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This report focuses on companies and suppliers that form part of the global supply chain networks of

major industries, such as apparel, electronics, food products and other consumer goods. It also

touches on, in less detail, on commodity industries such as mining and agriculture. The industries

mentioned above have undergone major change in the way they produce goods over the last few

decades, moving from a fully vertically-integrated model in most cases towards outsourcing all stages

of production. Whilst there are many advantages and disadvantages to consider in analysing this

particular trend, this report does not delve into a critical analysis of the move towards global

outsourcing, but rather looks at ways in which global supply chains can be improved in their current

form. Hence certain large industries such as automotive manufacturing, heavy equipment and

pharmaceuticals are not studied in detail, as these industries control most stages of production

directly within their own facilities.

There are many stakeholders affected by the debate on supply chain sustainability and compliance;

the large multinationals, consumers, suppliers, NGOs and governments are the key players. This

report primarily focuses on the leading role multinationals such as the large retailers, consumer goods

and apparel companies can play in solving supply chain problems. Their role and the associated

recommendations will not be considered in isolation but rather in collaboration with and influencing

other the other key stakeholders.

This report draws on some of the themes captured in the Tomorrow’s Global Company report

(published 2007). The report recommended alignment of financial, social and environmental

objectives as part of ‘redefining success’ for the corporation along with measuring and reporting on

those metrics to all stakeholders. It also highlights the importance of establishing, embedding and

reinforcing values at all levels of the organization. Both of these themes are central to the analysis

carried out in this study.

The ‘Futures Project’ being conducted by Tomorrow’s Company talks about the evolution of outcomes

for the various stakeholders in business, with suppliers being one of the key groups that has suffered

over the last twenty years with lengthening payment terms and shrinking margins. The report

proposes that businesses that are inclusive, purpose driven and long-term focused are the ones that

will succeed in the long run, and this view is held consistent in this report too when looking at the

relationships between multinationals and their suppliers.

Pervez Asli is a recent MBA graduate from Harvard Business School, where he focused on Corporate

Responsibility and Supply Chain Management in his second year as well as completing a related

project with Nike. Prior to his MBA, he spent seven years at Toyota Motor Corporation working in their

Vehicle Production Engineering department in Europe and Japan, and worked closely with many

long-term Toyota suppliers. He will be joining a global management consulting firm in their Operation

Practice in October 2015, and is looking to specialise in advising clients on supply chain sustainability

and development.

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In an attempt to solve the issue of supply chain abuses that emerged in the 1990s such as low and

unpaid wages and poor working conditions, many well-meaning actions were taken by the

multinationals being held responsible for the crises. The strategies were based on a premise of

managing reputational and financial risk arising from being linked to unethical and illegal supply chain

practices.

The results from twenty years of effort do not make encouraging reading. Wages for the millions of

workers in factories, mines and farms have been driven up my mandated rises in minimum wage, but

fall far short of the living wage in most countries (up to 20-40% below in China and Vietnam).

Excessive overtime has become systemic in certain industries such as fashion and electronics, where

significant uncertainty in demand and constant turnover of products are resulting in irregular

production schedules that hurt worker morale and wellbeing. Factory safety continues to remain poor

in the lower tiers of supply chains, where oversight is minimal and supplier margins are continuously

declining. Worker turnover is very high (up to 100% p.a. in countries and industries with high worker

demand), resulting in higher costs to suppliers and excessive overtime due to the disruption.

Resource consumption has risen 50% over the last 30 years, and there remains low consumer

demand for sustainably produced products that are more expensive.

Many of the problems highlighted above are as a result of actions taken by multinationals and NGOs

that were not coordinated across regions, industries, or even departments within companies. This has

resulted in conflicts of interests and misalignment of incentives. In an attempt to ensure that abuses

were not repeated, a rigid compliance-based system was created that replaced judgment and

nuanced understanding of the problem with charts, audits and certifications. Increased costs as a

result of the systems in place, along with consumer price pressure, have resulted in shrinking supplier

margins and reduced investment in better working practices and technologies. In order to increase

their reach and scope, supply chains and the auditing infrastructure around it have become over-

fragmented and subsequently opaque to multinational buyers and regulators. In order to fill the gap

left by ineffective local authorities, NGOs have proliferated and have compromised their

independence by aligning closely with businesses.

This report proposes that the status quo above can be changed. Businesses can play a significant

role in leading the changes necessary to improve the lives and working conditions of millions of

workers in their supply chains, and at the same time enable their suppliers to have more sustainable

businesses and enable themselves to have sustainable supply chains in the long term. This report

recommends that:

1. Businesses must establish a vision of what good supply chain practices means to them

This must also be aligned with the overall strategic direction of the company. The supply chain

cannot be thought of as an issue separate from the core business, and actions need to be aligned

closely with the brand’s values for it to be perceived as authentic by consumers.

2. Businesses must build supply chain capabilities within the company, in collaboration with

their key suppliers

Capability-building at the middle and lower levels of the business is critical to long-term success.

The focus should be on buyers, designers and managers to gain technical skills and knowledge to

help better understand supply chain problems and how to avoid them through their decision-

making. Cross-training with supplier personnel will increase ‘supplier-empathy’, resulting in closer

relationships, as well as buying and designing practices that do not adversely impact the suppliers.

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3. Businesses must redefine the role of supply chain CSR, moving towards more buyer

responsibility

CSR’s current role of setting standards, reviewing audits and evaluating suppliers on sustainability

metrics should be absorbed into the buyer’s responsibilities, as they are the key decision-makers

in placing orders and managing suppliers. CSR should have more of an advisory and research role

by engaging with experts and building the company’s knowledge base in this field.

4. Businesses must increase control and visibility of their supply chain

This can be done by reducing the use of mega-suppliers, as they disperse production only on the

basis of cost and delivery, exasperating many of the systemic issues. The focus should be on

building direct and long-term relationships with key first-tier suppliers, and then building a stable

and responsible lower-tier network together. Leveraging the use of technology to connect to

workers directly can also increase visibility into the supply chain at all levels.

5. Businesses and their key suppliers should adopt lean systems based on long term

relationships and financial alignment

Lean is shown to have increased worker productivity and product quality, and reduced costs and

supply chain violations significantly. Given lean relies on a ‘pull system’ with little inventory, very

close collaboration is required between producer and customer. Hence it should only be

implemented with a foundation of long-term supplier relationships, where suppliers should be given

the time and resources to make improvements to their processes and equipment.

6. Businesses should proactively develop local authorities’ capabilities and change the nature

of auditing, moving towards more qualitative and collaborative problem-solving

Local authorities should not be bypassed, but strengthened by the big companies operating in

developing countries. Departments that are well funded and inspectors who are paid well are more

likely to reach further down the supply chain, and also help suppliers solve their problems rather

than merely police them. The nature of auditing needs to shift from check-lists that are data driven

and focussed on trailing indicators to more qualitative ones that focus on fewer but leading

indicators and encourage judgement from the auditor.

7. Businesses should engage with select NGOs at a global and local level with distinctly

different purposes

The nature of NGO relationships should be segmented into two categories: the first should focus

on developing relationships with the large, global NGOs to leverage their scale, expert knowledge

and research capabilities. The second category businesses should focus on comprises of small,

local NGOs in the countries they do business in. The smaller NGOs should be used in the auditing

process as they have the supply chain visibility, communication skills and cultural context to make

the nuanced judgements that overseas auditors would not be able to.

The manner in which these recommendations would

interact is illustrated here:

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