Geopolitical instability has triggered human trafficking and people smuggling on a mass scale in recent years, meaning that slavery and child labour are still persistent modern-day problems instead of being consigned to history.
Companies might be confident that their direct suppliers employ ethical practices, but less sure that their suppliers’ own suppliers adhere to the same standards. This is no longer an accepted excuse though; legislation such as California’s Transparency in Supply Chains Act (TISCA) introduced six years ago, has imposed responsibilities on corporates to eliminate any human rights abuses prevailing at any level in their supply chain.
This is where supplier finance comes in. Jim Ridgwick, global head of procurement for the charity Save the Children International, speaking at last month’s SAP Ariba Live conference in Amsterdam, noted that the chief procurement officer is increasingly taking charge of the sustainability agenda within many companies. “Between 40% and 60% of an organisation’s financial resources go to its suppliers, so they can exercise a major influence on how those suppliers conduct their business and their ethics,” he suggested.
Ridgwick (pictured left), who has previously worked at Deloitte and brewing giant SAB Miller, continued “Are they a good corporate citizen? We can ensure that sustainability objectives are built into our supplier selection process and also drive a reduction in CO2 emissions by careful selection of our supplier base. Nor does it have to be a major change – even the small stuff makes a difference.”
Save the Children isn’t alone. As SCF Briefing has reported in the past, brands such as Puma and Levis are already using the levers of supplier finance to encourage best practice in their supply chain. (How supply chain finance can drive sustainability and CSR, SCF Briefing, February 2017)
Yet as Erin McVeigh, head of products and data services at risk analytics group Verisk Maplecroft, acknowledges, relatively few companies can track down the original source of many of the raw materials used in their products. That’s why the group has developed a way to aggregate information on suppliers around the world to make the task easier.
There is, for example, a significant risk that a supplier in Thailand could be using child labour, while the US’s rating is lower than the country would care to admit as it hasn’t always adopted international regulation on human rights.
Ashley Bates, vice president of contracting and procurement at Shell, said that the energy group is responsive to issues such as child labour, modern-day slavery and the workplace issues raised by the MeToo movement. However, for Shell the primary issue to be addressed is that of combating climate change.
The group anticipates a doubling of the global demand for energy by 2070, yet two-thirds of current demand directly contributes to carbon emissions. Shell CEO Ben van Beurden has pledged that by the mid-21st century the carbon footprint of its energy products will have been halved. That means getting the group’s 34,000 suppliers – who account for 3.2 million invoices and a $45 billion third-party spend annually – on side.
“This means that procurement needs to be a real relationship business, creating value for all the partners,” says Bates. “We have to liberate our people on the front line from their basic operational activities, freeing them up in their dealings with partners across the supply chain and bringing forward innovatory models. Digitisation plays a major role in this.
“We’ve recently gone live in the cloud in nearly every country in which Shell operates, although we’d still like to see the network far more user-friendly and customer-focused.
Visibility throughout the chain
SAP Ariba reports that recent conversations with customers have seen an increasing focus on “the value they’re creating worldwide, including that for the communities inside their supply chains”.
“Your supplier might be ethical, but there may be issues further down the supply chain, for example at the third tier,” says Padmini Ranganathan, group vice president of products and innovation for supplier risk, compliance and sustainability solutions. “You can at least question your supplier on their awareness of any forced labour issues among their own suppliers and also segment your suppliers according to their level of risk.”
According to Angela Cain, its procurement consultant, as many as 40 million people still live in conditions of slavery and new technologies will play an integral role in the campaign against it. “We can already see what our suppliers are doing, whether they are ethical and who they’re trading with,” she says.
“In future we’ll also be able to see what each supplier’s supplier is doing and check on ethical performance throughout the whole supply chain, while actively choosing those suppliers who share our ethical standards.”
The group reports there is growing body of evidence to show that companies investing in corporate social responsibility (CSR) programmes benefit over time. Big Data and risk analytics can provide insights to assist decision-making during the end-to-end risk assessment process and in achieving operational efficiencies from buying from the right suppliers.
Ultimately, companies can simply opt not to source supplies from countries whose human rights record is poor in order to avoid the risk. But it’s becoming steadily easier to identify the individual suppliers – and products – that aren’t meeting their CSR standards
SAP Ariba has partnered with both Verisk Maplecroft and Made in a Free World, the social risk database-linked supply chain risk management software provider, to make it easier for companies to gain oversight of their entire supply chain and expose practices such as employing child labour.
Made in a Free World’s system can flag up any incidents of forced labour that have occurred in a company’s supply base and can apply filters to check either by country or by industry. The data has already belied a widespread assumption that forced labour is no longer an issue in the US.
As SAP Ariba’s new president, Barry Padgett noted, procurement is no longer a boxed or siloed activity. Today’s business environment has created the important new role of chief collaboration officer, who is directly responsible for employing new tech tools to get ahead of problems before they happen.
This new ability will not only help companies make improved purchasing decisions, but also in ensuring good ethical standards are maintained at all points along their supply chains, he suggested.