Responsibly sourced supply chains can benefit everyone
As global supply chains become ever more diverse, interconnected and far-reaching, business opportunities have accordingly flourished. However, the rise of the ‘consumer class’ has both driven and presented a challenge to procurement: how can sourcing meet demand but remain as sustainable and ethical as possible? A profound CSR (corporate social responsibility) issue with the capacity to address several fundamental issues, from the living conditions of workers in primary industries to the environmental sustainability of operations, responsible sourcing offers a chance to make a substantial, positive impact in a company’s sphere of influence.
Assessing the situation
Before exploring individual efforts to implement responsible sourcing, it is worth assessing contemporary supply chains, understanding why a focus on CSR initiatives is so important and how they can be achieved.
McKinsey & Co
In its article ‘Starting at the source: Sustainability in supply chains’, consultancy organisation McKinsey states that population growth and increased wealth distribution over the next 5 years could have a significant effect on consumer patterns globally. Estimating that an additional 1.8 billion people will have living circumstances enabling them to be active consumers by 2025 (a 75% rise from 2010), the company is optimistic about the market’s potential for growth.
However, at the same time, the enterprise value for the top 50 global consumer goods companies is compromised by a range of issues which threaten to erode it, including labour violations, carbon emissions, pollution and worker conditions.
Reconciling these operational issues whilst still meeting consumer demand forms the crux of a well-implemented, ethical and responsible supply chain. According to McKinsey’s insight, the supply chain of a consumer goods company is apt to account for 80% more GHG (greenhouse gas) emissions than other industries, as well as over 90% more environmental damage. A lack of transparency in the supply chain is often linked to this decrease in standards, as primary suppliers may subcontract portions of work to secondary entities, making it difficult or even impossible for companies to address the problem.
Deloitte cogently addresses the challenges of responsible sourcing in ‘Responsible supply chain tools: Understanding the market opportunity’ when it says “effectively addressing labour risks in supply chains will require both bold action from individual companies and collective action across companies, suppliers, policymakers and providers of new tools and solutions.”
Following on from this, Deloitte makes several key observations, including:
Global supply chains are complex and not easily understood (49% of executives identify this as the primary barrier to building more responsible supply chains).
Advanced technology (tools) such as data analytics software can provide the means of increasing end-to-end transparency.
The market for socially responsible supply chain tools is potentially a highly profitable one, with a plausible $2.7bn market valuation in the next five years.
No single approach will yield a complete solution or ‘silver bullet’. Rather, a combination of technology alongside dedicated change management will produce optimal results.
Supply Chain Digital spoke with Miguel Cossio, Research Director at Gartner on the importance of responsible sourcing: “It has quickly shifted from being ‘nice to have’ to something that plays an integral role in how companies protect their brand’s reputation, ensure business continuity, and create a competitive advantage,” says Cossio. In a market where consumers, shareholders and governments demand the integrity of a company’s (and its suppliers’), the onus on enterprises to make a positive impact on society has never been greater.
Indeed, it may be that conscientious consumer-demand, ultimately, has made responsible sourcing less an option and more a necessity. “While adoption in consumer-facing industries has evolved more rapidly, companies across all industries will feel the pressure sooner or later. In the near future, the inclusion of sustainability criteria in sourcing decisions will be akin to supplier quality: expected and non-negotiable.”
Rather than starting from scratch, supply chain leaders should leverage information provided by industry associations such as the Responsible Business Foundation to determine focus areas relevant to their industry and pre-defined supplier audits to simplify the process.”
With the importance of a carefully-developed CSR strategy, the utilisation of technology assets and listening to consumer demands demonstrably the crucial themes of responsible sourcing, we shall now explore how leaders in the food, retail, consumer goods and tech industries are meeting expectations.
Swiss multinational food manufacturer Nestlé is a champion of responsible sourcing, placing a protective emphasis on individuals, communities and the planet. Acknowledging that business continuity and the welfare of these constituent parts are profoundly interconnected, the company has revised its operating models, implemented sustainable sourcing practices and engaged in enrichment initiatives within its supplier ecosystem.
According to its website, some of the companies activities have included:
Compiling a transparency report on its 15 priority raw materials (the latest edition available here).
Setting goals of achieving 80% audited and compliant Tier 1 suppliers, as well as 80% traceability on spend and volume by the end of 2020.
Engaging suppliers to adhere to the strict guidelines of the company’s Responsible Sourcing Standard (RSS).
Furthermore, the company is focusing on four key areas: natural capital, human rights, animal welfare and transparency. Regarding the latter, Nestlé has partnered with WWF-Australia and BCG Digital Ventures on ‘OpenSC’, a blockchain platform which will allow customers to trace food back to its farm origins. Currently still in development, its trial run last year traced milk from producers in New Zealand to the company’s factories and warehouses in the Middle East. The company will also open-source data on its supply chain and disclose suppliers to demonstrate its commitment to progress.
Viewing responsible sourcing as a great opportunity to strengthen its supply chain, mitigate risk and develop trust with customers and stakeholders, Unilever’s policy emphasises 10 fundamental principles, including corporate integrity, supporting workers’ rights and engaging with sustainability initiatives.
Estimating that its products are used by 2.5 billion people daily, the company believes that its far-reaching significance only heightens the importance of its responsible sourcing. However, this is by no means a recent development: in 2010, Unilever set an ambitious target of achieving 100% sustainably-sourced raw materials by 2020. By the end of 2019, it had managed to achieve 62% overall - an increase of 48% from the 2010 starting point. Even so, for maximum impact, the company has prioritised the sourcing of palm oil, soy, sugar, tea, vanilla, cocoa and other common raw materials which make up the bulk (66%) of its volume. Across these important items, it was able to achieve a responsibly sourced rate of 88%.
“Sustainability is evolving and there is increased interest and scrutiny from consumers about the origin of ingredients, the environmental protection of our planet, and the fair and ethical treatment of people within our extended supply chain,” says Unilever on its website. “We recognise that we’re facing many challenges, including increasing the number of materials we are working on and the difficulty of creating and sustaining positive impacts. The road ahead will not be easy − but our resolve to create a sustainable supply chain remains strong and unwavering.”
“Our choices can impact the lives of millions,” says Intel on its website. Demonstrating that the scope of responsible sourcing extends beyond the borders of the food or consumer goods industries, Intel has made a dedicated effort to ensure the minerals used in the manufacturing of its electronics are supplied from ‘conflict free’ zones. Starting its work over a decade ago in 2009, the company has gone to great lengths to ensure that its supplies of tantalum, tin, tungsten and gold (known as 3TG) from the Democratic Republic of Congo - and neighbouring countries - do not originate at mines funding criminal or anti-humanitarian groups. From this, Intel has proceeded to expand the parameters of its responsible sourcing to all materials and all countries.
Thus far, Intel has proven to be highly efficient and successful at consolidating its supply chain to include only those companies which adhere to its ethical guidelines. As detailed in a white paper on the subject, based on a survey of smelters and refineries running from 2012 to 2018, the company’s efforts have afforded an 80% increase in compliance, yielding a 100% compliant supply chain.
Intel’s approach hinges on three key areas:
Fostering accountability in the supply chain - this extends not just to Intel and its primary suppliers, but also to any secondary or tertiary entities which contribute.
Encouraging more action in the industry - Intel has co-chaired the RBA (formerly EICC) and GeSI Extractives Working Group to educate others on conflict minerals and how to exclude them from the market.
Creating traceability by working closely with suppliers.
M&S highlights that, in the world of retail, establishing trust and meeting customer expectations is an imperative criteria in today’s market. Aside from the ethical responsibilities of maintaining an accountable supply chain, the company also emphasises that doing so simply makes good business sense: “Growing pressure on natural resources and poor global stewardship may increase our costs, restrict our access to key raw materials and make our global supply chains more volatile,” says its website.
Selling 3 billion items a year from over 2,000 suppliers, sourced from 20,000 farms 100,000 smallholders, M&S estimates that its supply chain features around 2 million people, therefore demonstrating an awareness both of its own ecosystem but also the scale of any practicable solution. An innovative step towards greater transparency was achieved in 2016, when it made an interactive map available which allows the public to locate its clothing and food manufacturers worldwide. M&S’ overall approach can be broken down into four sections with two component aspects:
- Understanding the M&S supply chain and establishing a consistent, minimum standard across it.
- Incorporating defined global sourcing principles.
- Maintaining supply chain transparency.
- Continuous and rigorous monitoring and assessment of suppliers to ensure standards are met.
- Monitoring and assurance.
- Handling grievances and complaints.
- Working with suppliers to increase capacity and therefore capability.
- Worker training programmes.
- Global community outreach programme.
- Close collaboration on difficult issues which cannot be resolved by M&S alone.
- Encouraging a convergence on ethical sourcing practices.
- Advocating for public policy in local areas of operation to maintain workers’ rights, health and safety, etc.
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