What is responsible supply chain management?

Posted: Monday 15 September 08, 12.18pm GMT

The starting point for any company aiming to show a responsible approach to its business is to understand what its key issues are, and where in its process or in its supply chain these issues lie. It is not always obvious. The company probably will not realise at first glance that, for instance, buying Indian sandstone on the open market will bring in a strong likelihood of involvement in one of the worst forms of child labour (see Marshall’s example elsewhere in this paper). So the starting point is to carry out a review.

Commonly, this then gets turned into a risk map, where issues are rated on the scale of potential damage the issue could bring to the company against the likelihood of the issue arising. These are not the only criteria, of course. If environmental efficiency is the top priority for the company, it may focus on where the environmental impact is and where there seems the best chance for improvement.

The question then becomes – how best to manage the issue?

For a number of the biggest, strategically important suppliers, a collaborative approach can be best. For instance, when Walkers looked at how they could reduce the carbon footprint of their crisps, they found that dialogue with potato growers uncovered process improvements that meant they received potatoes with less water content, which reduced the time they needed to fry them thereby making energy savings.

For others, it is about establishing codes of conduct that operate as minimum standards. So any of the big products manufacturers need to be clear about the minimum working conditions that they consider to be acceptable. This can lead to some pretty hard choices.

Child labour

If a company discovers child labour in its supply chain, it may respond by pulling the contract from that supplier. However, the children concerned may find that the alternative to employment at the factory is not a pleasant one – hard labour (for instance, in quarries) or prostitution may be the alternative, not school.

But on the other hand, a company’s customers in its home markets may simply not understand the niceties if it decides to tolerate the existence of child labour. That makes it an issue to be managed carefully, and sometimes with some cost that should be seen as an investment in the company’s most important asset – its reputation. Companies have experimented with arrangements whereby children work in the factory during the morning, and are paid to go to school in the afternoons, as the best social outcome. Often they will not talk about such arrangements, for fear that a harsh media spotlight will bring the careful compromise crashing down.

Growing consumer awareness

The growing interest of consumers in both the environment and in supplier conditions has led to a growth in labels designed to give reassurance. FairTrade, the Rainforest Alliance, the Soil Association Organic label and the Carbon Trust’s carbon label are all examples of schemes designed to give consumers reassurance of robustly applied standards in the supply chain whilst simultaneously raising consumer awareness of the issue further by making it more visible.

The proliferation of labels makes it a confusing area, but some of the marks have become powerful brand endorsements in their own right.

Business success

For many heads of procurement, the whole area has given them a range of responsibilities and issues that fall well outside the standard tools of their trade. It is most challenging for companies that have not yet adopted a strategic approach to procurement overall. But recent surveys have shown that, with supply chain risk heading up the list of priorities for CEOs, we are in a world where faster progress is a prerequisite for successful business.