Building a Socially Responsible Supply Chain

Building long-term sustainability in a corporate supply chain involves taking into account an incredibly long and complex set of standards and issues. And often the social responsibility side of the sustainability equation is the most difficult to manage. In the areas of the world where sustainability problems are most likely to fester, workforce protections may be sparse, enforcement may be minimal, and workers may be desperate for income even if puts themselves at risk.

For those reasons, a well-thought-out supply chain sustainability program should include at least these four elements:

  1. Social compliance auditing

For companies looking to improve social responsibility up and down their supply chain, compliance audits are crucial. Patagonia, the adventure apparel company, is an industry-leading example of how to ensure social responsibility throughout its supply chain. For more than a decade, Patagonia has implemented a system, called the “4-fold” approach, to pre-screen potential partner factories. This 4-step process includes screening potential new suppliers for the ability to meet (1) sourcing, (2) quality, (3) social and (4) environmental standards. The company’s supply chain team works closely with sourcing and quality departments. All three departments have full veto power over whether or not to use a particular factory.  In 2011, they began using the same process for suppliers of raw material fabric and trim.

A good audit should employ a range of specialists—either employees of the company that function independently or who are employed at a contracted auditing firm—that are able to evaluate supplier performance against internationally recognized codes and standards. Throughout, they should be able to collect and evaluate quantifiable data that can serve as evidence to all stakeholders. Then, to resolve any sustainability-policy violations that the audit uncovers, the client organization should work closely with the supplier to provide appropriate training to its employees and to develop long-term arrangements with management to improve the conditions at the factory.

  1. Keeping subcontractors on track

Subcontracting is an issue that should be identified during a social audit. The upcoming ISO 45001 requires that an organization looks beyond its own walls. Companies are responsible for the health and safety of all individuals who perform work, not only those directly employed. In this way, ISO hopes to ensure a higher level of health and safety among a wider group of effected workers. This means that the activities of external organizations that are influenced by, and exert influence on, an organization’s health and safety objectives, and the processes established to achieve them, are included within the scope of the standard. These external organizations that are influenced by and exert influence on the organization include contractors and outsourced firms.

Hidden subcontractors can be an operational and reputational risk, especially when work occurs outside of accepted regulations. It’s hard to discuss risk management in supply chains without bringing up the deadliest garment-factory accident in history, the collapse of the Rana Plaza building in 2013, which killed over 1,100 people. J.C. Penny and Benetton were among the large retailers surprised to find they carried apparel sewn there.

  1. Ensuring workers throughout the supply chain earn a living wage

A key element of a socially responsible supply chain is that everyone earns a living wage. The Global Living Wage Coalition embodies an ongoing initiative to identify and publish the specific living wage for each market around the world. It’s a good idea to set your own company’s benchmarks by using this or another similar standard for your particular region, or to do so in conjunction with third-party auditors. This will help ensure that workers at the supplier factory are being adequately compensated, a crucial piece of the sustainable supply chain. We anticipate that increasing numbers of companies will focus energy on ensuring that everyone in their supply chain earns a living wage, as the first round of this project is completed in the coming years.

  1. Avoiding conflicts in conflict industries

“Conflict” minerals and other natural resources are extracted in a war zone and sold to perpetuate the fighting. The Dodd-Frank Act included a provision requiring companies to disclose whether their supplies of four minerals—tin, tantalum, tungsten, and gold—were sourced in conflict zones. Although the SEC suspended enforcement of this rule in April, transparency on the sourcing of conflict minerals is one more crucial component of a socially responsible supply chain.

In addition to the four minerals listed in Dodd-Frank, diamonds are at risk of coming from war zones and funding violence. Even oil, when extracted in a volatile region of the world, can be considered a “conflict” substance.

The best way to find out whether resources come from conflict zones is again, through strong data collection. For example, the Responsible Minerals Initiative has a downloadable template that can help companies determine which of their raw materials are risky. The OECD also offers a guidance document designed to help businesses develop and follow due diligence practices to ensure they are not contributing to human rights abuses.

Maintaining Sustainability

When a first-world corporate entity sees a gap in which businesses, or entire industries, are operating in a socially irresponsible manner, it may be able to address these ethical failures by alerting enforcement agencies to the problem. In the absence of either regulations or the will to enforce them, we encourage taking a multi-stakeholder approach that enlists individuals, companies, and regulatory bodies to ensure that problems are addressed. Smaller companies and suppliers may be able to learn from the processes of larger and more effective companies. While it can be a lengthy process, it is generally agreed to be the best way forward, as it ensures that the sustainable practices have scale, impact, and efficiency. By working together alongside non-governmental organizations (NGOs), larger businesses, etc., this approach increases the leverage of individual parties to create change.

While these four elements are the tip of the iceberg in creating a socially responsible supply chain, they are important foundational considerations that companies in any industry can build upon.

As shoppers find it increasingly difficult to turn a blind eye to the origins of what they’re scanning through the checkout, businesses will have to answer to an increasing consciousness. It’s only a matter of time before technology will be in consumers’ hands, where they’ll be able to peer digitally into any part of the chain to discover information about each process. It’s worth companies taking action now to make their supply chain as clean as possible before the inevitable time comes when transparency is the norm.