In an increasingly global environment, corporate social responsibility now extends beyond a company’s own borders and applies to the entire supply chain. Because NGOs have even more efficient ways to influence public opinion, “supplier risk” can threaten a company’s image, ethics, security and business continuity at any time. What tools, resources and agendas should be in place to measure, control and improve sustainable development performance on all levels of the value chain?
First and foremost, setting up a responsible purchasing policy requires a general awareness of all levels of the company. The involvements of leaders, followed by awareness among all employees, are essential prerequisites for such an approach.
The first challenge faced by a company starting the process of evaluating its suppliers is to define the scope of its responsibility. It is sometimes difficult to draw the line between willing to assume responsibility for activities along the entire production chain and the risk of excessively interfering with how suppliers operate. It is therefore necessary for the company to define what it expects from its suppliers by formalizing its policy guidelines (such as by developing a code of conduct and performance indicators), while letting suppliers free to interpret the means for arriving at the expected result. L’Oréal’s suppliers, for example, are required to sign a letter of ethical commitment and agree to comply with the group’s internal policy on working conditions.
Once this has been established, the company has a set of tools to assist its suppliers in their efforts to improve (self-evaluation questionnaires, post-audit recommendations, best practices, training sessions, etc.), while also measuring their performance (analysis of declarative questionnaires or audits performed on site). While some pioneering companies have developed their own tools and continue to improve them, others choose to work together in industry-oriented initiatives, such as the Initiative Clause Sociale in France, the Fair Labor Association in the United States and Sedex in the UK, to share their expertise with one another and pool their efforts with shared suppliers.
The second step is to integrate supplier social and environmental performance indicators into the company’s purchasing process. However crucial, this step is the least developed today for several reasons:
1. The first obstacle is the culture of purchasing departments, whose primary objective for years has been to reduce costs. Integrating new criteria to evaluate the performance of the purchasers themselves, coupled with an awareness program, is often necessary to change attitudes. But this evaluation can only be done by weighing traditional criteria, like negotiated margins, with other equally tangible criteria, based on the performance indicators mentioned above.
2. Basing these performance indicators on inconsistent information that often comes from various departments organized in silos (sourcing, purchasing, sustainable development, quality, R&D, etc.) makes it difficult to centralize the information so that it is easily accessible to the purchaser.
3. Finally, because of this inconsistency, setting up a multi-criteria analysis is essential to purchaser decision making. However, this analysis is complex and involves a number of biases. For example, should we focus on buying a chair made with wood from sustainably managed forests, but built in China with its low social conditions, or a chair built in Europe with a better compliance with working standards, but whose wood comes from deforestation (and therefore affects biodiversity)?
Finally, although the analysis of the supplier’s overall performance is already a big step forward, it will eventually be useful for measuring performance per product. This is the mindset in which Walmart has defined its Sustainability Index, which rates its suppliers and products according to four main categories (Energy & Climate, Material Efficiency, Natural Resources and People and Community) and can be integrated into the decisional criteria grid used by purchasers.
This pioneering approach is even more relevant because it can anticipate regulations regarding the environmental labeling of products that will soon arise in many countries.