SAP’s Salvatore Lombardo on icebergs, fair labour practices and supply chains
Like icebergs, which only show about one-fifth of their overall mass above the water’s surface, supply chains rarely present a full view of their end-to-end activities at first look. This lack of visibility into the supply chain and the procurement processes that feed into it can cause damaging outcomes for companies striving to maintain compliance with both government regulations and consumer demands for ethical business practices. Much like ships that can’t see what lies beneath the surface to differentiate between a floe berg or iceberg, businesses run the risk of sinking due to a lack of visibility into their own procurement processes – and those of their trading partners which they rely on for goods and services – beginning with sourcing and extending all the way to payment.
Consider the topic of fair labour practices, which is rapidly gaining importance among consumers. According to research from Markstein and Certus Insights, 70% of consumers want to know what brands are doing to address social and environmental issues. Just 17% said that they don’t pay attention at all. These numbers reflect a highly engaged consumer base that tracks the activities and workforce practices of the brands they purchase from.
While many companies are committed to maintaining fair labour practices within their businesses, compliance does not stop there, at least where the consumer is concerned. Today’s consumers want to ensure that the products they purchase aren’t just sold by socially responsible companies, they demand that every link along the supply chain down to the original sourcing of materials be equally committed to enforcing fair labour practices. Therein lies the danger of not knowing an iceberg’s size—or the workforce practices of your supply chain’s tier one, tier two, and tier three suppliers. Visibility is essential.
Transparency and Visibility in Procurement Magnify Fair labour Practices
We are seeing an increased focus on consumers choosing everything from bananas and chocolate to diamonds and smartphones—that are made, grown, harvested, assembled, or mined by companies that do not use child labour or forced labour at any point in the supply chain. Companies can gain this critical information when they have a clear view of their procurement processes and end-to-end supply chain and transparency amongst their trading partners.
When companies have that level of visibility, they can choose to only partner with suppliers that share their values and commitment to ensuring that all materials, direct and indirect, are ethically sourced and produced using fair labour practices. Establishing trust and transparency throughout the supply chain enables businesses to confidently declare that their products are ethically sourced, created in an environmentally friendly way and that workers are treated humanely.
Organisations need to examine and address social responsibility along their supply chains, not just because failing to do so could be disastrous for their reputation and sales, but because it’s the right thing to do. Responsibility ripples beyond what your company is doing to comply with ethical standards – out to all the organisations with which you do business. You need assurance that each trading partner is acting responsibly. That requires looking under the surface at the entire iceberg to understand the practices of not only your strategic suppliers but your tier two and tier three suppliers too.
Companies concerned with gaining and retaining market share absolutely need to make sure that every one of their trading partners follows agreed-upon standards and have the ability to report on the social responsibility measures infused throughout the supply chain. This requires both trust between trading partners and a commitment to transparency regarding each other’s business practices.
Digital Procurement Boosts Social Responsibility
A fur The risks of procuring materials from suppliers that don’t protect their workers are real. Beyond damaging the brand’s reputation and driving away consumers, legal mandates regarding fair labour practices within supply chains have been put in place in nearly every country around the world.
Laws are changing to protect workers and vulnerable populations, requiring multi-national companies to trace deeper into their supply chains and maintain transparency about their business practices when it comes to fair labour. Some regulations require that companies proactively report on their human rights efforts while others require that companies demonstrate their due diligence if human rights abuses are discovered in their supply chains.
Most recently, in June 2021, the German Federal Parliament approved a draft bill on corporate due diligence in supply chains, which intends to protect human rights and ensure sustainable production. The resulting Supply Chain Due Diligence Act prohibits child labour, forced labour, slavery, and servitude. German businesses must now identify and assess human rights and environmental risks and establish an adequate, effective risk management system.
Identifying and avoiding these risks is less challenging for organisations that have embraced digital procurement. By enhancing visibility across every category of spending, digital procurement solutions enable businesses to pursue compliance with these ethical standards. When companies gain true visibility into their suppliers’ labour practices – from the iceberg’s visible tip to its hidden base – they can be sure to engage only with socially responsible suppliers.
Ultimately, companies must commit to maintaining high ethical standards in order to survive with today’s socially conscious consumers. But it isn’t all about reducing risk and maintaining market share. As good corporate citizens, procurement leaders must step up and take on more responsibility for protecting the vulnerable from dangerous workforce practices. It’s not only good for business; it’s good for our world.
Salvatore Lombardo is Senior Vice President & Chief Product Officer, Procurement Solutions, at SAP