INFINITE SUM ETHICAL SOURCING 2017

Transcription

1 INFINITE SUM ETHICAL SOURCING 2017 The demand for Ethical Sourcing is gaining momentum, and changing the landscape of global sourcing, production, and processing around the world.

2 TABLE OF CONTENTS An Increasingly Challenging Sourcing Landscape So What Is Ethical Sourcing? The Infinite Sum View Five Key Steps To Ethical Sourcing Baseline Design And Build Implement Improve The Business Case for Ethical Sourcing Alliance Foods: Winning Business by Raising Ethical Standards Starting on Your Ethical Sourcing Journey Infinite Sum s Roadmap to Ethical Sourcing How We Can Help You Succeed on Your Ethical Sourcing Journey Infinite Sum Ethical Sourcing TOC

3 CHILDREN ARE USED IN PAKISTAN TO PRODUCE SURGICAL EQUIPMENT FOR THE EXPORT MARKET PHOTO: INTERNATIONAL LABOR OFFICE

4 AN INCREASINGLY CHALLENGING SOURCING LANDSCAPE Managing today s complex, global supply chains is increasingly challenging, with the risk of disruption a common fear for many companies, particularly those sourcing from emerging markets. Climate change, extreme weather and resource scarcity can send raw material costs soaring and threaten the security and cost of supply. Meanwhile, lack of visibility of suppliers ethical and environmental practices creates further risks. The results can be catastrophic, with high profile scandals causing serious reputational damage. Mattel suffered a dramatic loss in consumer confidence in 2007, when it was revealed that nearly one million of its toys [1] had without its knowledge been painted with lead. The 2013 Rana Plaza building collapse in Bangladesh caused significant brand damage for global fashion brands and retailers, while the UK s horse meat scandal resulted in intense scrutiny of food companies, calling into question transparency and quality standards across the food supply chain. Following the sweatshop revelations of the early 1990s, Nike has gone on to transform its business, becoming a sustainable business leader. Today, stakeholders continue to push for radical transparency, creating ever more pressure to build resilience and invest in ethical sourcing. [1] New York Times Article, August 2, 2007: Lead Paint Prompts Mattel to Recall 967,000 Toys Infinite Sum Ethical Sourcing Page 2

5 PHOTOS: NICOLA BAILEY In the days following the collapse of Rana Plaza, cranes plow through the wreckage in search of bodies, while thousands of people like this young boy (inset), hold up photographs of loved ones who are missing.

6 SO WHAT IS ETHICAL SOURCING? Perceptions of ethical sourcing differ widely across industries, and even within companies, with definitions ranging from protecting workers rights to environmental compliance to sourcing from politically stable countries. Within the same company, views often differ according to job role and seniority. Purchasers those at the coal face often focus primarily on negotiating low order prices, in order to achieve their personal performance goals. However, by accepting low prices, suppliers are unlikely to be able to pay workers fair wages or invest in improving product quality, health and safety and labor conditions. In competitive markets where suppliers typically engage in a race to the bottom to win business, they may struggle to meet previously agreed ethical and quality standards, including those set out in companies Codes of Conduct. Similarly, inaccurate forecasting, last minute ordering and order changes can result in illegal sub-contracting, excessive overtime hours and harsh treatment of workers. Ethical issues in the supply chain can also be generated by the actions of some (not all) middlemen (such as agents and brokers), who may push the supplier for lower prices without the knowledge of brands and retailers. The more people involved in a transaction between a retailer and a supplier, the less transparent it becomes, and the higher the possibility that corruption may occur, leading to a domino effect with suppliers being forced to cut corners. THE INFINITE SUM VIEW Ethical sourcing is about taking a responsible, holistic approach to sourcing considering a whole range of political, economic, social and environmental issues and giving weight to both ethical and commercial criteria in sourcing decisions. Quite simply, ethical sourcing is still perceived by many organizations and executives as a nice to have today, whereas it will become the norm over the next few decades, propelled by increasingly robust legislation and pressure from customers and investors. Peter Agnew President and Chief Operating Officer Infinite Sum Infinite Sum Ethical Sourcing Page 4

7 ETHICAL SOURCING ROADMAP 5 KEY STEPS 5 KEY STEPS TO LEAD Ongoing To insure client continues to engage in ETHICAL SOURCING best practices and becomes a leader in the implementation and advocacy of ethical sourcing IMPROVE 6 Months To measure the success of current initiatives, make recommendations for improvements, and report on progress IMPLEMENT 8 12 Months To ensure policies and procedures manifest in practice across business operations and supply chains DESIGN AND BUILD 3 4 Months To create a foundation of good policies and procedures from which to build ethical sourcing practices BASELINE 2 3 Months To examine our client policies and procedures as they relate to ethical sourcing in business operations and supply chain STEP 1 STEP 2 STEP 3 STEP 4 STEP 5

8 1. Baseline: The first step in the roadmap is to commence with an ethical sourcing policy and management systems gap analysis. The findings of this review will form the baseline for improvement from which progress will be measured throughout the course of the program and ongoing. GOAL To examine our clients policy and procedures as they relate to ethical sourcing in its business operations and supply chain. Timeframe: 2 3 Months Workstream Policy Business Operations Supply Chain Expected Outputs Baseline for Improvement Update Procurement Policy to address elements of ethical sourcing Adapt our clients Supplier Code of Conduct as required Develop a Human Rights Position Statement Join relevant industry peer or multi- stakeholder initiatives and participate in relevant policy discussions. Update supplier evaluation processes with minimum ethical sourcing requirements Update risk register with ethical sourcing and human rights considerations Develop staff education on ethical sourcing including human rights Develop performance targets or incentives for procurement staff on ethical sourcing Participate in a third party assessment of ethical sourcing practices Update preferred supplier list Update supplier engagement processes to include ethical sourcing considerations Update supplier contract templates with clauses that promote ethical sourcing, including the verification and resolution of ethical sourcing claims Develop key performance indicators for suppliers which correlate with ethical sourcing Ethical Sourcing Policy and Management Systems Gap Analysis. The results of this analysis have formed the baseline findings above. Infinite Sum Ethical Sourcing Page 6

9 2. Design and Build GOAL To create a foundation of good policies and procedures from which to build ethical sourcing practices. Timeframe: 3 Months Workstream Policy Business Operations Supply Chain Expected Outputs Baseline for Improvement Update Procurement Policy Adapt our client Supplier Code of Conduct as required Develop a Human Rights Position Statement Business Operations Join relevant industry peer or multi- stakeholder initiatives and participate in relevant policy discussions. Define risk ratings and categories for ethical sourcing Develop a stakeholder engagement matrix, including an internal cross-functional group to consider ethical sourcing Define staff reporting requirements and responsibilities for progress against targets Complete an Infinite Sum audit of client organization Define supplier groups Apply an initial supplier risk rating based on supplier status as well as spend, country and category risk Disseminate supplier self- assessment questionnaire Ethical sourcing roadmap Human Rights Position Statement Updated Procurement Policy Stakeholder Engagement Matrix Results and corrective action plan from Infinite Sum audit Supplier Self- Assessment Questionnaire Template Infinite Sum Ethical Sourcing Page 7

10 WE OWE IT TO THE EMPLOYEES OF OUR SUPPLIERS THAT THEY ARE TREATED FAIRLY AND WITH RESPECT THE CEO OF A FORTUNE 500 INFINITE SUM CLIENT

11 3. Implement GOAL Ensure policies and procedures manifest in practice across our clients business operations and supply chains. Timeframe: 6 8 Months Workstream Policy Business Operations Supply Chain Expected Outputs Baseline for Improvement Publish Procurement Guidelines Disseminate Supplier Code of Conduct Apply relevant statements into business operations Train purchasers across all departments on procurement policies and guidelines Develop staff education on ethical sourcing including human rights Update procurement policies and procedures to address new practices Update tender process to include ethical sourcing requirements Integrate ethical sourcing roadmap into broader company strategy and roadmap Develop due diligence criteria for low, medium and high risk suppliers Implement corrective actions from Infinite Sum audit Analyze and publish results from Supplier Self Assessment questionnaire Host Key Supplier Roundtable Develop supplier information packs based upon any identified needs Disseminate supplier Code of Conduct and acknowledgment of compliance form Review supplier contracts and develop verification clauses on ethical sourcing Engage two key/strategic suppliers in supply chain mapping at multiple tiers Procurement Guidelines Staff education modules on ethical sourcing Purchasing policies and procedures embedded with relevant clauses Tender process updated with ethical sourcing requirements Report on results from Supplier Self- Assessment questionnaire Supplier contracts updated with a right to verify clause 10+ suppliers to attend first supplier sustainability roundtable Infinite Sum Ethical Sourcing Page 9

12 4.Improve GOAL To measure the success of current initiatives, make recommendations for improvement and report on progress. Timeframe: 6 8 Months Workstream Policy Business Operations Supply Chain Expected Outputs Baseline for Improvement Review implementation of Human Rights Position Statement Review implementation of Procurement Policy Review Implementation of Supplier code of conduct Review employee knowledge on ethical sourcing policies and targets Review the implementation of Ethical Sourcing Roadmap, seang goals and activities for continued improvement Develop remediation guidelines based on findings / experiences from previous phases Explore if procurement practices (price and lead- time) impact supplier performance Review and close out corrective actions from Infinite Sum audit Conduct a supplier satisfaction survey on supplier engagement and ethical sourcing Strategic suppliers have updated policies and procedures as they relate to ethical sourcing First tier /Strategic suppliers are allocated an ethical sourcing risk rating Host a second Supplier Sustainability Roundtable 100% suppliers signed against Supplier Code of Conduct (CoC) 100% visibility of first tier suppliers All third party suppliers completed basic self assessment questionnaire Remediation guidelines Published supplier engagement case- study Published customer success story Ethical Sourcing Roadmap version 2 Report on progress against roadmap to all in- house staff and where appropriate on the company website. Infinite Sum Ethical Sourcing Page 10

13 THE BUSINESS CASE FOR ETHICAL SOURCING Investing in an ethical sourcing program sets companies on course for sustainable growth and effective competition in the marketplace. It s a long-term commitment, requiring determination, investment and a shift in mindsets and practices across your organization. But the rewards far outweigh the risks. By not investing in ethical sourcing, you stand to: Lose market share to competitors As customers increasingly demand ethically sourced goods, companies investing in ethical sourcing are likely to steal a march on their competitors. Increase supply chain vulnerability Neglecting to address social and environmental issues leaves your supply chain exposed to multiple risks, from worker unrest and human rights scandals to illegal sub-contracting to environmental pollution. Damage brand reputation High profile supply chain controversies threaten to undermine consumer confidence and deter investors. Respond reactively to legislative changes Without the foundations for ethical sourcing, companies will be harder pressed to respond effectively to evolving legislation, such as the UK s Modern Slavery Act. Underestimating the level of commitment involved in ethical sourcing can also create risks. Without engaging effectively with ethical sourcing from the outset, companies risk coming unstuck or not being able to maintain the necessary level of rigor. Investing in ethical sourcing allows you to: Grow market share and compete effectively in the marketplace. For example: VV VV Unilever s Sustainable Living Brands are growing 30% faster, year on year, than the rest of its business. [2] Three out of four millennials are willing to pay more for sustainable products, according to market research giant Nielsen. [3] Strengthen customer relationships Negotiate opportunities for long-term contracts or increased business by demonstrating robust ethical sourcing credentials. [2] Unilever Website Article (unilever.com): Sustainable Living Brands Leading Unilever Growth [3] Nielsen Website Article (nielsen.com): Green Generation: Millennials Say Sustainability Is a Shopping Priority Infinite Sum Ethical Sourcing Page 11

14 A LLIANCE FOODS: WINNING BUSINESS BY RAISING ETHICAL STANDARDS Alliance Foods Inc is a major food broker and merchandiser servicing many leading retail organizations in North America. As its retail customers became increasingly focused on ethical sourcing, the company quickly realized that a rigorous ethical sourcing program would be vital to retaining and growing business with key customers. Following the Infinite Sum Ethical Sourcing Roadmap, we helped Alliance Foods to develop and implement an ethical sourcing program supported by robust policies and procedures. We began by evaluating its key suppliers, many of whom were based in emerging markets, particularly Central and South America. We conducted on-site audits to evaluate supplier performance against required standards, and worked with Alliance Foods and its suppliers to develop corrective action plans. Overall, the company achieved a stronger supplier selection process, consolidated its supply network, and generated measurable improvements in suppliers ethical and technical performance. In particular, its Tier 1 strategic suppliers raised their ethical standards, achieving, on average, a 7% higher ethical audit score. Importantly, this led directly to business benefits including increased productivity, improved quality and shorter lead times. By meeting its retail customers ethical standards, Alliance Foods was able to strengthen its relationship with its number one customer, winning additional business. It is also using its ethical sourcing credentials as a competitive advantage to win business from prospective customers. Building on this success, we are helping Alliance improve the ethical performance of tier 2 suppliers, as we help the company to continue its ethical sourcing journey. Infinite Sum Ethical Sourcing Page 12

15 STARTING ON YOUR ETHICAL SOURCING JOURNEY Before developing your ethical sourcing program, it is important to determine how you will overcome practical barriers such as investment, resources and specialist expertise. Having the people, processes and systems in place and qualified specialists on the ground in your key suppliers production countries is vital to creating an effective program. Infinite Sum s Roadmap to Ethical Sourcing We recommend implementing ethical sourcing over an month time-frame. The Infinite Sum Ethical Sourcing Roadmap is designed to be realistic and achievable, giving our clients the tools to embed ethical sourcing considerations into core business operations and supply chain practices. 1. Review and Analyze Understand who across the organization holds decision-making responsibilities that impact on ethical sourcing, and how these functions interact. Review company policies across sourcing, procurement, human rights and environment evaluate your Supplier Code of Conduct and management systems, and commission an independent review of existing ethical sourcing practices. Identify gaps and opportunities for improvement, and begin creating minimum ethical requirements and KPIs for suppliers. This initial assessment will form the baseline from which you ll measure progress. Where possible, we recommend integrating this process of review and analysis into a broader, strategic program of supplier evaluation, cost-cutting and consolidation. 2. Design and Build Create your roadmap, drawing on your baseline analysis. Develop and strengthen policies and procedures (including your procurement policy) to lay a strong foundation for ethical sourcing practices. Ask Tier 1 suppliers to complete a self-assessment, and become a member of the Supplier Ethical Data Exchange (Sedex) in order to share information on their ethical, health and safety, labor and environmental practices. Determine how to rank suppliers according to ethical risks, and consider how to give greater weight to social and environmental issues in sourcing decisions. Establish a cross-functional team to build momentum and engage employees in factoring ethical concerns into their daily activities. Identify opportunities to collaborate with stakeholders to address shared or systemic challenges, and participate in relevant policy discussions. Infinite Sum Ethical Sourcing Page 13

16 WHEN UNFAIR NEGOTIATION TACTICS ARE USED, IT S NOT UNCOMMON FOR OFFSHORE SUPPLIERS TO FURTHER CUT COSTS BY OUTSOURCING TO LOW-COST, UNAPPROVED SUB-CONTRACTORS

17 3. Implement Move from words to action by putting your updated policies and procedures into practice across your business and supply chain. Train employees on ethical sourcing, and engage purchasers with your new procurement guidelines, linking their incentives to improving suppliers ethical performance. Update your tender process with ethical requirements, and communicate any changes in Supplier Code of Conduct, contractual requirements or audits and assessments to suppliers, starting with your most strategic suppliers. Begin implementing the corrective actions recommended through the independent review of ethical sourcing practices, and evaluate the results of your suppliers self-assessment. Importantly, explore how to integrate ethical sourcing into core business strategy. 4. Improve Measure the success of your ethical sourcing policies and practices, and partner with suppliers for continuous improvement, including by co-creating corrective action plans. Invite their feedback on your new ethical sourcing requirements. Ensure that all suppliers have signed your updated Code of Conduct, evaluate strategic suppliers thoroughly, and ensure they have a risk rating. Consider whether you now have complete visibility of your first tier. Begin mapping your tier 2 (and 3) suppliers to build a better understanding of the risks they pose. Consider how to engage purchasing teams in adopting practices that allow suppliers to invest in improving ethical standards. Encourage healthy competition between suppliers on ethical innovation and performance. Report publicly and transparently on progress, and encourage further action within your organization. 5. Lead Become a leader on ethical sourcing in your industry by continuously building on your progress, and acting as a voice for change, encouraging others to begin their own ethical sourcing journey. Remain agile and able to adapt your ethical sourcing practices as the nature of your social and environmental challenges evolves. Above all, seek to ensure that ethical sourcing practices become and remain truly ingrained in core business practices. Infinite Sum Ethical Sourcing Page 15

18 HOW WE CAN HELP YOU SUCCEED ON YOUR ETHICAL SOURCING JOURNEY Our experienced supply chain and sourcing experts can support you throughout your ethical sourcing journey from conducting your initial baseline analysis to integrated ethical sourcing into core business strategy. Building the business case We help you define what ethical sourcing means to your business, and how it could create value for your organization. Importantly, we help you build a robust business case for change to present to senior decision-makers. Analyzing and evaluating We help you evaluate and strengthen your ethical sourcing policies in line with industry and global best practice, identifying opportunities for improvement. Our experienced auditors help you gain visibility of social and environmental risks posed by strategic suppliers, and set a baseline from which to measure suppliers ethical performance. Creating a realistic roadmap and achievable goals We help you create an ambitious ethical sourcing vision, and a robust, realistic roadmap, supported by achievable goals and a phased approach to creating change. Increasing supply chain transparency We help you forge more direct relationships with suppliers, increasing transparency by identifying middlemen who add minimal value. Where middlemen (such as distributors) are required, we work closely with them to ensure visibility over commercial dealings with suppliers. Laying the groundwork for success We help you build effective policies, procedures and practices to embed ethical sourcing considerations within your core business strategy and across your supply chain, and develop effective platforms to communicate your progress to stakeholders. Delivering change on the ground We help you raise supplier performance in your sourcing countries, working closely with you and your suppliers to deliver measurable, lasting improvements. Our supplier management and sourcing specialists support clients on the ground in more than 30 countries. Please visit for more information. To understand how we can help you on your ethical sourcing journey, please telephone us, or info@infinitesum.com. Infinite Sum Ethical Sourcing Page 16

19 Copyright 2017 Infinite Sum, All Rights Reserved This document is produced by Infinite Sum to use as a general guide. It is not intended to provide any specific advice on your circumstances. If you require any advice, or additional details, on matters referred to herein, please contact Infinite Sum directly and we will be pleased to assist you. This document makes descriptive references to other organizations. The use of these organizations, in name or implied, is not intended to represent or infer a relationship or an association between Infinite Sum and the organizations referenced. Infinite Sum Ethical Sourcing Page 17

20 OBTAINING COMPETITIVE OFFSHORE PRICING FROM A REPUTABLE AND FAIR SOURCE IS ACHIEVABLE

21 Infinite Sum Inc Glencoe USA Published by Infinite Sum Inc Infinite Sum Inc. All Rights Reserved Date: 03/2017