It’s Friday afternoon at New Metrics ’14, and next on the agenda is a workshop offering data-based insights and recommendations on top global supply chains risks from specialists in the field.
The conversation was co-led by Andrew Savini, Manager of Supplier Management & Audits at Intertek, and Mark Robertson, Head of Marketing & Communications at Sedex, who shared their companies’ data analyses of supply chain risks and real-world experience.
To illustrate the scope and scale of the supply chain risk ecosystem, they offered this quote from global beverage company Diageo: “At Diageo, we talk about 70,000 suppliers and third parties, spread across over 100 countries of the world. When multiplied by the number of sub-suppliers in the supply chains, you get in to hundreds of thousands of people impacted by our global supply chain, so it’s vital to prioritize the key areas.”
Starting off, they gave an overview of CSR supply chain key events in the past 10 years, from labor issues at Levi’s and the 2013 Rana Plaza disaster, to legislation, regulations, the proliferation of standards in the late 1990s, and the role of NGOs.
Data is the key to measuring progress towards responsible sourcing, they said, which they defined as the process of purchasing goods and services without causing harm to, or exploiting, humans or the natural environment.
On to risks, they shared the top 10 performance trends that audits around the world are picking up globally – fire safety, health and safety management, level of overtime hours, environment, management systems, machinery, chemicals and worker health/first aid/accidents, building/site maintenance and benefits/insurance – as well as how they look when sliced by China, Bangladesh, the United States, and by industry.
Not surprisingly, more mature industries such as food factories tend to perform better overall, due to years of scrutiny and regulations. By contrast, electronics factories have a way to go because of growth and increasing production.
A key supply chain risk is whether suppliers have controls or evaluation procedures for subcontracted work. In the case of Rana Plaza, many suppliers didn’t know their manufacturing processes were subcontracted to an over-burdened building with locked exits. Globally, audits find that 2 out of 5 suppliers do not have these controls in place, with the number being nearly 4 out of 5 in Taiwan.
A brighter story is the case of the global frequency of adequate fire-fighting equipment — only 1 out of 10 facilities fail at this measurement. This indicates that many years of codes of conduct and auditing have positively influenced fire safety practices.
They then did a deeper dive into labor issues in Cambodia, and showed how signs of the labor unrest that broke out in early 2014 could be discerned in earlier factory audits. A year before labor strikes took place, Cambodia’s overtime rate was 1.5 times more than the global average, signaling that workers were approaching a breaking point.
The conversation moved on to solutions and the case for multi-tier transparency. According to a PwC & MIT study, globally, only a third of companies are actively seeking transparency below Tier 1 in their supply chain. This is a problem because the highest risks and most issues are found deeper down (in the case of a garment’s supply chain, Tier 1 is the assembly, Tier 2 is the mill and Tier 3 is the cotton farm).
Intertek research backs up the case for companies to take on deeper levels of transparency – 40 percent of Intertek audit requests from global clients have something wrong with the audit request entity, and 70 percent of brands in a recent Intertek survey admitted their organizations would most likely lack the capability to trace back to production.
Externally, the drivers for improving supply chain risk management are compliance and traceability. The first, compliance, is fueled by regulations and legislation, investor pressure and consumer pressure. Pressure to improve traceability stems from the reality that in a connected world, issues become news in seconds.
What this means for companies is that transparency is expected, the “bare minimum” is no longer acceptable, greenwashing will be called out and criticized, and companies need to know where the next Rana Plaza could be.
The session wrapped up with their advice for what executives should keep top of mind.
Robertson said that sustainability leaders are looking to “not just meet regulatory requirements but go beyond compliance. That starts with protecting workers and doing more around benefits [such a providing a living wage] or training.”
As well, forward-looking companies are harnessing the power of Big Data from government datasets and news sources, expanding traceability beyond Tier 1 and forming collaborations with NGOs and other business leaders.