MOST Analysis

Mission Statement

This workshop features a practical guide to continuous improvement, and can help companies to overcome challenges by offering practical guidance on how to develop a sustainable global supply chain process, based on the values and principles of the Global Compact. Featuring numerous examples of good corporate practice, the guide will assist companies in setting priorities for action that will lead to continuous supply chain performance improvement.

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Objectives

01. Developing Business Case: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
02. Establishing Expectations: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
03. Determining Scope: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
04. Engaging Suppliers: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
05. Role & Responsibilities: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
06. Industry Collaboration: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
07. Multi-Stakeholder Partnerships: departmental SWOT analysis; strategy research & development. 1 Month
08. Tracking Performance: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
09. Process Practices: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
10. Communicating Progress: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month

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Strategies

01. Developing Business Case: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
02. Establishing Expectations: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
03. Determining Scope: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
04. Engaging Suppliers: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
05. Roles & Responsibilities: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
06. Industry Collaboration: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
07. Multi-Stakeholder Partnerships: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
08. Tracking Performance: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
09. Process Practices: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
10. Communicating Progress: Each individual department head to undertake departmental SWOT analysis; strategy research & development.

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Tasks

01. Create a task on your calendar, to be completed within the next month, in order to analyse developing the business case.
02. Create a task on your calendar, to be completed within the next month, in order to analyse establishing expectations.
03. Create a task on your calendar, to be completed within the next month, in order to determining the scope.
04. Create a task on your calendar, to be completed within the next month, in order to analyse engaging with suppliers.
05. Create a task on your calendar, to be completed within the next month, in order to analyse roles and responsibilities.
06. Create a task on your calendar, to be completed within the next month, in order to analyse industry collaboration.
07. Create a task on your calendar, to be completed within the next month, in order to analyse multi-stakeholder partnerships.
08. Create a task on your calendar, to be completed within the next month, in order to analyse tracking performance.
09. Create a task on your calendar, to be completed within the next month, in order to analyse process and practices.
10. Create a task on your calendar, to be completed within the next month, in order to analyse communicating progress.

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Workshop Introduction

Workshop Objective

This workshop features a practical guide to continuous improvement, and can help companies to overcome challenges by offering practical guidance on how to develop a sustainable global supply chain process, based on the values and principles of the Global Compact. Featuring numerous examples of good corporate practice, the guide will assist companies in setting priorities for action that will lead to continuous supply chain performance improvement.

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Introduction

More and more companies are extending their commitment to responsible business practices to their value chains, from subsidiaries to suppliers. They do so not only because of the inherent social and environmental risks and the governance challenges the supply chain poses, but also because of the many rewards supply chain sustainability can deliver. Indeed, sustainable supply chain management can be a strong driver of value and success – for business as much as for society. By spreading good business practices around the globe, it has enormous potential to contribute to more inclusive markets and advance sustainable development in the spirit of the United Nations’ mission.

Today, UN Global Compact participants around the world are demonstrating leadership by applying the ten principles in their supply chains. However, developing sustainable supply chain programs that encompass all of the Global Compact’s four issue areas – human rights, labor, environment and anti-corruption – remains a daunting challenge for many.

Supply Chain Sustainability: This workshop can help companies overcome these challenges by offering practical guidance on how to develop a sustainable supply chain process, based on the values and principles of the Global Compact. Featuring numerous examples of good corporate practice, the workshop will assist companies in setting priorities for action that will lead to continuous performance improvement. We hope this workshop will encourage more businesses to embark on the journey towards more sustainable supply chains, thereby delivering tangible and lasting benefits to business, the environment and societies everywhere.

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Practical Steps Towards Achieving Supply-Chain Sustainability

Supply chain sustainability is increasingly recognized as a key component of corporate responsibility. Managing the social, environmental and economic impacts of supply chains, and combating corruption, makes good business sense as well as being the right thing to do. However, supply chains consist of continuously evolving markets and relationships. To navigate this complex terrain, we offer a few baseline definitions and practical steps that companies can take toward progress, using the United Nations Global Compact principles as the basis to work toward supply chain sustainability. What is Supply Chain Sustainability? Supply chain sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. By integrating the UN Global Compact principles into supply chain relationships, companies can advance corporate sustainability and promote broader sustainable development objectives. Why is Supply Chain Sustainability important? There are numerous reasons why companies start a supply chain sustainability journey. Primary among them is to ensure compliance with laws and regulations and to adhere to and support international principles for sustainable business conduct. In addition, companies are increasingly taking actions that result in better social, economic and environmental impacts because society expects this and because there are business benefits to doing so. By managing and seeking to improve environmental, social and economic performance and good governance throughout supply chains, companies act in their own interests, the interests of their stakeholders and the interests of society at large.

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What Steps Can A Company Take?

This workshop outlines practical steps companies can take to achieve supply chain sustainability and presents examples to inspire action. The recommended steps summarized below are based on the Global Compact Management Model, which is a flexible framework for continuous improvement for the mainstreaming of the Global Compact into strategies and operations. The steps described below and throughout the guide are not linear. Rather they represent complementary actions that companies can take in order to achieve more sustainable supply chains. In addition, there are three principles for successful supply chain sustainability management – governance, transparency and engagement – that are essential to every step of the model.

Commit:Develop the business case by understanding the external landscape and business drivers; Establish a vision and objectives for supply chain sustainability; Establish sustainability expectations for the supply chain.

Assess:Determine the scope of efforts based on business priorities and impacts.

Define & Implement:Communicate expectations and engage with suppliers to improve performance; Ensure alignment and follow up internally; Enter into collaboration and partnerships.

Measure & Communicate:Track performance against goals and be transparent and report on progress.

This workshop is intended to help companies, both those who are new to and those experienced in supply chain sustainability, to apply the Global Compact principles throughout their supply chains and to integrate sustainability into their business strategies.

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Supply Chain Sustainability Defined

In today’s globalized economy, outsourcing business operations doesn’t mean outsourcing responsibilities or risks—or that a company’s responsibility ends once a product is sold. Leading companies understand that they have a role to play throughout the life-cycle of their products and services. Supply chain sustainability management is key to maintaining the integrity of a brand, ensuring business continuity and managing operational costs. It is also an important aspect of the implementation of the Global Compact principles. Working Definitions “Sustainability” definitions vary. For the purposes of this guide, the definition encompasses the business role in addressing environmental, social (human rights and labor) and corporate governance issues, as covered by the Global Compact’s ten principles. “Supply chain sustainability” is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. Through supply chain sustainability, companies protect the long-term viability of their business and secure a social license to operate.

Supply Chain Sustainability & the United Nations Global Compact

The Global Compact encourages participants to engage with suppliers around the ten principles and to advance sustainable development objectives as part of their commitment to the Global Compact, and thereby to spread good corporate citizenship practices throughout the global business community.

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The 10 Principles of the Global Compact and Supply-Chain Sustainability

Human RightsPrinciple 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses.

LaborPrinciple 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labor; Principle 5: the effective abolition of child labor; and Principle 6: the elimination of discrimination in respect of employment and occupation.

Companies have a responsibility to respect human rights. The baseline responsibility is not to infringe on the rights of others. In addition, business can take steps to support and promote the realization of human rights, and there are good business reasons to do so.

Labour conditions in offices, in factories, on farms and at natural resource extraction sites such as mines, particularly in the developing world, often fall significantly below international standards and national regulatory requirements and can lead to serious human rights abuses. Businesses should strive to uphold international labor standards within their supply chains, including the right to freely chose employment, the freedom of children from labor, freedom from discrimination and the freedom of association and collective bargaining.

In addition, workers at times suffer from other labor rights abuses, including excessive work hours, degrading treatment by employers and inhibited movement. In order to avoid complicity in abuses, businesses should seek to ensure that they do not cause the rights of workers and others affected by their supply chain to be infringed upon, including the right to freedom of movement, freedom from inhumane treatment, the right to equal pay for equal work and the right to rest and leisure. The rights of all peoples to work in safe and healthy working conditions are critically important as well.

Companies can also begin to address human rights (including and beyond labor conditions) alone or by working with partners to promote a broad range of human rights such as gender equality and access to education and health.

EnvironmentPrinciple 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Environmental impacts from supply chains are often severe, particularly where environmental regulations are lax, price pressures are significant and natural resources are (or are perceived to be) abundant. These impacts can include toxic waste, water pollution, loss of biodiversity, deforestation, long term damage to ecosystems, hazardous air emissions as well as high greenhouse gas emissions and energy use. Companies should engage with suppliers to improve environmental impacts, by applying the precautionary approach, promoting greater environmental responsibility and the usage of clean technologies.

Anti-CorruptionPrinciple 10: Businesses should work against corruption in all its forms, including extortion and bribery.

The significant corruption risks in the supply chain include procurement fraud and suppliers who engage in corrupt practices involving governments. The direct costs of this corruption are considerable, including product quality, but are often dwarfed by indirect costs related to management time and resources spent dealing with issues such as legal liability and damage to a company’s reputation. Companies that engage with their supply chains through meaningful anti-corruption programs can improve product quality, reduce fraud and related costs, enhance their reputations for honest business conduct, improve the environment for business and create a more sustainable platform for future growth.

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The impact of Sustainable Development upon Global Supply-Chains

By virtue of their ongoing business relationships, every company makes direct economic impacts through payments to employees, suppliers and governments and indirect economic impacts through monetary flows throughout supply chains and beyond. Companies which make their supply chains more economically inclusive can support further economic development through for instance job creation and increased incomes. Economic development has secondary impacts on socioeconomic development and the environment and is therefore a critically important aspect of sustainability.

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Executive Summary

Supply-Chain Sustainability

Developing the Business Case

The first steps in developing a supply chain sustainability program are to evaluate the business case for action and understand the external landscape. These efforts will help identify the highest priority supply chain issues for your company, evaluate risks and opportunities and build the internal support to move forward.

There are many compelling reasons for taking action to improve social and environmental impacts throughout the supply chain. Many companies are driven by their corporate values and culture to address sustainability issues. For these companies, the fact that supply chain sustainability is the right thing to do and is a driver of social development and environmental protection helps create internal buy-in and commitment. Many companies also identify specific business drivers for supply chain sustainability. The business case for a particular company depends on a variety of issues including industry sector, supply chain footprint, stakeholder expectations, business strategy and organizational culture. Supply chain sustainability management practices that respond to multiple drivers can maximize the value to business.

Managing Risk

Companies can protect themselves from potential supply chain interruptions or delays associated with suppliers’ human rights, labor, environmental and governance practices by ensuring suppliers have effective compliance programs and robust management systems covering all the areas of the Global Compact Principles. For companies who have a single source for key inputs, managing risks is also critical to ensuring continued access to those resources. Increasingly, customer and investor expectations are driving companies toward more responsible supply chain management. Strong management of social and environmental issues can help companies address reputation risks. Finally, companies also use supply chain sustainability to ensure that their suppliers can adapt to anticipated strengthening of environmental regulations, extended product responsibility legislation and to reduce potential future liability.

Example: Westpac, an Australian bank, has used advertising campaigns and sponsorships to link the company’s brand to social engagement, environmental protection and sustainability. Westpac recognizes that many of its social, ethical and environmental impacts reside as much in its supplier relationships (or the ‘supply chain’) as in its own activities, and that managing supply chain sustainability is important to protect the company’s reputation and brand value. Risks associated with supply management include negative publicity, damage to a company’s reputation and actual losses of customer base. Westpac carefully manages these risks through a defined supply chain management practice.

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Realizing Efficiencies

A focus on realizing efficiencies in the supply chain can reduce your company’s supply costs while also reducing the environmental footprint of your supply chain, including energy, water and natural and synthetic material use, as well as improving worker health and, motivation, and productivity. Benefits include:

• Strong labor and health and safety practices which may result in cost efficiency and improved productivity

• Increased understanding of key processes in the supply chain, including natural resource management and extraction, logistics and manufacturing, which enables better management and stewardship of resources

• More efficiently designed processes and systems which reduce required inputs and lower costs

Productivity and efficiency initiatives require a full understanding of the different steps of the supply chain and the key social and environmental impacts and cost drivers. By addressing the root causes of issues through strong communication capabilities, in-depth understanding of business drivers and sustainability trends and shared assessments and priorities for improvement, companies can drive improvements and derive the benefits.

Creating Sustainable Products

Collaboration with suppliers on sustainability issues can foster product innovation. Companies embarking on such initiatives have added new features and performance characteristics to existing products and even generated new products. For example, sustainable products may result in fewer negative environmental impacts than traditional products or have improved end of life collection and disposal options. It is also possible for the sustainability of products to be a differentiating factor and to lead to increased sales for some companies.

Example: Ahlstrom Osnabrück, a Finnish wallpaper company, began to develop products based on the Forest Stewardship Council’s standard in the late 1990’s after a large customer in the United Kingdom announced its commitment to source products that adhered to the FSC standard. By 2010, all of Ahlstrom Osnabrück’s pulp suppliers were certified to either the FSC or the Program for the Endorsement of Forest Certification (PEFC) standards, and the company has 12 manufacturing sites with FSC Chain-of-Custody certification, allowing the company to meet increased marketplace demand for certified sustainable forest products.

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Establishing Expectations

Companies should also invest in understanding the expectations of their stakeholders including national and local governments, workers’ and employers’ organizations, nongovernmental organizations (NGOs), advocacy and activist organizations, academic and issue experts and community groups, as well as suppliers themselves.

Moreover, companies can also benefit from seeking input from customers and investors. Customer and investor demand is a primary driver for many supply chain sustainability programs, and insights from these stakeholders can help shape programs to ensure that they create the maximum return for the company. Engaging stakeholders early and regularly in the process of designing a program can help companies identify relevant standards and approaches to sustainable supply chain management. Some stakeholders are knowledgeable about, and sometimes even involved in the development of, different codes of conduct and certifications for suppliers. Examples include the Kimberly Process for jewelry, Forest Stewardship Council Certification for wood and paper products and the SA8000 for responsible labor practices across industries.

They can help you evaluate the credibility of different options and identify which might be relevant inputs for your company’s program. Emerging risks and opportunities in supply chains. From customers and employees to activists and NGOs, stakeholders are often the first to identify emerging environmental, social and economic issues in the supply chain. Companies who engage early and regularly with stakeholders have the opportunity to take a proactive approach to these issues and to partner with stakeholders rather than discovering the issues through an activist campaign. Early identification of issues through stakeholder engagement can also help companies take early leadership in comparison to peers. See Chapter 8 for more detail on multi-stakeholder collaboration.

Example: In developing its code of conduct, Westpac consulted its Community Consultative Council, suppliers and NGOs. The company included feedback from organizations such as the Australian Conservation Foundation, Australian Consumers’ Association, Australian Council of Social Security, Finance Sector Union, Human Rights, and Equal Opportunity Commission. Westpac listened and responded to the issues raised by these groups. The company also established a Sustainable Supply Chain Management (SSCM) Policy Review Committee where internal and external stakeholders’ perspectives on SSCM can be heard and used to improve its processes.

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The importance of Investors and Customers as stakeholders in Supply-Chain Sustainability

Customers and investors are increasingly expecting that companies understand and manage impacts in their supply chains. Investors want to ensure that companies are aware of and are mitigating key risks affecting their supply chains. In addition, they are interested to know how companies are creating value from supply chain sustainability. Consumers and business customers are also encouraging companies to more closely manage their supply chains. In particular, some consumers are seeking more sustainable products; while business customers may include supply chain sustainability in their supplier selection criteria.

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Establishing A Vision

Having a clear vision and objectives for your company’s sustainable supply chain programme will provide direction for your strategy and help to define your company’s commitment. A vision will be a helpful yardstick in evaluating the success of the programme and in identifying areas for continued improvement.

It is important that the development of the company’s vision and objectives are championed from the top of your company. This is critical to ensure the success of the program. Moreover, to ensure support from company leaders, it is important for executives and senior managers from all parts of the business related to the supply chain should be consulted in this process and have a say in the development of the company’s vision. Companies should consider how they can include representatives from supply management functions such as procurement and operations as well as corporate responsibility, design, marketing, logistics, quality assurance, compliance, legal, human resources and environment, health and safety functions in creating the vision, as each of these functions will have a role to play in the implementation of the sustainable supply chain program. For smaller companies, it is equally important that leaders agree on the vision for sustainable supply chains.

The output of the process should be a statement of vision and commitment. As you develop the statement, consider what is motivating the company to invest in sustainable supply chain management.

Are you driven by:

• Customer demands and concerns?

• NGO and activist claims over practices in your supply chain that affect your brand and reputation?

• Investor inquiries to understand how you are managing supply chain risk?

• Non-compliance with regulations and standards that is preventing you from doing business?

• Rising costs as a result of increased demand for and reduced supply of natural resources?

• Pressure from your industry peers who are also developing sustainable supply chain programmes?

• The company’s culture of strong emphasis and performance on sustainability?

• Business interest in addressing macro issues in the environment and society to ensure long-term sustainability of operations?

It is also important to define specific objectives and potential barriers or risk events affecting their achievement. What is the company hoping to achieve through a supply chain program? What are some long-term outcomes you want to work toward? How will a sustainable supply chain support your company’s business strategy? Objectives can vary widely, including: strategic business goals (e.g. creating long-term value for the company), operational business goals (e.g. saving cost by reducing wasted energy and materials), goals to improve your company’s reputation (e.g. wanting to change stakeholder opinions of your company), and compliance-based goals (e.g. ensuring activities meet all applicable laws and regulations). Based on the business motivations and objectives, you can craft a vision statement that reflects what you consider long-term success for a program. The vision for your company may change over time. As you become aware of issues and begin to understand and gain experience, it may become necessary to “reset” the vision.

Example: Grupo Arcor, a food products and confectionery business based in Argentina, faced a growing number of requests and inquires from clients, credit institutions, governments and business chambers about the company’s supply chain and sustainability. As a result, the company created a Supplier Social Responsibility Program, founded on a vision to integrate Grupo Arcor’s CSR Policy into its supplier relationships. Its specific objectives are: To align suppliers with the company’s CSR practices and supplier contractual policies; To guarantee minimum common standards in the company’s production and management processes based on sustainability; To increase and improve Grupo Arcor’s supply sources while favoring the economic inclusion of vulnerable groups with productive activities which are normally excluded from the competitive market. The program has three main strategies: awareness and training; progressive CSR incorporation into the supplier recruitment policy; and specific responsible purchasing projects.

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Establishing Expectations

As you begin to solidify your vision for supply chain sustainability, an important next step is to translate expectations into a clear set of guidelines that will provide direction to suppliers and internal colleagues. At a minimum, you should expect suppliers to comply with national laws and to take proactive measures to avoid environmental and social harm.3 Overview of Codes of Conduct Codes of conduct are critical to establishing and managing expectations for both customers and suppliers. They create a shared foundation for sustainability, from which supply management professionals, suppliers and other actors can make informed decisions. For many companies, a supplier code of conduct is a natural extension of corporate values statements and seen as an affirmation of existing expectations rather than a new set of requirements. When developing codes of conduct, there are a number of international standards that should also be consulted and referenced.

The Global Compact principles outline each of the areas that need to be covered for a code of conduct to be considered comprehensive. Many companies will find that other companies in their industry have already created joint codes of conduct. These codes are designed to minimize the burden on suppliers by reducing the number of standards with which they must demonstrate compliance. They are also intended to streamline the process of conducting joint audits of suppliers and to reduce the effort required of companies to design their own codes. However, there is a risk that joint codes do not address all the issue areas of the Global Compact or will not meet specific concerns for your business.

Your company should consider whether adoption of one of these joint standards will receive the full support of executive management and be used in place of, or to augment, a unique code created by company. And if you determine that it is necessary for your company to write its own code, joint codes can still be a helpful starting place. If there are no joint codes for your industry that are comprehensive, or your company determines that they aren’t appropriate for your supply chain, there are several principles and initiatives that apply to supply chain management that should be referenced. For the social elements of the code, companies should refer to the UN Declaration of Human Rights and the International Labor Organization Core Conventions and Recommendations which establish common expectations on a broad range of issues concerning work, employment, social security, social policy and human rights. Environmental topics that are most relevant will vary by industry, which makes dialogue and collaboration critical to identifying which issues are most important to cover in the code of conduct. It is also important to regularly review the contents of the code to determine whether updated language and interpretation is needed.

Key steps in development of a code include: 1. Consult with stakeholders, including suppliers 2. Base expectations on existing international norms of behavior rather than inventing new standards, to avoid undermining international law and prevent conflicting expectations for suppliers with multiple buyers 3. Consult with the cross functional teams, in particular supply management professionals 4. Consider a requirement that suppliers cascade these expectations to their supply base.

Examples: Though products are increasingly delivered online, print publications are still a significant part of Reed Elsevier’s business, and the company purchases a large amount of paper. Reed Elsevier’s challenge was to better understand the sustainability of the paper it uses. To ensure suppliers meet the ethical standards Reed Elsevier’s set for its own behavior, the company began the Reed Elsevier (RE) Socially Responsible Supplier (SRS) program in 2003. The cornerstone is the Reed Elsevier Supplier Code of Conduct, which incorporates the ten principles of the Global Compact. Suppliers are asked to sign and prominently post the Code in their workplaces. It also helps suppliers spread best practice through their own supply chain by requiring subcontractors to enter into a written commitment that they will uphold the Supplier Code. Reed Elsevier has also launched an annual paper survey asking suppliers to communicate their performance on all elements of the Code and the ten principles, not only on key environmental issues (such as mill standards, forest certification, recycled content, bleaching, resource reduction efforts) but also on how they ensure they do not use child and involuntary labor, avoid workplace discrimination and promote freedom of association.

Example: Levi Strauss & Co. was the first multinational company to establish Global Sourcing and Operating Guidelines, which outline the company’s commitment to responsible business practices everywhere it conducts business. The guidelines include two parts: (1) Country Assessment Guidelines, which help assess potential issues associated with conducting business in specific countries, and (2) Terms and Conditions, which help to identify business partners who follow workplace standards and business practices that are consistent with the company’s values.

Example: The Electronic Industry Citizenship Coalition (EICC), an industry association of more than 40 of the leading companies in the information and communications technology industries, established a joint supply chain code of conduct that provides a united voice for customer expectations, streamlines the oversight of supply chain conditions for both suppliers and customers and allows both to focus on changing social and environmental conditions. Each member company in the EICC has committed to adopting the code of conduct and implementing it in their supply chain.

Using the Code

In order to meet your company’s goals for supply chain sustainability, the code should be used as the foundation for setting internal and external expectations and as a framework for action and engagement with suppliers and other stakeholders. A new code needs to be shared throughout your company to raise awareness of the standards it describes. Supply management professionals will need to gain familiarity with the elements of the code in order to communicate it to existing and new suppliers and to explain how your company intends to work with suppliers to ensure compliance and continuous improvement. Possible mechanisms include internal websites, recurrent training particularly for new staff and regular communications from senior management to reinforce the importance of the code. Also, depending on how large and complicated your company’s structure is, it may be helpful to establish internal policies and procedures to explain how the code should be implemented by staff.

Companies often take a variety of approaches to communicating codes to suppliers including:

A special, one-time communication
This approach is often most effective when the communication comes from a senior level executive in your company such as the CEO or Chief Procurement Officer.

Inclusion of the code at first points of contact with suppliers.
Companies are including the code at the very start of new relationships with suppliers by posting it on their websites and including it in Requests for Proposals/Quotations. This helps to raise awareness among potential suppliers of the importance sustainability will play in their relationship with the company.

Integration of the code into supplier contracts.
Many companies also integrate the code into supplier contracts, or into purchase orders, by asking their suppliers to commit in contracts to complying with the expectations set out in the code.

Review of the code at a regularly scheduled business meeting.
Linking the introduction of the code to an established business process and having supply management professionals present the information will demonstrate the strength of the connection between business and sustainability performance. It can also be useful to have supply chain sustainability representatives participate in these meetings if there will be interactions between those individuals and suppliers in the future as part of the engagement and evaluation process.

Example: Telenor, a global provider of telecommunications services from Norway, implements its code of conduct through agreements on responsible business conduct with suppliers. These agreements require suppliers not only commit to the code, but also to allow monitoring and sanctions for non-compliance. Telenor also requires suppliers to cascade the company’s code of conduct requirements to their suppliers and reserves the right to monitor any tier in the supply chain.

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Determining the Scope

The next step in designing a sustainable supply chain program is to determine the scope of the program. Often companies that are just starting out in supply chain sustainability seek to, or feel pressure to, engage their entire supply chain. However, given the size and spread of most companies’ supply chains, and the resources that will be required for effective engagement, this is typically unrealistic. Many companies therefore chose to focus their program on their “key” or most “strategic” suppliers, which are often those that the company sources directly from, has significant spend with and/or views as critical to production. In addition, there may be particular “hot spots” in your supply chain, even several steps removed from your operations, which could need immediate attention because of the high level of risk. For example, electronics companies are beginning to focus on minerals that are extracted from regions affected by social conflict and where human rights violations are present. The objective of determining the scope of the program is to identify which of your suppliers you should engage with and to what extent, noting that program boundaries tend to change over time as companies become more sophisticated and capable to manage supply chain sustainability more effectively.

Example: Ford Motor Company has made it a priority to take action on forced labor in the production of pig iron, which is used to make steel, even though it is six or seven tiers removed.

Example: In the development of Telenor Group’s responsible supply chain program, Telenor formally did not exclude any tier of the supply chain from the start. Further, Telenor also defined “suppliers” to include any kind of contractual partner, except customers. The practical scoping of this on operational level is carried out through supply chain risk assessment and prioritization within practical efforts.

The Importance of Looking Beyond Supplier Relationships

Sub-tier suppliers are defined as those companies that supply to your suppliers—they are all the companies that you don’t source from directly but that provide inputs for your products and services. For example, in the information technology sector, mining companies are sub-tier suppliers because they provide the metal that goes into electronic components. Similarly, in the financial services sector, some computer hardware manufacturers are sub-tier suppliers because they provide the servers that other information technology companies use to operate data centers. Many companies struggle with whether and how to include sub-tier suppliers in the scope of their supply chain program because of the lack of direct interaction and perceived lack of influence. However, many companies and industries have found that sub-tier suppliers have the most significant challenges in addressing sustainability issues. We recommend that companies be aware of where sustainability challenges are likely to arise by mapping their entire supply chain. You can then evaluate the importance of the issue to your business and its potential impact on society to determine if or how to include it in the scope of your supply chain sustainability program.

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Mapping the Supply-Chain

To understand the appropriate scope for managing sustainability in your supply chain, you must first define what your company’s supply chain is. A supply chain map helps to trace the key activities of organizations and people involved in bringing a product or service from raw material to market. A generic product supply chain is illustrated below. Of course, the supply chain of individual products and services can look substantially different. Supply chain mapping therefore needs to be conducted on a product or service category basis. For companies in service industries, like hospitality and transportation, think of the various steps in your service and focus on the supply chain of key assets (such as ships in the transportation industry) and products that support your service (such as food in the hospitality industry). We recommend focusing on the most important product or service categories as a starting point. This could be identified by reviewing procurement contracts or your company’s cost of goods sold data, or similar primary information. For example, an automobile rental agency’s main assets are its fleet of cars and computer systems to manage reservations, and both of these categories would need to be mapped. <.p>

To map your supply chain:

Identify your major product and service categories to map. Consider your company’s largest categories of procurement spend and categories that are critical to business operations.

For each product or service category, trace the flow of materials and information. Don’t stop with your direct suppliers, go back to raw materials and original suppliers. Also, don’t make assumptions, work to understand the relationships and transactions as they actually exist. In some cases, agents or wholesalers may play key roles.

Gather information on the human rights, labor, environmental and corruption issues at every step of the supply chain. Where are there potential risks and opportunities associated with these issues? It can be very useful to discuss with peer companies, suppliers, industry bodies, civil society organizations and activists, as well as government representatives to identify issues.

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Segmenting the Supply-Chain

With a more complete understanding of your company’s supply chain, you can begin to segment your suppliers to determine how to commit resources to improve sustainability. Segmentation allows companies to focus on the most critical elements of the supply chain. Good segmentation is a balance between acknowledging that some risk will always exist but that specific risks need to be addressed to avoid negative impacts to your business and to society. There are a number of different criteria to consider in supply chain segmentation including, but not limited to:

Risk to Society: Where are the biggest risks to human rights, labor, the environment and ethics in your supply chain?

Business Risk: What are the risks in your company’s supply chain that could impact ability to do business and meet the vision set forth for supply chain sustainability?

Risk to Economic Development: What are the risks for exclusion of small and medium sized enterprises (SMEs) when introducing code demands, monitoring and auditing schemes?

Both business and societal risk can be influenced by:

Spend: Which suppliers does your company have the highest spend with, including direct and indirect spend, and potentially therefore the most influence with?

Country: Which countries do your suppliers operate in, and which of those countries are high risk because of weak legal and regulatory frameworks, high levels of corruption, etc.?

Category: Which suppliers, including suppliers for products and processes, are most business critical for your company?

Tier: Which suppliers sell to your company directly, and which are sub-tier suppliers?

Nature of transaction: Does the transaction contribute to increased or decreased transparency and accountability for conditions in the supply chain? For example, sub-contracted labor, brokers, agents, and middlemen may lead to gaps in knowledge, awareness and influence.

There are two main steps to mapping risk in the supply chain:

1. Identifying Risk Events. Events, such as underpayment of wages at a factory in your supply chain, can create risk for your business. Internally – and externally-driven events that may not only be against the law but may also affect the achievement of your sustainable supply chain and business objectives must be identified. Risks can include business continuity, regulatory, reputation, market acceptance and customer requirements risks. External stakeholders may also identify other social, environmental, economic and governance risks which your company will have to evaluate for their potential impact on your business.

2. Assessing the Likelihood and Severity of Risk Events. Risk events should be analysed to understand their likelihood and potential impact. This will determine how they should be managed under your company’s supply chain sustainability program.

Many companies find it helpful to plot each risk event on a grid, where the two axes are “likelihood of occurrence” and “severity of consequences,” as in the mapping on the left. It is also possible to include additional dimensions and inputs to create the risk ranking. For example, stakeholder perception of risks 29 may be different, and your company may want to take this perspective into account as well in setting priorities for action.

Finally, to use this analysis to effectively segment your company’s supply chain, you will need to translate risks to types of suppliers. For example, an information technology company may find that many of its highest risks are focused on the raw minerals that are used in manufacturing its products. It would therefore want to focus its supply chain sustainability program at the base of its supply chain program. A pharmaceutical company, on the other hand, may find that many of its highest risks occur during transportation of its products when the integrity of its medicines and patient safety might be at risk. This company would want to engage with its logistics suppliers to address potential business ethics, labor and business continuity concerns. Some risks, such as greenhouse gas emissions, packaging waste and environmental management in logistics and transportation are common to many industries, and depending on the scale of activity, might require different interventions.

Example: Through its supplier mapping exercise, CEMEX, a Mexican building materials company, realized that 80 per cent of the company’s spend in the supply chain goes to 20 per cent of its suppliers. Given the significant size of its total supply chain, and the realistic ability of the company to affect change in suppliers, CEMEX determined that it could most effectively create sustainability improvements and realize business value from focusing on that 20 per cent.

Example: ArcelorMittal, a mining company based in Luxembourg, has a USD 50 billion supply chain extending from basic raw materials like iron ore to sophisticated downstream products and services. The company has mapped out the most significant sustainability related risks and opportunities for each category of the supply chain based on desk research as well as input from internal experts, users and the respective category purchase teams. ArcelorMittal has found that mapping risks in a method that is both robust, but also simple and aligned with the organization’s core risk management approach, is essential to crystallize the key priorities to be addressed. The company chose a 2 x 2 matrix (Impact x Likelihood) for each purchase category and held workshops with participants from the wider internal work-groups to discuss the challenges as well as opportunities in each of these categories. This process will need to be repeated on a regular basis to ensure the risk map remains up to date.

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Engaging with Suppliers

The ultimate goal of engaging with suppliers is to develop a shared mindset about sustainability issues, to build supplier ownership of their sustainability vision, strategy and performance and to work more closely with suppliers with shared priorities. There are many different levers companies can use to improve sustainability in the supply chain. The mechanisms described in this chapter are focused on raising awareness and encouraging suppliers to integrate and drive sustainability into their business through setting expectations, ongoing monitoring and partnering with suppliers to overcome barriers to improvement. The figure below shows the tools that are used by companies across a wide range of industries to engage with suppliers on supply chain sustainability. Each has specific purposes, and it is important to have a strategic process to determine which supplier engagement tools to use and to what extent.

The first step to improving sustainability in the supply chain is to raise awareness of your company’s expectations for sustainability performance. In addition, there are two additional communication methods to consider:

Using existing customer-supplier communications.
Every company has some existing processes or methods to communicate with suppliers. These can vary from very basic to very sophisticated approaches. Often these communications are led by supply management professionals and focus on the business aspects of the relationship. You should consider how to regularly incorporate sustainability expectations and dialogue into these communications to help build shared mindset, reinforce key messages, and provide the opportunity for feedback. This approach has the benefit of providing a dialogue platform where the supplier can in turn raise issues of constraints or tensions created by your company’s demands (such as short lead times or many changes to order specifications). Having the right parties around the table can help identify ways to meet both the business and sustainability requirements.

Adding sustainability to the agenda of supply chain forums.
By participating in supplier forums and talking about sustainability expectations in your industry, you can help identify organizations that share your company’s issues and priorities. These discussions, which can include suppliers, but also peers, partners, policymakers and a broad range of other stakeholders, allow you to share details about your company’s priorities and expectations, and learn from others about their approaches. These forums can also provide an important opportunity to get feedback on your program and identify areas for improvement, as well as to build support for addressing systemic challenges that require a shared response.

Example: In 2006, the Fuji Xerox Co., Ltd., a Japanese imaging technology company, began the implementation of an ethical procurement program to address customers’ needs and respond to their concerns related to management at environmental and labor issues in manufacturing facilities, to minimize manufacturing and brand risks from supplier noncompliance and t