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The Quest for Clean Supply Chains

<p>Disney, Hewlett Packard and the Responsible Sourcing Network talk about what's being done to minimize risks in global sourcing.</p> <div id="ff_peerindex_tooltip">&nbsp;</div>

Growing public scrutiny and consternation over the use of conflict minerals in everyday items like consumer electronics and jewelry provide just one example of the weak links in supply chains.

The points of vulnerability can exist throughout a supply chain, especially among global companies that mass market goods with materials and manufacturers all over the world.

Representatives for Disney, Hewlett Packard, the Responsible Sourcing Network and Pact Inc. took up the thorny topic of minimizing risks in global sourcing at the Ceres Conference in Oakland this week.

"These days supply chains are extremely complicated," said Assheton Stewart Carter, senior vice president  of global engagement and strategy at Pact Inc., who moderated the panel, "Chain Reaction: Minimizing Global Sourcing Risks."

The supply chain is international and "if even you can tell where something is coming from, finding out whether it was obtained ethically and responsibly also is extremely difficult," Carter said. "In the past five years, the risk has been shifting up and down the value chain. What was once just an issue for the manufacturing company is now an issue also for an OEM company or food manufacturing company."

Companies must also take into account the potential of negative unintended reactions of actions initiated with good intentions, such as unemployment in already poverty constrained areas because a region or raw material source is abandoned for a less controversial source another elsewhere. And all those considerations must be made despite a market that typically "cares more about quality and price than it does about environmental and sustainability issues," Carter said.

Mark Spears of Disney, like his fellow panelists, acknowledged the many challenges and cited a recent post by Ceres President Mindy Lubber in describing his firm's approach to global sourcing: "Acting in isolation is no longer an option," Spears quoted.

As the world's largest licensor (Disney works with 3,700 licensees in consumer products alone around the world), "our relationship with the product is tied to our relationship with the licensee," said Spears, director of sustainable business practices for Disney Consumer Products. Disney works with its licensees to ensure that products meet company standards, he said.

Citing the company's nutritional concerns for food products and concerns about obesity in children, Spears said "we've walked away from some things because we didn't want to be in that (negative) conversation."

He offered examples of how Disney is increasing responsible sourcing through the company's relationship chain.

They include:

  • Disney is one of the founding members of the Sustainability Consortium
  • In 2008, the company committed to a net-zero greenhouse gas target. The firm also is preserving forests through high-quality carbon offset credits, has a new sustainable paper policy in the works, and is reducing use of wood at resorts and in its cruiseline.
  • Has worked with Ceres award-winner Anvil Knitwear to use 100 percent organic for Disney graphic T-shirts cotton (with tracebility enabled through while moving to 100 percent organic cotton for infantwear.

As the world's largest IT company with about 1,000 suppliers in 1,200 locations and almost 50,000 non-production suppliers, HP was the first firm to set a social and environmental responsibility code of conduct for suppliers. HP also helped develop the Electronic Industry Code of Conduct, and the company maintains a general specification for the environment for suppliers.

Concerns for human rights of workers in the supply chain is central to the company's practices, said Zoe McMahon, HP's global program manager for supply chain social and environmental responsibility.

"We have been relatively successful, though there are still some challenges, McMahon said. "It was very difficult for us realizing that there were issues in our supply chain and it is so far away," she said, referring to conflict minerals and workers in the Democratic Republic of Congo.

"We would like our products not to have conflict minerals and be made of conflict-free materials, and there has been significant due diligence in our supply chain," said McMahon, whose company details its steps to boost transparency in the supply chain -- especially regarding conflict minerals -- on its website.

"Our policy on regular supply chain materials is to not walk away" from controversy and to work to improve conditions, she said, adding that the firm is an advocate for government engagement on such issues locally and at higher government levels as needed. "We have a dual role as a commercial company and as an advocate."

Patricia Jurewicz, director of the Responsible Sourcing Network, spoke of the "need to pull everybody together" to address supply chain issues ranging from forced child labor in processing and manufacturing of Uzbek cotton to the atrocities that arise in sourcing of conflict minerals in Democratic Republic of Congo.

It's essential to engage multiple stakeholders and pursue a multi-strategy approach, Jurewicz said. "It's not just supply chain, NGOs and companies," she said. "It's diplomacy, policy, economic develop, civil society and the investor community."

When asked during audience Q&A, how far companies should take transparency in the supply chain, Jurewicz said, "Down to the dirt." She also noted the expectations of Millennials, who consider access to information on all things a standard requirement. "Whether you like it or not this transparency tsunami is coming and you better be prepared for it," she said.

Asked whether companies must be pushed by regulations or competition to bring about change, or whether business can lead it, Spears said, "The forward-thinkers will be the winners in the market." If companies lag and require legislation or competitors to provide motivation, "it'll be too late and they'll be out of business," he said. "At Disney, we're doing what's right on faith ... as a company we don't decide where the expectations are, it's the stakeholders who ultimately decide, but we have to try to get in front of it."

On the question of how far should companies go to in addressing the many supply chain concerns and how to prioritize action, McMahon said, "It comes down to risk. I think we have to take the worst first. You look at the most egregious offense right next to you and go from there."

In cases where the offenses are extreme but geographically remote, the degree of egregiousness trumps location, she added.

And on the question of pushing or leading, McMahon replied, "You have to secure market advantage and lobby to level the playing field" so that business are playing by the same rules. "I think there are only two ways out of that," she said.

Photo CC-licensed by jurvetson.


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