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Companies are learning – some the hard way – that the world will judge your corporate responsibility to be only as strong as your weakest link
Over the past couple of years more and more people have actually heard of the company Foxconn. It’s the one that runs a semi-sweatshop, isn’t it? Where workers commit suicide at a higher rate than anywhere else? And, of course, it’s the place that makes iPhones for Apple.
Believe it or not, this actually represents progress. In previous years the headlines simply ran “Apple factory sweatshop” or something similar. The press generally represents what happens on the premises of key suppliers of well-known brands being indistinguishable from what the brands themselves consciously do. Foxconn remains the exception – and only a partial exception at that, given the dominant “iPhone maker” line that accompanies every story.
The fact is, you are as strong as the weakest link in your supply chain. It is why so many programmes for socially responsible supply chains begin with risk assessments. Any time when you might be held morally culpable for something over which you have no direct control is clearly something to be avoided.
So HP, for instance (which also uses Foxconn) carries out risk assessments of its suppliers based on several factors. One is as simple as taking note of the supplier’s location.
There are certain countries where laws are not robustly enforced – and this is clearly a factor that raises the risk.
Another is about what type of product is involved, accepting that some sectors have higher risks than others. But other factors come down to track record. HP will seek to gain insight from previous audits, press coverage and NGO reports.
Reed Elsevier takes a similar approach. Corporate responsibility director Márcia Balisciano says the company takes the starting point that it expects its suppliers to match its own standards. It focuses on certain high risk areas, such as issues around human trafficking as well as some of the environmental issues.
“Reed Elsevier has thousands of suppliers. We have to start where we have the biggest impact,” Balisciano says.
The company uses outside intelligence to focus in on some of those high risk areas. This includes using data from the corporate executive board’s Global Country Analysis Support Tool (GlobalCast), as well as information from the US government and universities.
On environmental issues, it uses the Publishers Database for Responsible Environmental Paper Sourcing (Preps). The starting point, for Balisciano, is to remove the unknowns.
She says: “Reed Elsevier is an old company, and we started this journey with a huge existing supplier base. Our first major task was to get a sense of what’s out there, to identify the risk and then frame what we expected of our suppliers through our code of conduct.”
High risk suppliers face third party audits – but even more important is the process of engagement to ensure that suppliers understand the expectations on them and have fully bought into the exercise.
This is not as straightforward as issuing the policy and mailing it out.
“We are constantly evolving the supplier code,” Balisciano says. “In particular, we’re trying to make the language less compliance-driven and more accessible. And we have a focus on what are the value added activities we can do with suppliers, particularly partnering with them on key issues and giving public recognition for good suppliers.”
One of Reed Elsevier’s key performance targets for 2011 is the establishment of its Socially Responsible Supplier Academy – a recognition of the increased role that training, mentoring and support have in boosting performance.
HP seeks to engage suppliers in a dialogue on issues that are specifically material to the relationship with that supplier. Martin J Robinson, HP’s manager of global supply chain and environmental responsibility, says it starts with a business case discussion.
Robinson says that HP puts a lot of focus on ensuring the supplier understands how sustainability can benefit their business. “This can get quite complex because different industries are at different levels of maturity with the issues.
Sustainability is not a ‘one size fits all’ so flexibility is important,” he point out. Of course, a sustainability discussion with a supplier that manufactures electronics components is going to be different to such a discussion with a call centre provider. Marks & Spencer addresses this sort of engagement with a full communications package, including international supplier conferences.
In 2010, the company held 20 such conferences across the world and engaged with nearly 3,000 people. Crucially, such events help the process to be two-way, enabling M&S to gain a stronger understanding of key challenges in the different countries and sectors whilst also promoting greater understanding and commitment from suppliers.
Working with rivals
Another facet has been to get suppliers to form their own support community, and encourage suppliers to share best practice. It is not always easy to persuade people to open up to a collaborative approach with companies that may include competitors.
HP’s Robinson believes it is worth the effort. “At HP, we see many benefits from collaborating with competitors,” he says. “We were founder members of the Electronics Industry Citizenship Coalition.
There are now approximately 70 members who all follow the same framework to drive social and environmental standards into a supply chain that many of us share.” One of the key challenges is tracking the impact of this work, and using key performance indicators to really drive improvements on the ground.
Most companies that are doing this are still using process measures, such as how many audits have been carried out, or how many companies have signed up to comply with a code of conduct.
Reed Elsevier’s Balisciano acknowledges the problem, and says it is a part of the company’s development work with suppliers. “It applies particularly on the environmental side,” she says.
Reed has been actively working with suppliers to help them build capacity for their own carbon reporting, which is something most of them weren’t familiar with before, Balisciano says. “When we looked at our own Scope 3 carbon emissions [those which are created by the company’s supplier base, rather than by its own operations] they were almost double those of our own gross emissions.
So we know it’s something we need to train suppliers on in order to get to grips with our own impacts.” BT recently upped the ante with its own suppliers by launching a robust procurement strategy that requires all of its contracted suppliers to put in place a formal climate change policy, measure their emissions and set “challenging” reduction targets.
It is designed in the first instance to drive best practice, but suppliers will find themselves increasingly penalised when bidding for future contracts if they fail to take action.
Sainsbury’s has developed and started trialling a new “sustainability scorecard” aiming to measure performance across each of its product areas. It uses an audit and scorecard for each of the farmers for a particular group, focusing on inputs such as fuel and feedstuffs that will allow for a carbon footprint estimate to be produced.
This then provides a performance rating that can show each farmer how well they have performed against their peer group. Such peer group comparison can be a great tool for spurring continuous improvement.
Balisciano’s final word, however, takes up a very familiar theme. “To make all this work,” she says, “requires senior management buy-in. It takes real time and resource, and in terms of day-to-day management it has to be clear who is accountable for delivering results.
And not only management – the board needs to understand where the risks are.” The five top tips for building sustainable supply chains
- Create a clear picture of what’s out there, which means understanding what your supply chain looks like (and not just the tier 1 suppliers – the real problems lurk further down) and where the risks are.
- Prioritise your engagement, with energy going into controlling the areas of greatest risk, starting with strategically important suppliers with relatively high risk factors.
- Be clear about your own standards– apply them to yourself and then find easily accessible ways to communicate them outwards. Make this a two-way process – listen just as much as you broadcast.
- Focus on ways to measure performance – if there are no easy ways to begin with measuring real performance, then measure the effectiveness of your early engagement, whilst working with suppliers to develop them to the point when they can show the impact on the ground.
- As with all such programmes, get top-level buy-in – you need the chief executive, the finance director and the board on side because the benefits will only be realised when you have invested real time and resources. The business case needs to be sharp.
collaboration supply chain sustainable supply chain
May 2013, London
Europe's largest and most acclaimed CSR summit. Featuring 500+ attendees 50+ speakers including; CEO of BUPA, Executive Editor of Greenpeace and Executive Editor of the Economist