Building Responsible Supply Chain

28 August, 2020

Supply chains are highly diverse and crucial to the success of businesses as a source of value creation and innovation. Socially responsible supply chains seek to combine both financial return and social good that creates the need for investors to make strategic decisions beyond financial logic and accept responsibility to protect human rights and the environment through all phases of their value chain, including manufacturing and outsourcing. The COVID pandemic has imitated the risks that are associated with diverse and complex supply chains. According to Dun & Bradstreet report, 938 of the Fortune 1000 companies have a tier 1 or tier 2 suppliers so it did not come as a shock that as the pandemic crisis deepened and nations begun instituting lockdowns, supply chains started experiencing a systemic demand shock that stemmed from weaknesses in their sourcing strategies.

The pandemic has tested companies on their operations and highlighted the importance of formulating an action plan for ESG practices, which needs to be integrated within corporate values and disclose supply chain information beyond stand-alone reporting mechanisms to provide insights on constraints of multiple suppliers and get a clear picture of their sourced sub-assemblies. A study cited by Samantha White (2015) found that adopting a socially responsible supply chain led to a reduction in supply chain costs by 9% - 16%. In a recent report, the World Economic Forum found that a company can achieve 20% more product revenue and 15-30% more brand value by focusing on the social aspect of their supply chain. The report also found that emphasizing the importance of a socio-environmentally beneficial supply chain can lead to a reduction in carbon emissions by 13-22%.

Companies can build a responsible supply chain through-

  • The Long-Term Approach: Experts recommend aiming for long-term relationships with vendors, suppliers, contractors, and other members of the supply network. A longstanding collaborative partnership can encourage the supply chain to uphold standard codes of practice. The approach has successfully been demonstrated by big brands like Toyota and Nike.
  • Social Compliance Auditing: Investing in a good compliance audit can be key in tracking ethical supply networks. The audit must be conducted by trained industry specialists who can hold the supply chain to internationally employed standards. A strategy should also be in place to address any policy violations immediately. An excellent auditing strategy is currently in use by Patagonia, who uses a 4-fold social compliance auditing approach.
  • Ensuring Living Wages and Human Rights: Paying a living wage to workers throughout the supply network and ensuring no practice of child labor or other Human rights issuers is important for companies looking to improve social responsibility. A company can do so by establishing its own benchmarks or by collaborating with a consultancy to set one according to international standards.
  • Establish Ethical Standards: It is suggested that companies officially document their ethical standards, practices, and principles. The core principles must be simplified, emphasized and consistently complied with. Once made clear, companies should communicate the importance of their ethical supply chain with stakeholders and customers to increase transparency.
  • Environmental Responsibility: One of the last links to building a socially responsible supply chain is encouraging environmental stewardship. Encouraging participants in the supply chain to curb carbon emissions and reduce environmental footprints can increase the integrity of the network. This can be achieved by encouraging the use of renewable energy sources and using sustainable transport options. Suppliers should start disclosing their carbon and GHG footprints that can further help larger companies to understand their Scope 3 emissions.
  • Practice local sourcing: Local sourcing of raw materials adds as a mutual benefit to both the company and the supplier. For the company, it results in decreased transportation costs and less lead time, and for the local suppliers, it generated employment and improves the living conditions. Local sourcing of raw materials economically boosts the economic status of a country. COVID pandemic has highlighted the benefits of localized sourcing of goods and services.

Recent incidences and expert-led reports have shown that adopting a socially responsible supply chain allows a company to gain a competitive edge in the market. With consumers becoming increasingly more inclined to let the ethical aspect of a company affect their purchase, businesses must begin investing in developing a simplified, scrutinized, enforced, and transparent set of principles for a socially responsible network.

Technology can play an important role in building responsible supply chains. Treeni’s resustain™, a modular SaaS-based platform automates and manages sustainability data for ESG risk and performance management, Corporate Social Responsibility, and Sustainable Supply Chains. The resustain™ platform is helping corporates to streamline its supplier data and get a handle on all the essential parameters that go a long way in defining and aligning their business strategy.

-Pallavi Singh is a Principal Consultant at Treeni. She has more than 11 years of experience in Sustainability Consulting. She has worked in the field of climate change, energy and environment, and enterprise sustainability to manage end to end sustainability for corporates starting from maturity assessment to helping create sustainability strategy and roadmaps, and performance management to sustainability reporting.