Are we building responsible supply chain management on the right blocks? A review.

Artikelen, Blog

I was triggered by the article of the Economist Intelligence Unit with the title ‘No more excuses’ Responsible supply chains in a globalized world of 2017(1). This report draws on a survey of 800 executives in major industrial economies around the world, in Asia, the US and Europe. The report reminded me of the results of the 2017 ILO Global Survey, where 1454 suppliers from 87 countries responded to a questionnaire about purchasing practices. Reading their answers felt like the supply chain talked back(2). In the coming two blogs, I will review these two articles and give recommendations on driving respect for human rights in supply chains.

Why do companies drive respect for human rights in their supply chains or why not? How well are companies managing supply chains and what do they think is responsible? And what do their business partners, supply chain actors themselves think is responsible? This blog will particularly look at the first question and give more insight into drivers for managing a responsible supply chain and what a responsible supply chain looks like. Next blog I will go into the question of implementation.

What are responsible supply chains?

In the Netherlands, many companies address gender equality under the term of ‘diversity’ on their websites or in their sustainability reports. The fact that this may be important for the company at headquarters level, does not mean that these companies ensure that women working on the products they buy on factory level or further down in the supply chain are treated with the same respect.

As a consultant in business and human rights, I am often asked to advise companies, NGOs or the government about the role companies in the Netherlands can play in enhancing respect for human rights in their supply chains. Should they impose the standards of their suppliers’ code in the supply chain?

Responsible supply chains are about managing supply chains in a responsible way, recognizing that there may be negative environmental and social impact related to the products and services that are sourced. Recognizing this impact does not mean that companies accept shared responsibility, shared with the actors in the value chain. Accepting this would mean a huge improvement of responsible supply chain management. This will be addressed in my next blog.

Why do companies buy responsibly?

Surprisingly, the respondents of the Economist survey pointed mostly to the company culture as the trigger for improvements in the supply chain (50%). The influence of regulations and civil society watch dogs was estimated at only(16%). Company culture? Really? In my experience, companies that received a lot of attention from NGOs and media highlighting bad practices in the past, are often the ones with more advanced responsible supply chain practices in the present. I was also surprised that the survey indicated hard and soft regulations are considered a key influence by only 29% of the companies. We have clearly seen the influence of ILO, OECD, UNGP but also of Dodd Frank Act, Modern Slavery Act on policies and sometimes practices of companies. It made companies look at the social risks in the supply chain more seriously. Also a benchmark such as the Dow Jones Sustainability Index is influential in determining responsible procurement and human rights due diligence. It helps to make companies more transparent on what they do or not do to mitigate human rights risks in the supply chain. Hard regulation, is needed to set a bottom line for laggards.

I agree with the Economist article that it is not enough to examine influences and motivations of companies. More importantly, we should consider what happens in the absence of such influences? Companies who are not influenced by reputational considerations, often in the B2B business or SMEs, may fall through the cracks and not look at the human rights risks in the supply chain. How legislation influences responsible supply chain management was confirmed by a report of the Responsible Sourcing Network, Mining the disclosures, which analyses the companies’ conflict minerals compliance and reporting. It clearly shows the decreasing performance of companies, now the so-called Dodd Frank Act, (requiring investigating the supply chain and doing due diligence into conflict minerals from the DRC) threatens to be repealed.

There are companies, whose company culture may make them continue sourcing responsibly. Unfortunately they still are a minority.

Next week, I will write more about the implementation trends.

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