Supply Chain Hot Air
The current approach to managing corporate responsibility issues in supply chains does not work. By Peter Davis
"NGOs have, for a number of years, campaigned for companies to monitor and manage the ethical performance of their suppliers."
"The volume of goods that U.K. firms source from overseas markets where the costs of production are lower has been steadily increasing for many years."
For anyone who has been around the corporate social responsibility debate for more than five minutes, these comments would appear to be stating the obvious. Not apparently for PricewaterhouseCoopers, from whose recent report, "CSR and the Ethical Supply Chain," these quotes are taken. Written by PwC's U.K. retail and consumer group, the report states its aim is to "explore why companies are looking ever more closely at the wider CSR implications of their sourcing practices."
In this column a couple of months ago, I fulminated against the lack of intellectual rigor in much that is published about corporate social responsibility and, frankly, this report is precisely the sort of thing that I had in mind. The development of corporate social responsibility as a credible discipline and, more importantly, the provision of genuinely helpful guidance to operational managers is not helped by the constant appearance of “reports” that are as vague as this one.
The irony is that this particular report did not have to be like this at all. The authors are highly experienced at working with companies on factory auditing, and PwC has been at the forefront of the corporate social responsibility debate for many years. With this sort of pedigree, why publish something that reads like a marketing pamphlet instead of a genuine contribution to the development of corporate responsibility expertise?
At the Heart of Corporate Responsibility
The ethical management of the supply chain is one of the most important topics in corporate responsibility today. FTSE4Good announced its procurement requirements a few months ago and the Make Poverty History campaign has refocused attention on commerce in emerging markets. The media too is once again talking about the link between free trade and poverty. The BBC's Panorama series, for example, has just screened a program examining wages and working conditions in the garment industry.
The problem is that the current approach to managing corporate responsibility issues in supply chains does not work. Supply chain “best practice” requires companies to collect vast rafts of information but does not necessarily demonstrate that conditions in supplier factories are improving. Let's go into this in a bit more detail.
At the heart of the current approach is a standards-driven agenda. Supplier factories are expected to comply with a prescribed set of standards on labor conditions, health and safety and so on. Compliance is then monitored through annual or semi-annual inspections.
But this approach does not guarantee that anything about the way a supplier factory is run will actually change. It just guarantees that, on the day that an inspection takes place, the inspectors will see what they are supposed to see. Spot-checks make this less likely, but a factory management team resistant to change can usually find ways around this too.
The other aspect of current procurement “best practice” is for companies to send questionnaires to all their suppliers to collect “relevant” information. Again, this approach is fundamentally flawed, for one simple reason. Most of the information collected will be irrelevant - ethical supply chain risks are specific to the supplier, the product and the country. To collect the same information about every supplier simply wastes everyone's time. Suppliers have to fill in voluminous questionnaires: their customers have to put together vast databases to store the resulting information. Crucially, it may also mean that really important issues get lost in this sea of information.
Focus on Risk
The current model of ethical procurement needs to be changed. For a start, it needs to be risk-based. Most of a company’s suppliers will not pose any sort of corporate responsibility risk. Others will pose a significant one. Developing a matrix to cross-reference the risk associated with the country from which a product is sourced, the risk associated with the product itself and the importance of that product to the purchaser allows that purchaser to focus its efforts.
Second, it needs to be understood that real change will not come through a rules-based process. Real change only comes from the development of a relationship with the supplier through which it is possible to help them understand the need to change. It also needs to be accepted that change will not happen overnight, and that gradual, incremental steps are the only realistic approach.
It is through their supply chains that companies have the possibility of effecting huge change on corporate responsibility issues. The current approach is broken and real effort needs to be put into developing a more successful and durable one. This requires thoughtful and informed debate and collaboration. It is a shame that PwC’s recent contribution missed the chance to do this.
------
Peter Davis is political editor of Ethical Corporation. He is also director of The Navigator, which provides specialist advice on social and political risk.
This column has been reprinted courtesy of Ethical Corporation. It was first printed on March 16, 2005.
"The volume of goods that U.K. firms source from overseas markets where the costs of production are lower has been steadily increasing for many years."
For anyone who has been around the corporate social responsibility debate for more than five minutes, these comments would appear to be stating the obvious. Not apparently for PricewaterhouseCoopers, from whose recent report, "CSR and the Ethical Supply Chain," these quotes are taken. Written by PwC's U.K. retail and consumer group, the report states its aim is to "explore why companies are looking ever more closely at the wider CSR implications of their sourcing practices."
In this column a couple of months ago, I fulminated against the lack of intellectual rigor in much that is published about corporate social responsibility and, frankly, this report is precisely the sort of thing that I had in mind. The development of corporate social responsibility as a credible discipline and, more importantly, the provision of genuinely helpful guidance to operational managers is not helped by the constant appearance of “reports” that are as vague as this one.
The irony is that this particular report did not have to be like this at all. The authors are highly experienced at working with companies on factory auditing, and PwC has been at the forefront of the corporate social responsibility debate for many years. With this sort of pedigree, why publish something that reads like a marketing pamphlet instead of a genuine contribution to the development of corporate responsibility expertise?
At the Heart of Corporate Responsibility
The ethical management of the supply chain is one of the most important topics in corporate responsibility today. FTSE4Good announced its procurement requirements a few months ago and the Make Poverty History campaign has refocused attention on commerce in emerging markets. The media too is once again talking about the link between free trade and poverty. The BBC's Panorama series, for example, has just screened a program examining wages and working conditions in the garment industry.
The problem is that the current approach to managing corporate responsibility issues in supply chains does not work. Supply chain “best practice” requires companies to collect vast rafts of information but does not necessarily demonstrate that conditions in supplier factories are improving. Let's go into this in a bit more detail.
At the heart of the current approach is a standards-driven agenda. Supplier factories are expected to comply with a prescribed set of standards on labor conditions, health and safety and so on. Compliance is then monitored through annual or semi-annual inspections.
But this approach does not guarantee that anything about the way a supplier factory is run will actually change. It just guarantees that, on the day that an inspection takes place, the inspectors will see what they are supposed to see. Spot-checks make this less likely, but a factory management team resistant to change can usually find ways around this too.
The other aspect of current procurement “best practice” is for companies to send questionnaires to all their suppliers to collect “relevant” information. Again, this approach is fundamentally flawed, for one simple reason. Most of the information collected will be irrelevant - ethical supply chain risks are specific to the supplier, the product and the country. To collect the same information about every supplier simply wastes everyone's time. Suppliers have to fill in voluminous questionnaires: their customers have to put together vast databases to store the resulting information. Crucially, it may also mean that really important issues get lost in this sea of information.
Focus on Risk
The current model of ethical procurement needs to be changed. For a start, it needs to be risk-based. Most of a company’s suppliers will not pose any sort of corporate responsibility risk. Others will pose a significant one. Developing a matrix to cross-reference the risk associated with the country from which a product is sourced, the risk associated with the product itself and the importance of that product to the purchaser allows that purchaser to focus its efforts.
Second, it needs to be understood that real change will not come through a rules-based process. Real change only comes from the development of a relationship with the supplier through which it is possible to help them understand the need to change. It also needs to be accepted that change will not happen overnight, and that gradual, incremental steps are the only realistic approach.
It is through their supply chains that companies have the possibility of effecting huge change on corporate responsibility issues. The current approach is broken and real effort needs to be put into developing a more successful and durable one. This requires thoughtful and informed debate and collaboration. It is a shame that PwC’s recent contribution missed the chance to do this.
------
Peter Davis is political editor of Ethical Corporation. He is also director of The Navigator, which provides specialist advice on social and political risk.
This column has been reprinted courtesy of Ethical Corporation. It was first printed on March 16, 2005.