Global Trade and Supplier Responsibility: Creating a Sustainable Code of Conduct

By TradeShift

The headlines never seem to change: global enterprises involved in environmental disasters, violations of labor laws, questionable ethics, sub-par health and safety standards, negligent data practices, and the list goes on. In many cases, it’s not the enterprise itself that’s the problem, but the entities within its supply chain that are the root cause. Inevitably, this reflects poorly on the buying organization. Buying organizations are increasingly investing resources to support a healthy and secure supply chain and to add value to suppliers, especially when the consequences of looking the other way could mean a big price tag.

Today, just about every Fortune 1000 company has a formal corporate social responsibility (CSR) program and reports regularly on activities. And integral to CSR is supplier responsibility. In our view, there are two sides to a supplier responsibility agenda:

  1. Hold your suppliers accountable to the ethical, social, environmental, health, safety and labor standards you’ve set forth.

  2. Treat your suppliers fairly and support your supply chain by helping to improve both financial and non-financial performance (e.g., helping to improve their capabilities and provide training).

Know your supplier

These days, many companies publish their supplier responsibility initiatives (e.g., Apple), and include audits and reports that are made public. For example Global Reporting Initiative (GRI) is a non-profit organizations that drives sustainability reporting by all organizations and offers a framework and guidelines. Most supplier responsibility programs include (or should include) a supplier code of conduct that serves as a manual or a guideline that communicates standards to suppliers. For example, there is a widely used code of conduct for the electronics industry, Electronic Industry Code of Conduct (EICC). A code of conduct will typically include:

Support your supplier

Having a supplier code of conduct helps to ensure various standards are met throughout your supply chain, but organizations should also be creating programs to support suppliers with education and training around their CSR initiatives. The following are some of the ways enterprises are supporting their suppliers:

  • Fair Treatment: A supplier responsibility program must include fair treatment of suppliers. This is mainly focused on the sourcing process and selecting vendors based on value, performance and price. Enterprises should be able to provide justifiable and transparent selection decisions and ensure confidentiality of supplier information.

  • Capability Building and Training: Capability building within specific industries and hosting of supplier workshops. For example, Apple created an environment, health and safety academy for suppliers. This 18-month academy offers 25 courses on topics such as environmental regulatory compliance, environmental aspects identification and evaluation, water management, air pollution control, and cleaner production. Such training can be applied to multiple tiers of suppliers throughout the supply chain.

  • Continuous Improvement and Monitoring: Focused on driving improvements throughout the supply base with regard to social and environmental responsibility. Organizations can support suppliers by helping to monitor improvements, implement self-assessments and self-monitoring, etc. Partner with suppliers that are falling behind to address any gaps and improve non-financial performance.

  • Finance: Financial support is typically not part of a supplier responsibility agenda but why not? With initiatives like SupplierPay, enterprises are encouraged to support suppliers financially by paying them early whenever possible. Accelerated payments to suppliers could mean a world of difference to their cash flows, and in turn, promote more collaborative and valuable relationships.

Blockchain and the future supply chain visibility

Blockchain is a distributed ledger that can track the movements of tangible and intangible asset types. While all the hype right now is piled up on its currency potential, it has far-reaching implications for the supply chain, including track and trace. Since it’s visible to anyone and can’t be changed once transacted, it can provide a complete audit trail for any transaction. That means tracking simple things like origin, transit information, as well as

health and safety records, environmental compliance, and labor and human rights records for any company in a permissioned network

For example, Hyperledger, an open source global collaboration hosted by the Linux Foundation, is using its Hyperledger Sawtooth project to track the whole supply chain journey of seafood, an industry traditionally rife with illegal, unreported, and unregulated fishing practices. A blockchain-operated seafood supply chain results in transparency that cannot be tampered with. Furthermore, it levels the playing field for suppliers, rewards good practices, saves time through automation, and builds trust with vendors and consumers.

Supply chains are increasingly playing a more integral and impactful role for large businesses. Ensuring that initiatives like those mentioned above are implemented throughout your supply chain can not only mean great results for your business, but great results for the environment, communities, and workers.