Supply chain tension – matching price point with ethics
‘Times they are a-changin’
The challenge…. I was sat having a drink with a friend the other day. He’s the Commercial Director for a manufacturing plc that supplies well-known high-street brands across the globe.
We chatted about some of the challenges and tensions faced by manufacturers as they seek to balance between being seen to do/doing ‘the right thing’ and the short-termist shareholder profit performance quarterly and annual reporting cycle of a plc – and so in their case - the need to win contracts with the major high street brands. There are tensions.
The buying teams of big high street plc brands need to achieve the demanded financial growth performance for their shareholders (often our private pension investment companies etc). So, with their leverage, they have an incentive to drive down their supplier’s price point, even if that means making points of a penny saving in preference to ensuring their tier 2, 3 and 4 suppliers actually honour the ethical stance promoted publicly in their ‘ESG’ statements and reports.
The manufacturer’s leverage (or lack of it) over its suppliers to ‘do the right thing’ compounds the tension. If the manufacturing company is only offering 1% of a supplier’s revenue – what leverage do they have over that supplier to educate and encourage more sustainable ethical practice? Will that manufacturer put themselves at a commercial disadvantage against competitors by spending and investing to develop the ethical and social practices of their supply chain? Or is it better to country/supplier hop for a cheaper product and accept the salient human rights risks that may invoke – is ‘blissful ignorance’ a useful tool for buyers? And given a potential need to invest in supplier due diligence and ethical development support, is the manufacturer tied to a single source supplier they’ve invested in – so risking their own commercial resilience?
Or is there a justification for ‘all ships to rise with the tide’? The incentive and drive has to come from the top of the supply chain – the consumer and their B2C primes. And we are starting to see this as companies such as BMW combine their Annual report with their Sustainability report to include such metrics as the carbon footprint per vehicle. But there is much more to do – particularly on the social impact side. And while the financial industry can promote and encourage ‘ESG’ – it is clear that ‘green-washing’ tokenism is rife. Buying departments and CSR departments for the big consumer goods suppliers often sit in stove-pipes, abrogating responsibility by placing the ethical liability and risk on suppliers, while concurrently pressuring them to lower their price point. That can’t go on – particularly when you head down and out into a globally dispersed tier 2,3, 4 and 5 supplier footprint.
So what can be done about it?
As explained here, “third party schemes such as Sedex which uses the SMETA methodology, Social Accountability International which uses SA8000, and the Business Social Compliance Initiative (Amfori BSCI) which offers one common Code of Conduct and one implementation system seek to bring clarity and harmonisation and also drive convergence across the many sets of different standards. This has been welcomed but still lacks the reassurance of adherence to a consistent set of standards that could be provided by one benchmarking organisation.”
Which therefore brings in to play the big hitters. The Consumer Goods Forum (CGF) is in their words “the only organisation that brings consumer goods retailers and manufacturers together globally, we are CEO-led and help the world’s retailers and consumer goods manufacturers to collaborate, alongside other key stakeholders, to secure consumer trust and drive positive change, including greater efficiency. With our global reach, CEO leadership and focus on retailer-manufacturer collaboration, we are in a unique position to drive positive change and help address key challenges impacting the industry, including environmental and social sustainability, health, food safety and product data accuracy. We do so for the benefit of both people and the planet, as well as our businesses, ensuring better lives through better business.” Have a look at their Board – some pretty heavy hitting companies leading from the front: www.theconsumergoodsforum.com/who-we-are/our-board-of-directors/
The CGF as ‘buyers’ across multinational, complex supply chains, have established their ‘Sustainable Supply Chain Initiative’ (SSCI) which promotes good social accountability practices across global supply chains by benchmarking and recognising third-party auditing or certification schemes.
In direct support the Global Standard for Ethical Trade & Responsible Sourcing (BRCGS ETRS scheme) is currently progressing through a formal benchmarking by the SSCI to become formerly recognised by the end of 2021.
In essence – the CEOs on the Board of the CGF are gripping the supply chain. Exhausted by the multitude of different supplier assurance approaches, they are helping to level the playing field between benchmarked standards, providing buyers and suppliers with guidance on which third-party auditing and certification schemes most effectively cover key sustainability requirements and apply robust compliance management practices. The BRCGS ETRS is designed to directly support that intent - it is in the vanguard and in time will likely become the norm for suppliers to the large high street plc brands.
Ethical Trade & Responsible Sourcing - the requirements
Senior Management Commitment
Senior Management is commited to to implementing and upholding the key principles and practices associated with Ethical trade & Responsible Sourcing
Fair labour standards are observed and that workers are treated fairly and equally
Health & Safety
Workers have an environment that is safe, healthy and hygienic; has the necessary safeguards and precautions in place and that workers are provided with the necessary training and equipment to protect them from harm
Respecting Human Rights
Workers are treated with dignity and respect and their basic Human Rights are upheld
Commitment to the highest standards of ethical conduct and integrity and takes necessary measures to ensure these are observed by its s