Norma Wouters-Snell, ECDPM Great Insights magazine, Spring 2018 (volume 7, issue 2).
Business seems sufficiently equipped to create and maintain sustainable supply chains. So why is the switch to sustainable proving so difficult?
With the Sustainable Development Goals (SDGs) now in place, companies are being encouraged to implement the best strategies to contribute to human wellbeing and prosperity and the health of our environment. Within the European Union, we see individual states choosing their own particular strategies. Some, such as France, have introduced legislation, for example, its Loi Sapin II to counter corporate corruption and the Loi devoir de Vigilance, mandating disclosure regimes and requiring companies to establish ‘due diligence’ plans. Other countries, like the Netherlands, have opted for voluntary sectoral multi-stakeholder initiatives. The Dutch Agreement on Sustainable Garments and Textiles, for example, proves that cooperation between business, civil society, and government is indeed possible and can be highly effective, to accelerate improvements in the sustainability of supply chains.
The magical word in all of this is ‘due diligence’. Not in the old financial sense though. Here it means mapping your supply chain in order to know exactly where potential risks lie and be prepared for any issues arising from your activities, directly or indirectly. In other words: do your homework and you will know whether or not sourcing a particular product from a particular country or even area is a good decision.
‘Good decision’ here refers not only to quality, price, and lead times, but even more to the safety of the product and its environmental and social impact. What does this entail exactly, when we look at the complexities of international supply chains?
The general public tends to believe that the big names in retail are the driving force behind sustainable change. Yet, there are many more parties involved in practical implementation of the measures needed to achieve both social and environmental improvement. In addition to product requirements, sustainability requirements are ever increasing in supplier conditions. It seems that responsibility for achieving sustainable change is being pushed across international supply chains. With so many tiers in today’s complex supply chains, business partners are extremely reliant on each other’s performance and choices.
Two preferred ways to manage supply chain risks is to use certification schemes and audit supplier facilities for compliance with set standards. Yet, with the SDGs in place, businesses are beginning to understand that adequate supply chain risk management is more than just auditing; the actual work starts when the audit report is complete. Collecting data throughout the supply chain requires cooperation and mutual trust. And this can be achieved only by building long-term business relationships.
Risk management can cast a shadow on even long-standing relationships of trust between suppliers and their customers. Many customers now require full transparency from each and every one of their suppliers, ‘just in case’. After all, should an accident or abuse come to light further down the supply chain, the company bearing the reputable name will be the one targeted. So the drive to manage risk is understandable. On the other hand, suppliers’ carefully built network of producers is often a big part of their unique added value. We must understand their fear that disclosure of their production sites and sources will compromise their business. Some may worry that competitors will gain from the information or that buyers will move to direct sourcing. However, times have changed. With the world becoming ever more accessible thanks to the Internet, the drive toward transparency is a development that is futile to resist.
The role of the suppliers who sell products to retailers is key in this whole process. When talking with suppliers, invariably one of the first topics to come up is the challenging position they are manoeuvred into by their customers (= retailers). Ergo: supplier are pushed to meet all sustainability conditions, even though the negotiated buying price may not reflect the actual cost of integrating all these elements into the final product.
From experience in training buyers, I know that buyers are under huge pressure from senior management to achieve margin targets, while simultaneously being expected to ensure that all sustainability requirements are met. But what to do if the latter requires raising the buying price? Many a supplier has questioned the fairness of their competitors still surviving thanks to sustainability requirements being left out of the equation for the purpose of keeping prices low. It is an ever-growing frustration. The fact that end-consumer behaviour has yet to undergo the sustainability transition has not helped to speed up the process. Unfortunately, price often still prevails.
There is a crying need for a level playing field to help accelerate industry shifts to sustainable practices. We are asking businesses to integrate the SDGs into their company strategies. And it takes courage to step back from a commercially successful strategy and review it from a sustainability point of view, only to discover that it is lacking from either an environmental or social compliance perspective.
What do these suppliers need? Very practical support to help them achieve a shift to sustainability together with their business partners, government, and civil society. Personally, I believe we should work toward a more harmonised EU approach starting with the Dutch example of public-private International Responsible Business Conduct (IRBC) agreements, possibly developing these into what one day may be harmonised EU legislation. This way, we will achieve the sought after level playing field at the EU level, allowing for businesses to once again stand out because of their level of service and innovative products, with sustainability just a given.
About the author
Norma Wouters-Snell is owner of Noble Achievers, a consultancy in sustainable strategy development and practical implementation, and amfori Network representative in the Netherlands. Twitter: @NobleAchievers
Photo: Factory workers producing shirts at Sleek Garment Export, in Accra. Credit: © Dominic Chavez/World Bank
This article was published in Great Insights Volume 7, Issue 2. Spring 2018
Norma A. Wouters-Snell