Power & Purpose Blog

Impact & Supply Chain Social Sustainability

In an ever globalizing world in which products are sourced from numerous tiers of suppliers from across the world, it is a very important consideration for a company to synergize and stregthen their impact within their supply chain.

In fact, local and national governments are becoming more active in demanding social responsibility in supply chains a requirement, such as California’s Transparency in Supply Chains Act, which requires retailers and manufacturers doing business in the state to report publicly on efforts to ensure their supply chains are free of forced labor. High profile tragedies in countries like Bangladesh are bringing more media scrutiny to supply chain issues. Investors are recognizing that weak social and environmental standards in supply chains can lead to financial and liability risks for the companies where they invest. Beyond this, a rising class of engaged, socially conscious aspirational customers are forcing companies to expand their sourcing paradigm.

There’s a strong business case for investing in sustainable supply chain programs. According to Ceres’ 2014 study, 58% of publicly traded U.S. companies set clear social and environmental standards for suppliers, up from 43% in 2012. Moreover, 34% now monitor supplier performance, up from 25% in 2012. Successful firms work collaboratively with vendors. Rather than simply auditing them, they build long term relationships and business contracts which make suppliers less likely to be tempted by short-cuts.

Screen Shot 2015-11-17 at 6.20.12 AMThe first most high profile example of “relational sourcing” came in the 1970s, when Toyota started outperforming American automobile companies by producing cars with far fewer defects than in that decade’s dominant models. A major cause for this increase in standard of quality was the long-term, open-ended contracts that Toyota had entered into with its designated suppliers. These contracts incentivized suppliers to ensure quality. Because of their success, relational sourcing became an established best practice in a wide variety of sectors, from food to furniture.

In addition to established corporations like Apple, Philips, H&M, and IKEA using relational sourcing in their value chains, a number of innovative start-ups like Everlane, Honest By and Zady Fashions are taking this approach further by marketing socially responsible sourcing as their competitive advantage.

While third party international organizations are still in the process of developing sustainability and social metrics that can be applied broadly, businesses must prioritize which metrics are right for their purposes. These impacts may be determined by proximity to supply chain, geographic proximity or financial factors. In addition, the United Nations and International Labor Organization (ILO) have developed documents that outline basic expectations for how workers will be treated; ILO’s eight core conventions address forced labor, child labor, discrimination, freedom of association and collective bargaining.

The Institute for Supply Chain Management offers the following 10 criteria to look at when trying to improve a supply chain’s social performance:

  1. Anti-Corruption
  2. Diversity and Inclusiveness — Workforce and Supply Base
  3. Environment
  4. Ethics and Business Conduct
  5. Financial Integrity and Transparency
  6. Global Citizenship
  7. Health and Safety
  8. Human Rights
  9. Labor Rights
  10. Sustainability

A move to supply chain social sustainability is an important consideration in an ever more complex business world. To learn more about implementing successful social strategies for your business, please contact Digital Union.

Maggie & Hector

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