Today, supply chains can include multiple partners, with services and sourcing managed across many organizations and around the world. Supply chains are becoming more complex across extended ecosystems. This reduces visibility into supply and drives up supply chain risks, including the use of forced labor.
Recent surveys indicate that the top challenges facing procurement include risk management, reputation and brand image, and corporate social responsibility (CSR). Brands with “purpose” are proven to outperform those without purpose by a factor of three. There is clearly more pressure for brands to behave more ethically than before. Yet procurement is typically still focused on sourcing and continues to be measured on year-on-year costs savings.
How can we tackle this complex dilemma? Is procurement prepared, or even authorized, to pay more for products sourced ethically? Is procurement prepared to terminate and invoke harsh penalties for bad practice or even develop their own suppliers?
The CPO needs to fully understand the sustainability goals of the organization and determine how procurement connects with these operationally. The CPO has a very influential role to play here with supplier risk assessments, sourcing, contracts, supplier performance management, and compliance with procurement policies and codes of conduct. Negotiated payment terms should protect the working capital of suppliers so that workers are paid promptly, particularly in industry sectors or countries where there is a high risk of slavery.
Opening up to a new world of suppliers
“Buy Social Corporate Challenge” is rapidly becoming a means to support local communities and create opportunities for disadvantaged members of society. This is a groundbreaking initiative that aims to encourage leading corporations to open up their supply chains to include “social enterprise” suppliers – defined as organizations with a mission to create a positive effect on society and the environment. By participating in this initiative, companies will have both diversified and driven innovation in their supply chains, using their procurement function to change how they buy goods and services.
Using technology to diversify sourcing
Here, procurement can set targets for sourcing from social enterprises. Technology can support procurement in its role to help tackle forced labor and more:
- For many organizations, initiating a program for purpose-driven procurement can be daunting. Often there are insufficient resources available to conduct the due diligence necessary to determine suppliers’ sustainability and fair labor practices. Supplier-risk solutions provide ongoing and scalable risk intelligence that can help organizations detect early warning signals, minimize costly disruptions, and proactively monitor risk factors for each supplier. With these solutions, organizations can identify and assess the sustainability risks for new suppliers and monitor those for current suppliers.
- Finding diverse suppliers can be a challenge for buyers. Unlocking opportunities with large organizations can be equally difficult for small minority-owned suppliers. Digital supplier networks can help buyers discover and connect with diverse suppliers, opening the door to new relationships and business opportunities. These opportunities can be extended to social enterprises.
- Data mining and mapping provide valuable insights into the activities and processes operated across the supply chain. Action can be taken to remove inefficiencies and unnecessary steps to create win/win scenarios for supply chain partners. The removal of cost inefficiencies can fund the investment in payments to primary workers in the supply chain. Also, intelligent technologies such as blockchain can support the cost-breakdown analysis across the value chain, from “farm to fork,” “bean to cup,” and so on. This approach can help verify that primary workers receive a fair wage in relation to the total cost of the product.
- Streamlining and automating processes creates bandwidth for procurement to explore more opportunities to “do good,” in addition to delivering the cost-savings agenda.
Without question, more consumers are choosing brands based on sustainable sources and raw materials and on fair human and environmental practices. “Purpose” is no longer something that’s nice to have; for organizations that want to be perceived as relevant, admired, and innovative by their customers, employees, investors, partners, communities, and public entities, it’s become a must-have strategic imperative. Procurement has a role to play in driving forward the purpose agenda.
“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Larry Fink, CEO, BlackRock, in the 2018 annual letter to CEOs
For more on this topic, please read “Procurement with Purpose.”