Providing news, views and unrivaled content for the global sourcing community

 

 

To Focus on Sustainability, Apply a Risk Lens in Your Supply Chains

Posted: 04/10/2018 - 00:19
Taking a look at your supply chain with a sustainability lens.

In my nearly three decades focusing on various areas of supply chains – from early years studying global trade and commerce, to witnessing today’s real impact on human lives, environment and climate change – there has been one constant: The measurement of sourcing success continues to be dictated by cost savings alone. We fail to acknowledge one critical element in these perceived “savings,” and that is they have a lifespan – and it’s a short one. 

Without taking the implications of labor conditions and environmental and sustainability impacts into consideration, these savings inevitably erode quickly. Suppliers succumb to pressure to maintain competitive prices and consequentially resort to indulging in unfair labor practices such as low pay or bonded labor, with little heed to societal impact. When we consider cutting costs, we don’t always consider the hidden cost to human life and the environment. 

Companies with sourcing practices that focus exclusively on price, quality and efficiency do gain in the short term. Looking at the long-term view based on current market trends, however, can prevent risks and damage to reputation that could erode savings and benefits over time, sacrificing long-term health of the company. Looking beyond immediate ROI at long-term risks and success is fast becoming the key value measure for sourced savings. 

Shift to the current decade – let’s call it the “Decade of Disruption.” New concepts from ridesharing to home sharing are the new normal. This shared economy principle meets the rising needs of increasing population densities. Another disruptive trend is emerging – new retirees to Gen Zers, as consumers, want companies to do good, for cost and convenience reasons of course, but also rising awareness of depleting natural resources and increasing social struggles. 

Research findings have also shifted. In a Harvard Business Review Study, research found that companies with strong sustainability impact performance outperform the market in medium and long term. Companies experience significantly higher sales growth, return on assets, profit and cash flows from operation. And, an Oxford University study found that 90 percent of companies focusing on sustainability levers to source and develop their supply chains report lower cost of capital. 

Regulations: A Necessary Evil 

Policy and regulations are necessary evils in ensuring compliance. Necessary, because compliance becomes a driving force for entities with deep pockets to redirect some of that investment into thinking beyond cost savings. Albeit, this is still driven in many cases by overall costs. A business case for investing in forced labor awareness begins with statistics on the millions of slave laborers and a fear of ‘what if.’ What if the next media report exposes slavery in one of your supply chains? A shift from the cost of doing business to the cost of fixing the reputation damage can be substantial. 

Cost alone is not sufficient to make this a sustained effort. It is only when the people on the front lines -- the procurement and sourcing specialists -- can drive the focus on what is right, regardless of costs and reputation, that we can see real sustained change take place. Costs can still be absorbed by a shared responsibility, supplier co-development can foster long-term sustained relationships and reputation can be protected. 

This all seems obvious; sourcing professionals know they must look at risks and sustainability factors. The problem is the ever-shifting and growing information, and the volume of factors to consider. This is where technology can help. Let us drill down on one example, which unfortunately has long-standing roots even in modern society, but recently has gained momentum and focus to prompt the question of ‘how.’ 

Forced Labor and the Impact 

The International Labour Organization defines forced labor as “All work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily.” Modern slavery with human trafficking is defined as “Traditional practices of forced labor, such as vestiges of slavery or slave-like practices, and various forms of debt bondage, as well as new forms of forced labor that have emerged in recent decades, such as human trafficking also called ‘modern-slavery’ to shed light on working and living conditions contrary to human dignity.” With over 24.9 million individuals trapped in forced labor globally, it’s a problem companies cannot ignore. 

What can procurement do? 

  • First, acknowledge that no one company alone can completely remove forced labor. Apply the risk lens to seek out the knowledge and awareness using tools like the map below, driven by data mining and data science technologies, to understand the risks within each supply chain the business is involved.
  • Partner with peers in the industry to identify collective influence potential for change. 
  • Partner with your own suppliers in the regions or industries with exposure and encourage and reward best practices. 
  • Finally, share best practices – share the opportunities to do good. 
  • Acknowledge that ‘incremental progress’ is better than no progress. Even a reduction of ‘one’ individual removed from bondage or child labor conditions is an enormous improvement for that one individual and his or her family and community. 

Yes, forced labor is a tough one to tackle. But the question should be ‘why not?’ When I travel, I engage with people to openly ask for perspectives on what we as individuals can do beyond governments, institutional policy makers and those with deep pockets to help improve livelihoods, protect the Earth and hopefully drive wealth to the marginalized. It is amazing to see this resonating as I hear personal journeys and stories of inspiration. It is this hope and belief that will help develop sustainable supply chains through ethical sourcing when each one of us in the procurement and supply chain profession acts with purpose. 

I call upon readers who have gone beyond cost savings to focus on the impact to people and the planet in making supply decisions to comment with their stories below.

About The Author

Padmini Ranganathan's picture

Padmini Ranganathan is Vice President, Products and Innovation for Supplier Risk, Compliance and Sustainability Solutions, SAP Ariba.  In this role, Padmini is responsible for defining and delivering solutions to drive transparency, impact and shared accountability, leveraging key technology areas of network, big data tools and data science.

Prior to Ariba, Ms. Ranganathan was with SAP for seven years, developing and delivering industry specific use cases, solutions and analytic applications based on SAP’s market leading Analytics portfolio.

Ms. Ranganathan brings a wealth of experience in the domain area of supply chain and procurement having worked at Ariba as a product manager and at Oracle as a technical consultant and product management in the areas of order management, inventory & distribution, procurement and manufacturing.

Ms. Ranganathan is a passionate advocate for bringing technology to business users simplifying and enriching daily work and decision making, and has been a sought after speaker at key notes, webinars, events and interviewed by the media.

Ms. Ranganathan has a post-graduate diploma in computer science from UC Berkeley, California, and a bachelor’s degree in commerce with a major in Cost & Management Accounting from Bangalore University, India.