for country legislation. Instead we monitor international standards so we stay ahead,” she said.
Steele added that while CBRE can’t say there are no problems in their supply chain, they are very clear around what they procure in high-risk areas such as cleaners and security.
“Our back offices in India are audited to ensure they meet global human rights standards. And even the cleaning firms of those offices are traceable. Our commitments to preventing human trafficking and slavery have to extend all the way through the supply chain.”
Sedex’s Walter Lin said smaller factories are more likely to be unethical. They often have less revenue, fewer clients and lower transparency.
“But if the option is losing a client, then they will raise their social responsibility bar,” Lin said.
Lin believes that managing increased transparency is a challenge for suppliers and buyers alike, as is marrying growth ambitions with social responsibility.
He explained that suppliers in China often hear two differing expectations from the one customer. On one hand is the buyer asking for the same quality at a lower price, while the ethical sourcing team of the same client asks for greater pay and conditions for the workers.
“Their agendas are different and we have to ensure everyone works together. Again, it’s important to think about how to embed the responsible sourcing into the whole part of your business especially buying or procurement behaviour,” Lin said.
Social compliance specialist Kevin Franklin of Elevate said that 20 years ago audits where essentially the only tool in a brands “tool-kit” of supply chain compliance. Selecting where and what factories to audit was based largely on expert judgement or a reactive position to NGO concerns. Today, the selection of facilities to audit is / needs to be based more on up-front risk assessment and supplier segmentation based on exposure and influence. Franklin was adamant that it is vital to apply audit tools in a way that addresses today’s issues. He cautioned against the ‘normalising’ influence of audit standards.
“Standards and protocols can lure companies into a false sense of security where emerging issues (e.g. migrant workers) take a longer time to get addressed. Responsible sourcing has to be an ever-increasing cycle of improvement,” Franklin said
Franklin used the Rana Plaza factory collapse as an example. Many brands would have been auditing these factories prior to the collapse, but were focused on labour standards, health and safety etc. and not on building structural integrity.
“Until the Rana Plaza building, fire and electrical safety weren’t often included in the arena of responsible sourcing. Even today they are completed mainly in Bangladesh with very limited equivalent programs in other countries.”
Franklin also warned that if they had a choice then factories might select the easiest protocol, so buyers have to make sure they are always raising the bar.
Sedex’s Lin gave the example of how recent outsourcing and cross border labour sources by Chinese factories is creating new risks. Slavery and human rights need to be watched for as North Korean and Vietnamese workers are brought across the border into Chinese factories. Added to the complexity of sourcing in China is the growing number of Chinese business owners who relocate or outsource to factories in Southeast Asia or even in Africa. These dynamics are a by-product of significant Chinese wage increases in recent years.
Lin emphasised that understanding how to use existing programs in China is important. He advised buyers to spend more time engaging with suppliers and building long-term relationships.
“This helps break through audit fatigue and begins the process of remediating risks. It also limits factories telling a client what they want to hear instead of the truth,” Lin said.
Lin recommended companies adopt existing industry codes and carry out risk assessments using real-time analytics.
“You can calibrate technology to alert on anything from worker unrest to fires throughout your supply chain.”
Lin added that some Chinese unions are releasing information into the public domain. And while these worker hotlines are useful, Sedex also monitors worker comments on unofficial chat sites.
The discussion ended with a reiteration that while responsible sourcing is about continuous improvement, the focus must be to make a positive impact on people’s lives. And this means proactively engaging the supply chain and working collaboratively with suppliers and their stakeholders.