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Building a supply-chain society

Horsemeat in burgers, child labour used to make our favourite electronic gadgets, workers beaten and abused in a factory making trendy footwear – just a few recent examples of the risks to corporate social responsibility (CSR) that major corporations run as they try to manage extended supply chains.

There are some obvious steps in dealing with such situations:

  • Speed of response… Tesco, the highest profile retailer in the horsemeat controversy, was quick to drop the offending supplier and set out plans for DNA testing of meat products;
  • A long-term plan… Nike found itself in the firing line in 2011 with newspapers reporting that workers at an Indonesia factory making Converse brand shoes, were being kicked, slapped and verbally abused. It responded by developing a Sourcing & Manufacturing Sustainability Index which assesses contract factory performance on sustainability measures including measures of lean, environmental performance, health and safety, and labour management factors;
  • A proactive strategy to root out problems… in January, Apple reported finding instances of the use of child labour during an audit of suppliers. The company has redoubled its compliance efforts after problems at Foxcomm made headlines in 2011. Notably it has called in the Fair Labor Association to audit suppliers.

And it is going in the right direction, auditing its suppliers and creating a good culture all the way along its supply chain, says Cranfield University’s Richard Wilding, a specialist in supply-chain risk.

Professor Wilding argues that the best way to obviate these issues is to ensure that everyone in the supply chain shares the same values – a “supply-chain society”.

The role of suppliers is critical when it comes to climate change, which is increasingly seen as a threat to supply chains

It’s a theme that resonates with Nick Wildgoose, global supply chain product leader at Zurich Insurance, who also highlights the importance of suppliers in any strategy to build resilience. A recent survey by the Business Continuity Institute found that 73 per cent of companies had suffered significant supply-chain disruption – 39 per cent below tier 1 among secondary members of the supply chain and beyond.

“Companies tend to focus on the tier-1 level, so the fact that so many disruptions happen below that level is a concern,” says Mr Wildgoose.

The role of suppliers is also critical when it comes to climate change, which is increasingly being seen as a threat to supply chains. A survey, Reducing Risk And Driving Business Value, by the Carbon Disclosure Project (CDP) and Accenture, published in January, found that 70 per cent of companies believed climate change has the potential to affect their revenue significantly.

But suppliers showed a lower level of ambition to mitigate climate-change risk, with just 38 per cent setting emission reductions targets in comparison to 92 per cent of purchasing companies. Similarly, at 27 per cent, the percentage of suppliers investing in activities to reduce emissions is less than half that of CDP member companies (69 per cent).

Gary Hanifan, global sustainability lead for supply chain at Accenture, points out that these risks are not that far off. Some 51 per cent of the risks that disclosing companies associate with drought or extreme rain are already having an adverse effect on company operations or are expected to within five years.

Involving suppliers in the process is vital, says Mr Hanifan. “The return on investment by the most proactive companies will not reach its full potential unless those companies can encourage their suppliers to follow their lead,” he concludes.

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