4 ways to build transparent retail supply chains
2015 has been a breakthrough year for retailers’ supply chain transparency programs. When pressure from retailers’ own investors and Boards combines with existing and proposed legislation (consider the California Supply Chain Transparency Act, the Dodd-Frank Conflict Minerals Rule, the U.K. Modern Slavery Act 2015, and the Business Supply Chain Transparency on Trafficking and Slavery Act), transparent supply chains are driven to a top-level priority.
The outcome of these pressures is that retailers are forging new and deeper relationships with their suppliers to address both social and environmental challenges through increased transparency. What is transparency in the context of retail supply chains? It is the sharing, whether publicly or between business partners, data and information about business practices, policies, operations and more. Related to that is traceability, or the capability to track and act on the history, source, ingredients, transportation route and other valuable information about products, components or raw materials.
Both of these activities lead to increased visibility into supply chain challenges: Product and component traceability, human rights, factory working conditions, supplier integrity, unauthorized subcontractors and fire/life safety.
Through RILA’s (Retail Industry Leaders Association) work with retailers, we have noticed many transparency trends emerge over the last year. I saw four strategies for supporting transparent supply chains emerge in 2015:
1. Align resources and organizational structures
RILA found that most retailers leverage a corporate team and third-party auditors. Three-quarters of companies have four or more staff and 80 percent are gaining resources (financial, staff, etc.). The staff dedicated to ensuring responsible sourcing typically report to the sourcing, legal or sustainability departments, and each department has its benefits.
Reporting to the legal team, for instance, is appropriate when a gatekeeping approach is needed, because legal departments have greater influence over decision-makings, which brings support at the highest level in the organization. In comparison, reporting to the sourcing team is appropriate when a collaborative approach is needed to address responsible sourcing, because that team directly impacts sourcing decisions. As each organization is different, retailers are evolving their reporting structures based on the current needs of their transparency programs.
2. Build on auditing
Auditing is a formal and systematic review of social and/or environmental practices and impacts in supplier factories. In their most basic form, audits ensure that factories are complying with retailers’ supplier codes of conduct, as well as relevant local laws. Audits gather information on potential EH&S issues; review payroll, personnel and other records; and conduct employee interviews. This helps shine light on factory practices by witnessing them in-person, providing value information to gain transparency into supply chains.
Factories are often prioritized for audits based on risk assessment that incorporate several elements. Audits can be announced and/or unannounced, and often result in collaborative corrective action plans to help the factory managers understand how to remediate non-compliant issues, further deepening the relationship between the retail and its suppliers.
3. Train management and workers on best practices
Doing so strengthens the knowledge, abilities, skills and behavior of supplier factory management and employees — enabling the factory to be more transparent about its practices and operations. RILA has seen that retailers’ capacity building programs can cover a range of issues, including: Social compliance, production/productivity, safety and health, human resource management, communication and grievance procedures, worker-management communication, wages, overtime, freedom of association and environmental sustainability.
4. Support transparent supply chains
RILA has seen companies develop new data-gathering tools and analytics capabilities. These are helping companies assess the risks of suppliers and factories, and to make more informed purchasing and auditing decisions. Organizations such as the Sustainable Apparel Coalition, the Sustainability Consortium, the Global Social Compliance Programme and others are providing valuable tools and systems to standardize the ways that retailers engage their suppliers. Other activities such as raw materials traceability, engaging stakeholders and assessing materiality and risks are allowing retailers to gather the information they need to hone their focus on their individual supply chain’s most pressing issues.
As a result, we are witnessing more companies become more transparent about their supply chain’s activities, impacts, goals and more. Several companies, including Apple, Target and Nike, are publicly sharing their list of factories. Nike is going even one step further, publicly sharing the results of its contract factory inspections. Additionally, collaborative groups such as the Alliance for Bangladesh Worker Safety, composed of 27 North American brands, publishes the audit reports of all its member’s factories in Bangladesh.
I can only imagine that, as the business benefits of transparency become ever-more apparent, and as more retailers take a leadership claim, these efforts will continue to grow. I predict that in 2016 we will see even more brands hone their focus on the most material issues and publicly report on their supply chain efforts and impacts.