30 April 2014 | Jon Williams
Do you have slaves working in your supply chain? Are there child labourers running 11-hour shifts in your suppliers’ factories? And how sure are you that components and materials used in your office computers are free from conflict minerals – natural resources sourced in areas that fund terrorism or war?
The chances are you don’t know. Most businesses have an understanding of what’s happening at their tier one suppliers, but beyond that things become a little less clear. What if your shareholders or your customers asked those questions? And what would be the consequences of uncovered breaches of ethical policy?
On the first year anniversary of the Rana Plaza garment factory collapse where over 1,000 workers died, are we any the wiser on the ethical standing of our supply chains? Has anything changed?
Research from Achilles demonstrates most manufacturers have no understanding of how ethical the supply chains are that support the business – despite mounting instances of damage that is done to brand, corporate reputation and shareholder value when such issues hit the media. The Rana Plaza disaster resulted in negative press coverage for some 40 global fashion and retail brands.
An independent report shows only 51 per cent of manufacturers are regularly auditing their tier one suppliers in terms of ethics, or checking their claims that they do not use child workers, slaves or conflict minerals. Even worse, only 38 per cent of manufacturers are auditing their tier two suppliers on the same criteria.
And yet, reported instances of modern slavery or the use of child labour in supply chains are frequent occurrences. Only in March a well-known cosmetics brand decided to remove mica from all its products over fears of child labour being used in the mining of the mineral. Earlier in February, an ITV documentary found girls as young as 13 being forced to work 11 hours a day in unsafe conditions in Bangladesh garment factories producing clothes for British retailers - less than a year after the tragic collapse of the eight-storey Rana Plaza garment factory.
So why are businesses still struggling? The issue may be that most companies know their tier one suppliers pretty well and therefore trust them. According to the report, around one in five large manufacturers said they were confident in suppliers’ ethical compliance purely because of personal relationships. Whereas 80 per cent of UK manufacturers said they were ‘very confident’ their first tier suppliers did not use slave labour. But what is this confidence based on if only 51 per cent of manufacturers regularly audit their tier one suppliers and less than 40 per cent audit tier two suppliers on ethical issues? How can such trust be warranted when corporate reputation is at stake? It may be common practice that the level of due diligence undertaken depends on the perceived risk from the supplier, but those risk assessments and elements of ‘trust’ may soon need to change.
In recent weeks the Home Office published a draft version of a Modern Slavery Bill, which aims to reduce the number of slavery cases, increase prosecution against perpetrators and protect those affected. Businesses will also be required to disclose steps they have taken to eradicate modern slavery from their supply chains. With legislation sure to follow, businesses will need to act now to ensure their supply chains are ethical and sustainable.
A growing number of brands are well aware of the risks associated with poor monitoring of suppliers’ ethical practices and are active in auditing suppliers – many are now successfully collaborating to reduce the burden of audits and to gain a greater understanding of the extended supply chain.
The problem for many businesses is that visibility of suppliers beyond tier one is poor. Achilles’ research shows over 50 per cent of organisations admit to having less visibility of their tier two suppliers than tier one and 34 per cent of buyers don’t even know who their suppliers are at this level.
Most companies know their suppliers at tier one, but the only way of gaining a greater understanding of a supply chain, down through the tiers, is to map it. As yet, companies across most industrial sectors are moving slowly on mapping their supply chains. The Achilles research reveals that only 44 per cent have mapped out their supply chains to date, 15 per cent are intending to do so and 31 per cent have no plans to map their supply chains. So what is holding back such a high proportion of companies from mapping their suppliers? The answer can be found in the research, some 44 per cent do not have the staff/resources to undertake the required work. This should not hold back manufacturers.
Once companies know the identity of all its suppliers, they can ask consistent questions around ethics and CSR. This works best when questions previously addressed by multiple agencies are consolidated into one relatively straightforward and quick to answer questionnaire, where suppliers are asked questions relating to health and safety, ethics, bribery and corruption and compliance. A scorecard allows buyers to benchmark suppliers’ performance and make sourcing decisions based on their sustainability credentials. Through this process due diligence can be carried out, followed by on-the-ground audits where necessary – an exercise that can be carried out by the buying organisation directly or through expert auditors.
Audits produce tangible evidence and can demonstrate to corporate stakeholders, partners and customers a determination to pursue ethical compliance throughout the supply chain. In January 2013 a leading manufacturer of electronics revealed that it had discovered through an internal audit that 106 children were employed at 11 factories making their products during the previous year. Taking action in this way mitigates risk to reputation and helps build consumer confidence in the brand.
With consumers, investors and now governments demanding greater assurance over the ethical standards by which individual corporate supply chains are run, it’s clear higher levels of due diligence are required. Critically, we need to know a great deal more about the sustainable performance of our suppliers and our suppliers’ suppliers than we currently do and that means mapping the supply chain through all tiers and then applying due diligence/audits at every level – that is if we wish to protect both brand and shareholder value.
☛ Jon Williams is principal product manager at Achilles with responsibility for sustainability and corporate social responsibility