By Robert Vos and Candace Hodder
As shoppers get increasingly interested in where their products come from, a growing number of companies are starting to tell the stories behind the journey to the retail shelf.
Shoppers can now use product codes to trace Silk Soymilk back to the soybean farm, Organic Valley milk back to the dairy farm, and John West canned tuna back to the fishing vessel. The soon-to-be-released “Trace My Coke” application will also disclose details about the product’s environmental impacts, including its carbon footprint.
Beyond food and beverage products, examples of supply chain transparency are also showing up in consumer products like clothing (e.g., Patagonia, Icebreaker, etc.), and jewelry (e.g, Walmart).
Whether or not a company is ready to embrace supply chain transparency, there are a number of good reasons to get to know suppliers, and to promote more sustainable practices throughout the supply chain. When companies operate in the dark in regards to their supply chains, they take on significant legal, operational, and reputational risks.
Legal risks stem from a recent increase in laws that hold companies accountable for their suppliers’ environmental and social practices. For example, in 2008, the Lacey Act was amended, making companies who manufacture, source or specify paper and wood products liable to fines and criminal sanctions if their products are found to contain illegally sourced fiber.
In 2010, the Dodd-Frank Act was passed, requiring companies regulated by SEC to publicly disclose whether their products contain conflict minerals from the Democratic Republic of Congo and nearby countries. The Food Safety Modernization Act, passed earlier this year, requires importers of food into the U.S. to implement a foreign supplier verification program.
And starting in 2012, the California Transparency in Supply Chains Act will require companies to investigate whether suppliers have policies to prevent human trafficking and slavery, and to disclose this information on their websites.
The reputational risks of not knowing the supply chain are also well understood, particularly to companies whose brands have been target of “brandjacking” campaigns by NGO’s. These campaigns have tended to focus on commodities long implicated in the global sustainability crisis like fish, wood, paper and palm oil. However NGOs are continually identifying new high priority environmental and social issues associated with global manufacturing that could become the target of future campaigns.
Companies that manufacture in the developing world are now facing risks from unsustainable procurement practices on both sides of the ocean. The Los Angeles Times has recently reported on a surge of micro-protests in China over sustainability issues.
This fall hundreds of protesters in eastern China rioted after a solar panel factory was linked to the death of a large group of fish in a nearby river. In the northeast, authorities will close a factory that produces paraxylene (a toxic feedstock in polyester production), after protests against dumping of toxic wastewater into the ocean. As incomes grow in the developing world, pressures for cleaner environment and better working conditions will likely build.
The challenge is, of course, that modern global supply chains can be extremely complex. There are often many manufacturing stages before a finished product is placed on a retail shelf. Depending on the scale of your business, just identifying and mapping out all of your suppliers may seem an insurmountable task.
But it can be done. Countless major companies, including (but certainly not limited to) Ikea, Staples, Nestlé and Mattel, have engaged their global suppliers to eliminate certain controversial materials from their supply chains and promote more responsible practices.
Tips for Engaging Suppliers
There are many ways to approach the development of a sustainable procurement program. The tips below are some aspects to consider when starting the process of engaging with your suppliers on sustainability.
1. Cultivate commitment. Quality, price and on-time delivery are typical topics for day-to-day conversations with suppliers, and sustainability may be a new topic for your procurement team to handle. As they initiate potentially challenging conversations with their suppliers about their sourcing practices, it will be helpful for them to have the confidence that responsible sourcing is a corporate priority.
2. Identify priorities. Your company may already have articulated sustainability priorities, but it’s worthwhile to identify other high-profile social and environmental issues to monitor. Consult with internal teams like consumer affairs, compliance, marketing, and packaging about the issues that have come across their radar. External advisors like NGOs and sustainability consultants can also help you to understand environmental and social hotspots within your industry.
3. Get up to speed. Take a look at industry activities and certification schemes in your priority areas. Do mechanisms exist that could help you to verify the sustainability of your sources? What alternative sources may be available and at what costs?
4. Decide on your performance standards. You will need to identify the minimum standards that suppliers must meet. But it can also be of benefit to identify best practices within these areas. What can suppliers do to exceed your expectations?
5. Ensure internal alignment. Good supplier sustainability programs include repercussions for failure to meet standards, as well as incentives for good practices. No matter what type of incentive structure you set up, it is important to make sure all of your internal stakeholders are aligned. So, if suppliers are dealing with your marketing team on branding issues, and your procurement team on sourcing issues, both departments should be towing the same line on the importance of sustainability.
6. Start with a warm-up. Initiate the dialogue on corporate responsibility through an introductory conversation or short survey. Let your suppliers know which sustainability objectives you’re working toward, and what information you’re going need from them. This will be a lot easier than launching an extensive query or audit program out of the blue.
7. Be consistent. Once you start reaching out to suppliers, you may hear different reasons why they can’t get you the information you need, or implement the policies you need them to. Some suppliers may themselves have complex networks of suppliers behind them, and be concerned about the burden of managing new processes. Others may be small businesses, and feel that the rules shouldn’t apply to them. To truly stand behind your supply chain, however, you must be able to know that all suppliers are participating in meeting your performance standards.
8. Monitor progress. Promoting sustainability in your supply chain requires continued attention, and possibly some difficult business decisions for uncooperative suppliers. An audit schedule will help you to verify supplier compliance, and reward those suppliers who demonstrate improvement over time.
9. Set your ambitions for public transparency. Once you know and can stand behind the environmental and social practices of your suppliers, you are faced with the decision of how transparent to be. It’s our feeling that transparency is the way of the future, and that a high degree of transparency is likely to bring positive reputational benefits and enhanced consumer confidence.
However, even if many of your efforts to understand and improve your supply chain never make it to print, interacting with your suppliers and encouraging them to adopt more sustainable practices will arm you with information that can help your business and safeguard your reputation. And of course, beyond all of these pressures, promoting responsible sourcing and manufacturing practices is just the right thing to do.
Candace Hodder is a Project Associate at CLEAN Agency; Robert Vos is the research director for CLEAN.