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Links in the chain
23 Jul 2007
Topics: Supply chain, Brands, Social accountability, SA8000, Kitemark®, CE mark
Imagine that you're a household-name UK retailer working to reduce the number of plastic bags in circulation. A celebrated designer, who usually accessorizes the likes of Kylie and Sienna, pitches you the idea of a limited-edition cotton bag for your customers at a bargain price. It makes a powerful statement: "I'm not a plastic bag". You jump at the idea, the bag is launched in a blizzard of publicity, and customers queue around the block. Twenty thousand bags sell out in an hour.
Fast-forward a day and the Internet is buzzing with criticism. Campaigning group Labour Behind the Label is condemning your initiative as a shallow hypocritical stunt. The so-called "green" bag isn't organic and has been manufactured and shipped from China, implying a large carbon footprint and labour exploitation. Its sustainable and ethical credentials look to be in tatters, as do your aspirations to position your brand as socially and environmentally responsible. Your supply chain management has let you down, with potentially disastrous consequences.
This scenario isn't fiction. In April 2007, Sainsbury's launched Anya Hindmarch's "most hotly anticipated bag of the year", promising "to bring the issue of re-usable bags to public consciousness." In fact, the supermarket chain was careful not to make any claims for the bag other than that it wasn't plastic and would be re-usable.
Two days after the launch, Sainsbury's was able to tell the media: "Sainsbury's never claimed the bag was Fairtrade or organic. The point of the bag is it can be re-used, thereby saving millions of plastic bags from being used in future years."
Sainsbury's went on to explain that while the bags were made in China, they were not manufactured with "cheap" labour nor were local workers exploited. The supplier worked with an International Human Rights consultant. The factory complied with all aspects of Chinese labour law. The bags were sea-freighted to the UK and carbon was offset with retiring carbon credits.
"We knew lots of checks had been done and that the factory in question was squeaky clean," reiterated a Sainsbury's spokeswoman to Business Standards. "Everyone knew what they had signed up for in terms of an ethical trading agreement and we knew that the factory followed good standards and in fact paid almost double the Chinese minimum wage. We always get suppliers of non-branded items to sign up to agreements that contain clauses relating to social and ethical compliance."
Sainsbury's robust supply chain management closed down the negative news cycle - proof that you can't be too careful with your supply chain management.
Other brands have not been so scrupulous. Nike, with more than 660,000 contract workers in some 900 factories in over 50 countries, faced a public relations meltdown in June 1996 when it emerged that child labour in Pakistan was being paid 60 cents a day to stitch together Nike footballs. Factories were closed and Nike's brand was scarred.
In May 2007, Nike announced its resumption of football production in Pakistan, "to further stimulate a broader and deeper stakeholder dialogue about supply chain models." More than 80 people now manage Nike's global supply chain compliance issues.
Pressure point
Ethical and social compliance in the supply chain may be improving, but realistically, it had to. With the increasing social conscience of consumers and the proliferation of Internet-enabled activists and charities, the likelihood of exposure of poor social and ethical performance has never been greater.
At the same time, the pressure to deliver diverse, globally-sourced products to discerning consumers on a competitive basis means supply chains have never been so numerous or so widely dispersed. More than ever, companies recognize that they must take responsibility for the social and ethical performance of their suppliers if they are to survive.
"When it comes to social compliance, brands and reputations can be damaged overnight," says Hewitt Roberts, director of sustainability strategy at BSI Management Systems, acknowledging that the social and ethical dimension of the supply chain has become the hot button issue for major corporate businesses in the last few years. "Consumers also realize that, whereas in the past they couldn't do anything about it, now they do have an influence. This is where the need is currently perceived to be strongest, because the pace of change is so rapid - greater than it is and has been in quality, environmental or health and safety management. And there is a ratchet effect. It's not going to go backward from where we are now."
Big corporations, he believes, clearly understand the issues: "Poor social and ethical performance anywhere in your operations can lead to liabilities, fines, inefficiencies, lost revenue and ultimately higher costs. Aside from the cost to reputation and brand, low labour standards go hand in hand with poor productivity and poor products, and lead to labour disputes, sabotage or strikes. It impacts revenue, investor confidence, employee morale and retention, and ultimately a company's licence to operate."
That's not to say that activity in this area of the supply chain need only be defensive. As Roberts points out, companies are recognizing the considerable benefits of a proactive approach to improving supplier performance.
"Engaging with suppliers to ensure ongoing improvements by definition means a business will have better and increasing knowledge about that supplier," he says. "This gives you a better and earlier view of impending issues and risks and a proactive position. You can solve the root causes of problems, not just the symptoms, and improve long-term product quality, differentiation, cost-competitiveness and continuity. You can also help to improve working conditions and labour practices in the supply chain, instead of simply cutting it, which often has far worse implications for the workers and communities involved."
Moreover, corporations that make a sincere effort to engage with their suppliers not only avoid potentially crippling market reactions to adverse events, but legitimize the claims they make for themselves in their corporate social responsibility (CSR) objectives and ethical mission statements, as well as garnering improvements to enterprise-wide risk management and corporate governance.
Tools of the trade
If better social and ethical supply chain management is so important, what can an organization do to stay ahead of the curve?
There is a range of available tools. For developing-world supply chains, proof of compliance with International Labour Organization standards is important. In the UK, the Ethical Trading Initiative promotes and improves the implementation of corporate codes of practice, which cover supply chain working conditions of those producing for the UK market.
Standards have a role to play as well. ISO 14001 Environmental management systems can help consolidate good practice, while SA8000 Social accountability is the most widely recognized global standard for managing human rights in the supply chain.
Alarko-Carrier, a Turkish manufacturer with a worldwide customer base in the heating and cooling sector, used SA8000 to formalize its existing policies on working hours, discrimination, sub-contractor management and remuneration across its supply chains. Implementation of SA8000 ultimately led to a seven per cent lift in customer satisfaction.
BSI Management Systems offers an integrated, web-based software solution - the Entropy System ™ - that gives full visibility and control across the supply chain, as well as performance reporting and better control. One of America's largest retailers has already adopted the Entropy System ™ with huge and rapid improvements in its supply chain audit process.
As Hewitt Roberts points out: "The Entropy System ™ delivers the significant benefits naturally inherent in an integrated, purpose-built solution, including improved access to information, a single corporate-wide data source, improved data management and real-time analysis and performance reporting."
BSI also offers a raft of standards dealing with risk, including ISO/IEC 27001 Information security, OHSAS 18001 Health and safety, and BS 25999 Business continuity management.
Security dimension
Another key and growing issue in social and ethical supply chain management is security. As Paul Lightburn, product manager at Lloyds Register and a member of the ISO Technical Committee on Ships and Maritime Technology, points out, "Security is a key component of CSR: at some stage, most organizations will have custody of customers' goods, information or IP, and they wouldn't be fulfilling their obligations to customers, clients and society without taking care of these."
In the wake of 9/11, the US government called on the International Maritime Organization to come up with a solution to what they saw as the vulnerability of world shipping to terrorism. This gave rise to the International Ship and Port Facilities Security Code to look at security within ports, on board ships and at the ship-port interface.
"What it doesn't do," points out Lightburn, "is look further up or down the supply chain, particularly relating to the intermodal container. There is still very little verification to ensure that manifests and the contents of containers tally."
Industry concerns about this prompted the International Organization for Standardization (ISO) to initiate the development of ISO/PAS 28000: Specification for security management systems for the supply chain, which is scheduled for publication later this year as a full ISO standard. Written using the ISO "Plan-Do-Check-Act" model and designed to complement other ISO management systems standards that adopt the continual improvement principle, this certifiable standard is not only for container terminal operators and logistics companies.
"It can be applied to any organization within the supply chain," Lightburn confirms. "It is recognized not only by companies wishing to demonstrate conformance with ISO standards, but also compliance with the requirements of supply chain legal, regulatory and voluntary codes of practice already out there. They all require an underpinning management system approach for identifying security threats and managing risks. ISO 28000 is complementary to the process of applying any of the mandatory or voluntary codes of practice and, indeed, the US Safe Ports Act mentions ISO standards as a means to enhance supply chain security and port facility security."
The first major customer for ISO 28000, DP World - one of the world's largest operators of container terminals - is already on board, with three terminals certified: Djibouti in east Africa, Vancouver in Canada and Causedo in the Dominican Republic.
Sound logistics management, quality control and regulatory compliance will always be at the heart of effective supply chain management, but the pace at which ethical, social and security concerns are becoming mainstream issues, is accelerating. The only question is, are you ready?
CASE STUDY: Compliance in the chain
BSI Product Services works across the supply chain, says Simon Bircham, product marketing manager, Electrical and Electronics, to ensure compliance to regulatory and voluntary codes and to reassure consumers: "Across the whole chain, everyone needs to have confidence that the entire supply chain is meeting the required quality and standards," he says.
BSI offers testing and certification services providing Kitemark® and CE marking, and also runs a number of certification schemes for safety-critical components.
Recently, a major UK retailer with specific compliance requirements called on BSI to develop a bespoke service assessing its suppliers in China and Korea. Covering over 100 sites, the first phase involved assessments that looked at basic training aspects as well as investigating the current processes and control plans and providing the retailer with a Gap Analysis Report on each supplier. The second phase addressed corrective actions identified from the assessments and incorporated a review of the Bill of Materials for products to be exported to Europe, checking the supporting documentation and determining the measures necessary to demonstrate compliance to the relevant EU Directive.
To request a copy of Hewitt Roberts' white paper: The Benefits of Using Web-based Solutions to Improve Social and Ethical Compliance in the Supply Chain, visit: www.bsi-global.com/july07whitepaper
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