Total supply chain clarity can be challenging, but the benefits are worth it
For many companies, managing transparent supply chains has become a core part of doing business in a globalised marketplace. For others, improving visibility of social and environmental standards is a knee-jerk reaction to events that have put their brands in the media spotlight.
Whether new to the game or not, investing in transparency comes with substantial risks – both for the companies concerned and their suppliers. But being open about environmental and social standards throughout supply chains also offers abundant opportunities.
Ulrike Schuermann, an independent consultant working in sustainable development in Australia and Asia, says it is often in a company’s interests to address stakeholders’ concerns about any problems in their supply chains.
“There are of course risks of data being used against a company. But any company genuinely committed to sustainability has more to gain from the way the data is being analysed by its constituents,” she says.
One way of ensuring competitors do not exploit disclosure of commercially sensitive data is to publish updates on progress instead of the actual data.
Jörgen Karlsson, manager of Ericsson’s supplier code of conduct, says his company does not disclose the results of individual supplier audits. “We of course want to be transparent about our suppliers’ performance and results, and to show continuous improvements over time, [so] we publish performance benchmarks.”
At multinational food company Nestlé, disclosure policy is driven by what its consumers want, explains Mark Jones, the company’s supply chain director. “Our consumers want to know what is in their food, where it comes from and how it has been produced,” he says. “Our primary mission is to serve the consumer’s needs, which includes providing this information in a transparent and reliable way.”
An approach favoured by an increasing number of multinational companies sourcing goods from developing countries is to rely on certification and labelling systems rather than revealing commercially sensitive data.
Labelling organisations such as Fairtrade, Rainforest Alliance and Forest Stewardship Council act as “proxies for trust”, says Cameron Neil, a consultant at Melbourne-based sustainability consultancy Net Balance.
“Companies perhaps do not have to disclose on their product label or on their website where their products comes from. Quite often the ‘trust mark’ avoids the need to disclose,” Neil says.
Supplier beware
Suppliers are often reluctant to turn over critical information to their customers for fear that buyers might “get tough” in the next round of pricing. But this is only a problem in a supply chain with surplus suppliers. “In most cases it has been the other way around: suppliers have been aided by larger buyers in addressing sustainability issues without any guarantee that the supplier will continue to supply to that company,” Schuermann says.
Ericsson regularly audits suppliers against its own code of conduct and environmental requirements. It then follows up with action where necessary to ensure that improvements are implemented. “The audit results are used professionally for supplier improvement purposes and to prevent any risks, and are not at all intended to be an argument in price negotiations,” Karlsson says.
Nestlé expects suppliers to operate in an open and transparent manner, to establish systems that allow them to trace the materials they supply to Nestlé back to the origin and to put in place continuous improvement plans to drive socially, environmentally and economically sustainable practices, Jones says.
A holistic and collaborative approach to supply chain relationships can pay dividends to both buyers and suppliers, according to Net Balance’s Neil.
“There’s obviously an element of CSR and response to market demand, but the recognition that companies need strategic supply chain relationships and need to invest in their suppliers is probably an equal if not a bigger driver [of action],” he says.
Neil points out that companies that have not gone to the trouble of building trust, resilience and reciprocity are probably at more risk of losing suppliers.
The proliferation of certification and labelling schemes has attracted companies that are keen to respond to increasing stakeholder demand for transparency. For most, these schemes provide a benchmark while committing them to rigorous scrutiny of their supply chains without actually fully disclosing data that might prove valuable to competitors.
A large number of existing certification and labelling programmes are coming under intense pressure to innovate as companies scale up their response to unsustainable supply chains, says Neil, who set up Fair Trade Australia & New Zealand. “We are past the time when these things were niche and very reliant on physical on-site audits. Now they don’t necessarily incorporate risk management, materiality and such things as ‘big data’ online.”
He expects to see a rise of the more direct-to-consumers disclosure programmes, such as those devised by Californian outdoor wear company Patagonia (see box).
Tough on transparency
NGOs play a major role in persuading companies to change and ensure the effective take-up of sustainable supply chain practices.
Andrea Maksimovic, Oxfam Australia’s labour rights advocacy coordinator, says the best commercial relationships are built on transparency.
“Best practice in transparency ideally involves companies publishing the entirety of their supply chain – the names and locations of their suppliers including down to sub-contractors,” she says. “This allows companies to engage with relevant stakeholders in ensuring that throughout their supply chain, relevant ESG standards are observed.”
As well as engaging with companies to provide feedback on compliance programmes and working with them to engage with workers directly, Oxfam uses public campaigning in instances where a company refuses to acknowledge persistent violations.
As readers of Ethical Corporation will know, Greenpeace is another NGO that does not shy away from campaigning to change corporate behaviour. The NGO aimed a well-publicised campaign at Nestlé in 2010 linked to palm oil sourcing in Indonesia.
“Our campaign was essentially an attempt to get companies to stop buying palm oil from Indonesia’s Sinar Mas, in order to send the message down the supply chain that if it didn’t buck up, it was likely to lose a great deal of its market,” says Ian Duff, a Greenpeace forest campaigner.
Nestlé not only agreed to stop buying palm oil from Sinar Mas, but also to cut deforestation out of its supply chain for good.
The company then worked with The Forest Trust, which helped it develop a strategy for identifying palm oil suppliers and producers that were willing to satisfy the company’s new palm oil policy.
Oxfam’s Maksimovic says that once information about a particular workplace violation becomes public, companies simply cannot afford to ignore it. The NGO recently campaigned for Australia’s Just Jeans to stop sandblasting denim jeans after the company ignored previous requests.
Health experts say sandblasting causes silicosis, a potentially fatal lung disease that has been linked to illness in several factory workers in Turkey who allegedly breathed in silica dust particles while sandblasting.
“It wasn’t until we collected hundreds of signatures for a public petition that they agreed to meet and discuss the issue,” Maksimovic says. “It took further pressure to convince them to publicly communicate their ban on sandblasting.”
“Companies do react to ‘name and shame’ tactics although it is pity that it is not until the violations are made public that they react.”
Skilling suppliers
Through the Nestlé First Milk sustainability partnership – a joint initiative with First Milk, the farmer-owned business that supplies the milk for Nestlé’s factory in Girvan, Scotland – the company collaborates with farmers by offering them professional skills development to manage their farms in a way that Nestlé claims is “more sustainable, more profitable and with reduced environmental impact”.
The Footprint Chronicles
California’s outdoor clothing brand Patagonia has been a leader in supply chain transparency for a number of years. The company was set up with sustainability principles at the forefront of its brand.
Patagonia’s Footprint Chroniclesoffers consumers visiting the company’s website a world map view of its suppliers.
A customer can see photos of each factory and details such as which Patagonia products are made there, factory demographics, and more.
The website will eventually link back to Patagonia’s ecommerce page to allow customers to make purchase decisions based on a product’s environmental and social specifications.
Patagonia also offers a reference library – a primer on materials and corporate practices – and an FAQ section for a rundown of topics, including how Patagonia chooses its factories and the consequences of global manufacturing.
Sourcing sportswear
Greek for ethical, Etiko is a deliberate play on words when used as the name of a sportswear and clothing manufacturer, according to Nick Savaidis, the founder of the firm, based in Victoria, Australia. A Greek Australian, Savaidis was spurred into action by reports of high-profile sportswear manufacturers continuing to source brands from manufacturers that used sweatshop labour.
Savaidis is hoping that his range of sports equipment and clothing – the first non-food ranges to receive Fairtrade certification in Australia – will triumph over more mainstream brands such as Nike – whose name is also a Greek word, in this case meaning “victory”.
“This whole ethical consumer market is still a niche market, but I think it’s a growing market. As more and more people become aware of the issues we are talking about then more and more people will be asking questions about where products are sourced,” Savaidis says.
For Savaidis, there’s no substitute for on-the-ground checks and where Etiko works with co-operatives abroad he will join with NGOs to ensure fair working conditions and pay.
“Last year I was in Pakistan. I met with a fellow who was working with some of the biggest sportswear brands in the world and he told me I was the first owner of a business abroad he’d ever met,” Savaidis said.