Supply chain sustainability
Why would you care about how your suppliers behave (or any company in your supply chain)? Do they conform to appropriate ethical standards in an increasingly globalized world? Do they produce their products or services in a way you can stand up for? Are they involved in any form of corruption? Is it your problem? Maybe not legally – or is it? In any case, you may be held accountable for it – by your customers, by the authorities or by the community at large – and it may have a great reputational impact. Your reputation could take years to build up – and days to ruin.
This is what happened in a company I used to work for – and in a previous article “From Crisis to Asset” I commented on the work we did in Telenor Group some years ago. It is the story starting from the “Bangladesh crisis” in 2008 until we had established what we called “Business Assurance” group-wide and contributed to our supply chain being much sustainable over a period of five years – through requirement setting, policy making and sustained follow-up in the field. The above article was rather process oriented and presented the overall story on what we did and how we did it. Below I will touch more upon the substance of what a sustainable supply chain should be like – and also on why every company should have a focus on supply chain sustainability.
In today’s environment, when sustainability or “ESG” is on the agenda, most of the time it is about global warming and climate change – and to some extent also the wider environmental issues – in other words mostly about the “E” in ESG. The other two letters, the “S” for “social” and the “G” for ”governance” are less in focus these days – and, I would claim, probably because there hasn’t been a crisis lately. When we did the “HIT project” in Telenor as referred above, it was first of all about the “S” and in a later phase also the “G”. The “E” was also a priority – but not so much the climate change aspect of it.
So what did we end up requiring from our suppliers at the time? In this context it should be remembered that a group like Telenor operated in some very immature markets with social standards far behind what we see in the Western world – something which was also the case for some of our major suppliers – operating in many cases from China. Therefore, basic human rights and, even more relevant, appropriate labour standards and occupational health & safety were key elements – as well as respecting the environment. Finally, abiding by laws and corruption were also part of it. These were all areas where we decided to provide requirements on our suppliers and our sub-suppliers through a set of “Supplier Conduct Principles” – which again were formalized through Agreements on responsible Business Conduct (ABC agreements) – also requiring suppliers to pass it on to their sub-suppliers (cascading).
More concretely, typical challenges we would see in the field in some of the emerging markets were child labour, e.g. kids below the age of 15 doing full-time work instead of going to school – even in hazardous environments, various forms of forced labour, e.g. workers kept in confined areas with passports confiscated etc, pay below minimum wage – or restrictions on labour unions, discrimination at the workplace – due to race, religion or anything, excessive working hours and more. The most common area with very poor standards, however, was the health & safety area. In this area there were lots of examples, e.g. climbing in masts without proper PPE, people being electrocuted due to negligence or lack of competence, dealing with dangerous materials, messy workplaces, careless driving etc.
In more mature markets you would expect that many of these challenges are not present. This might be the case for child labour. However, there may be examples of underpaid workers or being housed in poor living quarters for extortionate prices etc also in the Western world – and health & safety is a challenge also in such markets – although maybe not to the same extent.
“What gets measured gets done” is a statement that applies within every company – but also in this case. Having requirements on your suppliers is good, however, if there is no follow-up or consequences in case of breaches of misbehaviour, then it will quickly be forgotten – also if the follow-up is relaxed after a while. For that reason, we in Telenor followed up with up to 2.000 inspections and / or audits world-wide on a yearly basis. It should be noted, however, that the approach chosen by Telenor with thousands of supplier inspections also requires a large company. For Telenor and how it is governed, however, it was necessary and worked out well. For smaller companies or companies with more centralized structures other schemes may be more appropriate.
So why should you implement a system for supply chain sustainability. Apart from the “correct” answer to make the world a better place and to support the UN Sustainable Development Goals, sustainability or ESG is increasingly being scrutinized by Stakeholders and focused on by companies. Stakeholders expect large companies to have responsible business practices in all relevant areas, be it in terms of corporate governance, human rights, labour rights, working conditions, health & safety, environmental impact, corruption, transparency – AND also on managing sustainable supply chains. Stakeholders could be anything from shareholders or investors, governments or regulators, enterprise customers, the press or media, NGOs – and even your employees and the general public. In particular, the young generation with future employees or customers might consider it very important and would stay away from your company. Therefore, please consider a few check questions:
· Do your Stakeholders have ESG or sustainability in focus?
· How exposed are you to various Stakeholders?
· Have you considered the risk of public scrutiny around such issues?
· Have you considered the reputation impacts of any ESG incidents in your supply chain?
If the response to any of these questions is yes, then you might for your own sake need to seriously consider doing something about it – and if so, then you may want to ask yourself:
Responsible supply chain management:
· Do you have relevant and adequate company policies in place?
· Have you assessed the most common ESG risks in areas where you or your suppliers operate?
· Have you assessed your suppliers from an ESG perspective?
· Do you have a perspective on your sub-suppliers?
· Have you put any ESG requirements on your supply chain?
· Do you follow-up on it in any way?
· Do you have anyone responsible for follow-up?
· Do you do inspections or audits?
· Are you aware of any incidents?
· If so, what have you done about it?
· Can you do anything about it?
These are all examples of areas you may need to consider. In the larger picture, supply chain sustainability (responsible supply chain management) is about managing risk in your supply chain across all the challenge areas referred above – with the aim of continuously reducing risk over time. There is no quick fix, but you will need systematic work over time.
From a business perspective, it is all about risk management as well, in the sense that you, as a company, would want to avoid any crisis. It is therefore necessary to build the required top-level buy-in, support and funding. “It is not a problem until it is a problem” – and then it is a huge problem! In the long run, it pays off being ahead of the problems. Alternatively, a crisis or a large incident will definitively make you wake up!
Finally, it should be noted that the approach chosen by Telenor using ABC agreements and thousands of supplier inspections was a very strict one and requires a large company. It may not be for all companies, but for Telenor and the way it is governed, however, it worked out well. For smaller companies or companies with more centralized structures other schemes may be more appropriate. There may be other approaches from a contractual perspective – and you may want to use fewer but more proper audits rather than lots of field inspections. The system needs to be adapted to your actual business environment.
Whatever approach chosen, applying some form of responsible supply chain management will contribute to the world being a better place over time. Go for it!