Yohan Hill says that sustainable supply chains need a new, holistic way of thinking.
In considering what the future holds for supply chain management my mind was taken back to the recent, and well documented, European horsemeat scandal. I recognise that this is a well-worn shoe but bear with me as I think it still holds some interesting lessons for those of us working to develop more responsible and sustainable supply chains. My starting premise is this: the same factors that led to the horsemeat scandal earlier this year have been implicated in every other major supply chain controversy over the last decade or more. They include:
Lack of full traceability and compliance throughout the supply chain – the more complex and global the supply chain, the more difficult to ensure that suppliers are in fact compliant with the same quality standards, legal requirements, and social and environmental norms applicable to end markets. For companies with a global base of tier 1 or prime suppliers, which in turn have numerous sub-contractors and third-party sourcing relationships, supply chains can often go 3 or 4 tiers deep, becoming more obscure at each stage. Due to limited visibility over what takes place beyond the first tier (in terms of business practices, legal compliance, wages, labour standards, environmental practices, etc.) procurement professionals often issue contract clauses or pre-qualification questionnaires to try to minimise the risk of non-compliance. However, without effective monitoring and enforcement, breaches can still occur. And in some cases, the fact that ‘norms’ vary from country to country makes it difficult to impose the same contractual obligations and expectations to begin with.
Failure to focus on impact – beyond mitigating risk, how can an organisation demonstrate that its supply chain standards are leading to desirable outcomes in terms of improved livelihoods, and better labour, social, and environmental standards in the supply chain? Companies who emphasise contractual compliance as an end in itself risk doing so at the expense of focussing on the net effect, i.e. having very good compliance standards but nothing to show for it in terms of encouraging the right supplier behaviour or improving sourcing decisions. In extreme cases, well-intentioned mechanisms can have unforeseen negative consequences if the impact isn’t evaluated properly.
Little attention to systemic risks and opportunities – if ‘horsegate’ has taught us anything it’s that there can be systemic risks that go unnoticed, unchecked and accepted as standard practice, but which can eventually lead to huge business disruptions, massive legal and financial repercussions, and major reputational damage. But I wonder how well this lesson has been learnt beyond the confines of the food retail industry in Europe. I suspect that it’s the rare purchasing director who actually takes a step back to assess how systemic risks might impact upon their own supply chains and whether there is anything that can be done in response.
Assuming this is correct, then what are the implications for us in dealing with these issues and where should we focus our efforts going forward?
Well first of all, I think it’s important to recognise that the quality of a company’s supplier relationships is key to addressing the challenges highlighted above. Without deliberately taking steps to build supplier relationships that are constructive and collaborative, and where critical suppliers are known, vetted and trusted, it will be difficult if not impossible for companies to be confident about the state of their supply chains.
The more global and complex the supply chain, and the thornier the issues that lay therein, the more essential the question of confidence becomes. But confidence requires partnership and assurances on both sides, something that traditional procurement models will struggle to deliver without a fundamental change of paradigm. A more holistic framework is required to incorporate and encourage the intangibles that result in better sourcing outcomes. Intangibles like alignment with the core values, vision and mission of the business; sustainability of supplier relationships throughout the supply chain; resilience and diversity of the supplier base; etc.
In order to address these kinds of issues, companies will not only have to enact culture change within their own organisations, but they will also have to invest in developing and conditioning key suppliers for the long term; implement systems for on-going monitoring and management of supply chain commitments; and, take steps to address key systemic risks and opportunities facing their industry.
Yohan Hill is an Associate Director with Corporate Citizenship in London and has extensive experience in corporate social responsibility and sustainability. He leads Corporate Citizenship’s Supply Chain and Environment service strands and advises some the world’s leading companies on these issues.
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