The dangers of reduced supplier audits during coronavirus

posted by Pierre-Francois Thaler
13 July 2020

The ongoing pandemic has created a wide variety of supply chain challenges, including employee health risks, production shortages, reduced labor capacity, factory shutdowns and more.

And although we are starting to see a light at the end of the tunnel, the effects of Covid-19 will last well beyond the initial recovery.

While the impact on supply and demand, transportation and manufacturing has been well covered, other risks, like the cancelling of supplier audits, could create new challenges.

The dangers of reduced monitoring

Given the precautions we must take as both people and businesses, cancelling on-site audits is necessary in the short term. But we also need to consider the long-term risks: reducing due diligence threatens sustainability progress today and creates blind spots tomorrow.

For example, many companies are pushing higher demand onto fewer manufacturers, which risks creating capacity strains. Considering the financial stakes many businesses face, this could lead to hasty hiring processes, excessive working hours, production shortcuts and potentially Covid-19-related safety violations.

Many procurement teams are also rushing to source new suppliers to meet heightened demand or compensate for partners that can no longer operate. Already high-risk industries – such as disposable glove manufacturing – are being called on to produce more output than ever. Can they meet demand in a sustainable and ethical way?

Moving too fast with critical supply decisions is dangerous, especially if brands don’t take the time to adequately assess suppliers’ sustainability measures. For companies that relied only on on-site audits, detrimental activity risks going unflagged. Without a way to monitor suppliers, how do you know if your suppliers are complying with codes of conduct and your brand values? If you lack visibility, your brand reputation could be at stake.

Don’t sacrifice visibility – digitise and adapt

In order to maintain visibility and management of the supply base, procurement teams must go digital and enable remote monitoring and assessing of sustainability performance and risks within the supply chain – especially in quarantined and highly-impacted regions.

There are a number of effective approaches to set the right tone with new suppliers. To start, ensure  suppliers digitally sign a code of conduct upon contract closure. While research shows that 64% of large, multinational groups have a supplier code of conduct, only 38% of them evaluate their partners every year. Today, companies need to take it to the next level to achieve the transparency needed to ensure responsible business practices.

Another strategy is including sustainability performance criteria in contract clauses and clearly defining annual performance targets. Sustainability contract clauses can serve as a foundation for meaningful partnerships – especially at a time when many manufacturers’ social and environmental challenges are more complex than usual.

Once expectations are set, it’s imperative to measure, then continuously monitor performance, risks and progress. Implementing intelligent technologies to engage suppliers and improve critical management systems is key. Sustainability ratings are an essential tool that, when combined with predictive risk mapping, gives brands broad risk visibility across the entire supply base, as well as the ability to engage suppliers in benchmarking and improvement of social, environmental and ethical practices. In turn, buyers gain the intelligence needed to proactively identify sustainability risks across an entire supply chain and prepare for future disruptions to crucial products, geographies, and business processes.

Although businesses may be forced to cancel supplier on-site audits for the coming months, procurement professionals don’t have to sacrifice visibility and control. Brands can ensure suppliers are withholding social and environmental values and procedures by going digital. Through code of conduct agreements, contract clauses and risk mapping technologies, supply chains can be protected and procurement leaders can focus on business continuity and resiliency now and into the future.

 Pierre-Francois Thaler is co-founder and co-CEO of EcoVadis

Rotherham, South Yorkshire
London (South), London (Greater)
£49k circa
Historic Royal Palaces
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates