Supply chain sustainability is increasingly recognized as an important component of strong corporate responsibility. Developing working relationships with your global suppliers can support your organization’s efforts to maintain quality, control costs, reduce risks, and improve production flexibility.
As businesses move toward sustainability as a driver of competitive advantage, many struggle with implementation. Supply chain partners often have inadequate systems and processes in place to implement and manage the social responsibility requirements of their client organizations. Further, when instances of non-compliance are identified, efforts are often focused on addressing symptoms instead of root cause issues. As a result, deficiencies continue and risk of brand exposure increases.
Achieving the necessary visibility of materials and products across the supply chain itself is a difficult task, but ensuring high levels of sustainable performance multiple tiers up the supply chain is an even more daunting challenge. According to a recent study, only 13 percent of manufacturers said they have “complete” visibility into their Tier 2 and beyond.1
Some of the most pressing challenges facing organizations in their effort to create a more sustainable supply chain include:
- Unclear goals—Without clear social performance goals and expectations, suppliers will likely perform in a manner consistent with their standard practices—which may or may not properly address social responsibility concerns.
- Inadequate oversight—Organizations often fail to adequately monitor supply chain activities for compliance with social performance goals. This can send a message to suppliers that compliance is optional.
- Weak response to deficiencies—An unconvincing response by client organizations gives suppliers latitude to ignore social performance goals altogether or to choose only those goals they wish to apply.
- Failure to address root causes of non-compliance—Focusing only on the symptoms of non-compliance and failing to identify the root causes may offer temporary relief, but it doesn’t provide the permanent fix that prevents problems from resurfacing in the future.
- Conflicting social performance values—The values embedded in an organization’s social performance goals may be dramatically different from those at the heart of the cultural, social or economic context in which a supplier operates.
An essential performance management tool
To address these challenges, client organizations and suppliers are increasingly applying the principles embodied in a management systems framework. This framework provides a clear structure for implementing and maintaining an effective corporate social responsibility initiative across the value chain. For suppliers, the framework can also be an important capacity-building tool that can support a client organization’s social performance goals while helping to drive behavioral changes.
Key elements of an effective management systems framework include:
- Policies and procedures—At the core of an effective management system are formal policies and procedures that prescribe the activities and behaviors necessary to achieve the desired outcomes. It’s important to provide partners with precise details about what they need to do to meet your performance standards and why it is important. Simply issuing directives without providing context can be viewed as domineering. If you can provide rationalization for the behavior you’re trying to shape, you’re more likely to engender cooperation.
- Communication—Effective communication is vital for engaging suppliers in your sustainability initiatives and helps drive performance improvement. Key steps:
- Establish and communicate expectations through a supplier code of conduct.
- Define strategy and determine methods of how you will communicate sustainable goals and expectations, internally and externally.
- Consistently share sustainability achievements and advise suppliers early if performance is not meeting defined targets.
- Highlight all positive results, even those where the economic benefit is less evident but the sustainability significance is clear.
- Training—In most cases, communication must be accompanied by specific training programs and initiatives that enable your employees and partners to effectively execute the activities prescribed by a management system’s policies and procedures. One of the best ways to educate and share knowledge across your value network is to highlight best practice examples from your high-performing suppliers. By highlighting their successes, you not only acknowledge their actions but also reveal to other stakeholders the real benefits of your sustainability program.
- Tracking and measurement—Actual activity must be systematically tracked and performance data recorded to assess whether actions comply with the prescribed policies and procedures. Gathering supplier data through a benchmarking survey can help define your starting point. For example, UL’s program benchmarking services analyze supply chain corporate responsibility efforts and social compliance programs through comparisons with peers, competitors or best-in-class corporations. Benchmarking evaluates the client company’s practices against industry norms and leading practices across a number of UL-established criteria.
- Accountability and enforcement—Once a performance baseline is defined, an audit program offers a way to assess performance over a period of time. In cases where actual activity is found to deviate from prescribed policies and procedures, appropriate actions are taken to address noncompliant activities and behaviors. A good audit should employ a range of specialists that are able to evaluate supplier performance against internationally recognized codes and standards. Audits and assessments combined with reward programs that recognize sustainability actions can help further improve sustainability performance.
Different approaches for different needs
In recent years, a number of social responsibility standards and frameworks incorporating management systems principles have been introduced. Each standard or framework takes a different approach to demonstrating compliance. Some standards mandate third-party verification. Others simply offer guidance or recommended practices, and do not verify or certify compliance.
Whatever the approach or verification mechanism, these and other social responsibility standards validate the management systems approach as an effective tool for translating social responsibility goals into actionable business practices and processes.
Although the potential benefits make a compelling case, a management system approach may not be an appropriate solution in every instance. For some suppliers, the level of investment required may simply be beyond their reach. Depending on a supplier’s importance in the supply chain, routine audits and other mechanisms for assessing social compliance may be sufficient. Therefore, management systems should be viewed as one of several options available to help suppliers achieve the goals of corporate social responsibility programs.
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1 KPMG, “The KPMG International 2016 Global Manufacturing Outlook survey,” 2016