To boldly go where no sustainability

strategy has gone before…….

Share

Reporting and Assurance

With apologies to Captain Kirk, it would be fair to say that supply chains are one of the final

frontiers for many corporate, government and not-for-profit sustainability strategies. Having expended thinking, time and resources on tidying up in-house practices in relation to responsible

and accountable performance, the supply chain “skeleton in the closet” is one that for many organisations is a door too confronting to open (or at least open too wide). To keep the idioms

rolling, supply chains in terms of sustainability are seen by many otherwise responsible

organisations as a bridge too far, a can of worms or even a house of horrors. They can seem unbounded, outside of direct control and likely filled with untoward practices that become the

favourite fodder of current affairs shows and Greenpeace documentaries. But that doesn’t mean

that companies can simply close that door and hope for the best.

Over the past two decades, many iconic companies that have publicly professed to be leading

practitioners of responsible behaviour have then been nailed to the wall over their ignorance, complacency or naiveté around what is happening in their supply chains. Banarra has witnessed

some of the underlying causes of this over the past decade; such as:

A narrow interpretation of the boundaries around sustainability, accountability and organisational risk;

A limited awareness of which suppliers represent the highest risks in terms of sector, location

and product/service;

Risk management systems that struggle to acknowledge or deal with sustainability-related reputational risk in supply chains; and

Sustainability managers/departments that sit in isolation to other managers and departments

within the very same company that are dealing with risk and procurement.

There are some fundamental questions that businesses need to be asking of themselves so the

efforts they make to address risk and encourage sustainable practices within their supply chain are well focused and meaningful, rather than futile and wasteful “window dressing”. These

questions include:

What are we really asking of our suppliers?

Where do we begin? How should we design and then test our approach?

While there are no generic answers to these, I can offer some thinking to help contextualise such questions so that you can start considering the best way forward. The following reflections are

based on Banarra’s extensive involvement in supply chain sustainability over almost a decade.

We have helped design, evaluate and deliver supplier sustainability approaches to companies across a range of sectors from financial to retail, and many in between. We have delivered supply

chain strategies, labour practice workshops, Sedex training, and other supply chain aspects. My involvement has been primarily to help companies develop and implement policies to encourage

sustainable supplier practices, writing supplier codes of conduct, and designing and delivering

supplier audit programs. My comments below are based on what those experiences have taught me.

What are we really asking of our suppliers?

What are we trying to do and why?

Many supplier programs are vague about their intended goals for the company and desired

outcomes for the suppliers; ending up unfocussed, expensive and lacking performance measures.

Are you trying to manage real risk in your supply chain or sending a message to the market about your commitment to responsible business behaviour?

Being clear on this helps you to decide whether you should be going down a ‘compliance’ style approach setting minimum acceptable standards of supplier performance, or an ‘encouragement’

based approach supporting suppliers to progressively change their behaviour, and go beyond

compliance. If it is be more compliance focused, will your approach be punitive (comply or else) or more one of ‘gently’ raising the bar over time (recognising your likely limited resources and

that of your suppliers)? If you’re looking to be ‘supportive’, what are you prepared (and

resourced) to do for suppliers by way of helping them?

Do as we say, or do as we do?

If you are going down the ‘compliance’ route, you may be putting your credibility on the line. “Do as we do”, rather than “do as we say” should always underpin such an approach – firstly by

checking and demonstrating that your own house is in order on the social, environmental and

governance performance areas that you’re expecting suppliers to meet in order to avoid a classic and often highly visible double standard. If there are significant shortcomings in your own

sustainability performance, you have two choices: wait until your own act is together before

demanding compliance from your suppliers, or transparently acknowledge to your suppliers that your business still has work to do to lift its sustainability game, and encourage them to work with

you to improve outcomes.

Where do we begin?

Identify the breadth or focus of your approach

A successful approach is predicated on tying together program intent, available resources and risk evaluation. Are you intending to engage your whole supply chain? Should your focus be

primarily on your high spend, first tier suppliers, or on suppliers operating in particularly high

risk sectors (e.g. clothing, contracting, etc.) or in geographical regions known for poor labour, governance, safety or environmental standards? It is worth identifying what information currently

resides in your procurement department about supplier performance that can help identify higher risk or habitually poorly performing suppliers. If supplier risk information is lacking, then your

top 10 or 20 suppliers by spend may be a useful starting point.

Supplier sustainability schemes can be overly ambitious in what they are trying to achieve. Several years back I read with interest a major bank’s elaborate plans to launch a sustainable

supply chain program involving multiple supplier audits in the first year. By the end of year one,

they announced a grand total of one supplier had been audited (from the tone of their report I don’t think they quite understood the actual message that outcome sent to the market). Most, if

not all, companies have to rationalise their program scope and intent with their available

resources, so don’t try to do it all at once.

Align and marshal your forces

Many organisations make the mistake of running supplier sustainability programs as a solo exercise out of their sustainability departments. To get the best possible outcomes you need to

engage both your risk function and your procurement team in the development of the approach,

including where to target the program and how it will be delivered. You will also likely benefit from the public endorsement of your Board or senior executive to give it the legitimacy it needs

to be taken seriously both internally and externally.

Get your corporate communications team on board to align and promote the program with other corporate initiatives and help you craft a clear and unambiguous message to suppliers about what

you are planning to do, when and why. Suppliers will no doubt have questions about this, so be prepared to respond to them in a coordinated, consistent manner across the business.

How should we design and then test our approach?

Engage your internal and external stakeholders in designing the approach

Trying to design a supplier program in isolation from those who will use it (internal stakeholders)

and those who will be subject to it (suppliers) is not particularly smart. Sustainable supplier

policies, supplier codes of conduct, supplier questionnaires, and supplier audit models all need to be considered from both the user and the recipient point of view. Getting them engaged not only

provides invaluable feedback on aspects such as relevancy of criteria, affordability, practicality

and integration but also creates buy-in to the process on both sides. Suppliers should have a say in what you are asking of them. There is, for many suppliers, a high degree of discomfort with what

can be perceived as a client essentially imposing their values and principles on them. To then be held to account for something they had little or no say in developing can be particularly

challenging for them.

Run a pilot and assess the results

To be successful, all the elements of your supply chain sustainability program need to integrate seamlessly. For example; your policy, code of conduct, audit tools and audit approach all need to

be consistent and complete before you can confidently roll out the program across your chosen

suppliers. The only way to gain this confidence is to test them in a controlled, contained and ‘safe’ manner. Running a pilot amongst a select group of suppliers or within one particular

procurement area provides such an opportunity to demonstrate what works and what doesn’t.

I would also urge you to consider piloting a range of different models of auditing if you are

heading down the supplier performance verification route. Supplier audit programs are a trade-off

between adequate coverage of your supplier base versus sufficient evidence-gathering so as to minimise risk. “Light touch” audit approaches (usually largely desktop review-based) are

relatively cheap and cheerful but are barely worth the money they cost. In many cases they are

worse than no audit at all as they run a significant risk of creating a false sense of security and comfort for you about your suppliers. Some sort of onsite verification is usually essential, given

our experience that suppliers are highly variable in relation to the “accuracy” of their responses to questionnaires.

But ‘onsite’ doesn’t necessarily mean expensive. We have trialled a range of models for major

banks that retain some onsite component, but vary the size of that according to supplier risk, size, location, complexity and past performance. You may want to have a ‘lighter’ touch model for

your low risk or low spend suppliers, but at the same time retain something significantly more

intensive (and therefore more cost and time demanding) for high risk, high spend, major suppliers.

…….and stick with it

Be prepared to change your approach if it isn’t delivering the outcomes and confidence you need. There is little doubt that your process will (and needs to) evolve over time as you gain more

experience, or take it offshore, or commence second round audits of suppliers. And do continue to seek input from your suppliers, both during and well beyond the pilot phase, to determine

whether they are truly gaining some benefits too. Bringing suppliers together to compare

experiences with your approach can be a useful exercise, but be prepared for a range of views and be willing to respond to that feedback.

You are not likely to see substantive change overnight in terms of sustainable supplier behaviour.

Many of your suppliers, even some of the smaller ones, are probably doing okay from a sustainability perspective already, and may even be doing better than your company. It’s the

laggards that you’re most trying to reach, assess, influence or remove.

Be smart about not painting all suppliers with the one brush. Acknowledge and reward good

supplier performance more often than berating those who fall short. Celebrate and promote their

achievements to their peers in your supply chain – a particularly effective means to stimulate a response. A PwC survey last year revealed that 81 per cent of businesses who rate sustainability

as important favour collaborating with their suppliers to create a responsible supply chain

footprint and procurement framework.

The skeleton doesn’t have to stay in the closet. Or at least check that both the skeleton and the

closet were made sustainably.