Sustainability in super-sized and globalised supply networks is all about risk management. At the simplest level, suppliers should be categorised according to their strategic significance, so that the weakest links in the supply chain can be identified. Problems at a key manufacturer, or in a country with a weak regulatory environment, will in general pose a more immediate risk than shortcomings at a legal services company or advertising agency.
Companies can then prioritise how they engage with suppliers, for example through targeted sustainability and responsibility audits.
“It’s more complicated than it used to be, but we have more data at hand,” says Kevin Franklin, managing director of professional services at risk consultants Maplecroft. “There’s definitely a case for auditing, but you have to have more informed processes.”
To assist this, there are numerous forums that companies can use to exchange information about supply networks, and help segregate the high-risk from the low-risk suppliers. The spread of these platforms has been boosted by the internet and ever-easier data exchange.
Many platforms are sector specific. The Sustainable Apparel Coalition (SAC), for example, works on the environmental footprint of the clothing and footwear supply chain – a significant issue, as 80% of world clothing exports are shipped to developed economies, according to the World Trade Organisation.
SAC’s membership includes brands such as Adidas, Gap, H&M and Nike, and retailers such as Marks & Spencer and Wal-Mart, alongside their markedly less well-known suppliers, such as Gujurat-based Arvind Mills and the Taiwanese Makalot Industrial Company. SAC has published the Higg Index, a tool to measure the environmental impact of clothing and footwear throughout its lifecycle. It includes a “facilities module” – in other words, a methodology for segmenting suppliers according to how sustainable they are.
Other information exchange platforms are cross-sector, and rely on crowdsourcing to assemble risk information about supply chains. Non-profit organisation Sedex is one example.
Tom Smith, Sedex’s head of marketing and business development, says the platform was established in 2004 by Marks & Spencer, Tesco and other retailers because “CSR and sustainability were getting more complex, and programmes were getting pushed further and further down the supply chain”. Ever-greater volumes of data were being produced, and a decision was made to share it.
The Sedex platform now covers about 500 brands and retailers, 26,000 suppliers and 150 countries. Supplier sustainability audit information is uploaded to the platform and can be accessed by purchasers. Details of corrective actions taken by suppliers in response to negative audit findings are also available.
Cost reduction is one reason why companies are prepared to collaborate and share the results of their audits via Sedex. The difficult economic climate has tended to promote sharing. “Companies are always looking for more efficient ways of doing things. The model of preventing duplication works perfectly in the current environment,” Smith says.
Smith is careful to emphasise that information exchange platforms such as Sedex do not solve all problems. Sedex does not verify the supplier audit reports that are uploaded to it, or label suppliers as good or bad. But like TripAdvisor for hotels, users of the system can assess the weight of evidence.
Common issues tend to rise to the surface. A factor such as worker accommodation provided at factories could indicate higher risk, Smith says, but it is up to the purchasers using the system to decide, or to use Sedex as an indicator for where further investigation might be appropriate.
The New York-based Fair Factories Clearinghouse (FFC) is similar to Sedex. It assembles sustainability and responsibility audit information on the basis that “shared expertise helps provide compliance capability beyond any single company’s experience”. Industry-wide collaboration leads to “greater efficiency and cost savings, risk mitigation and assurance in factory monitoring,” FFC says.
The FFC boasts impressive statistics: it covers more than 30,000 factories in 142 countries, has a total of about 90,000 compliance documents, including more than 70,000 audits, and is used by nearly 6,000 buyers, including major names such as Nike, Starbucks and Timberland.
One FFC member is the World Federation of the Sporting Goods Industry. The federation’s secretary-general, Robbert de Kock, says the FFC helps “to avoid audit fatigue and to save costs. In addition it offers the possibility to use the FFC tool as your internal administrative tool for sustainability monitoring.”
Tools such as Sedex and FFC, in combination with intelligently targeted audits and on-the-ground monitoring, can help purchasers as they implement their supply chain risk assessment strategies. But sustainability risk can never be completely eliminated.
More companies might follow the lead of American Apparel, which does not outsource any of its operations. The company designs, dyes, cuts, stitches and packs its products at its sites in southern California, where it employs about 5,000 people. Its workers earn the “highest pay worldwide for the manufacturing of apparel basics”. And the benefits to the company are clear: “Adherence with US environmental regulations … better and more consistent quality of work, stronger employee morale, and ultimately, retention rates of skilled operators.”
Perhaps bringing sustainability home is the best way of minimising the risks.