Supply chain compliance is key – economic, ethical and environmental

So what lies ahead for supply chain and procurement managers? Certainly not the steady and certain environment they might hope for. During the turbulence of recent years businesses have faced increased demands to ensure their supply chains’ compliance with consumer, political and legislative requirements in the areas of economic, ethical and environmental sustainability. Customers not only want innovation and value for money but they want the products they buy to besourced sustainably.

A number of recent cases illustrate just how widespread these challenges are. In the UK the Fairtrade Foundation is pressing public services including the NHS, the Post Office, railway networks and supermarkets to have their staff wear uniforms made from fairtrade cotton, to help provide a sustainable economic model for West African cotton farmers.

Ethical sourcing is another area becoming more important for supply chain managers. For example, as the world economy recovers and ore stocks are depleted it is expected that Tantalum mining will resume in the Democratic Republic of Congo. Yet revenue from this mining activity was used to support the conflict in the region and so electronics manufacturers will face consumer pressures to take an ethical approach to sourcing and avoid supporting this mining activity.

Environmental concerns also remain a high profile risk to organisations with Cadbury and Unilever succumbing to pressure over the sourcing of palm oil from Malaysia and Indonesia where palm oil plantations are driving deforestation and loss of habitat for primates. Cadbury New Zealand has ceased the use of Palm Oil and Unilever have dropped three suppliers.

Consumer awareness and concern about these issues is will only become more important as the economic recovery progresses and consumers use their additional spending power to make purchases that reflect their wider concernsand rather than just focusing on price.

The challenge for supply chain and procurement leaders is to get ahead of these issues, within their cost constraints and supply base limitations. This means breaking out of traditional procurement approaches and understanding that driving sourcing toward the lowest cost suppliers could set the business up for brand damage or even litigation costs. Supply chain and procurement managers should be engaging their sales and marketing colleagues to help them develop the sustainable supply chains that can drive brand value, sales volume and so secure margins that exceed the costs of compliance with high ethical and environmental standards. The key is to market the sustainable supply chain internally as a business differentiator.

Implementation will then require close working with the global supply base to deliver practical solutions. Collaboration with industry bodies and third parties can also be used to gain both profile and visibility. This should be underpinned by regular audit and monitoring procedures ensuring the long term integrity of an economic, ethical and environmentally sustainable supply chain.

This will deliver real business benefit. A focus on economic sustainability will  protect and strengthen an organisations’ supply chain minimising the risk of disruption. Ethical sustainability will prevent the diversion of resources to counter activist challenges, environmental sustainability will avoid legislative encumbrances and levies on business activities. More importantly, the development of an exemplary supply chain will position the business at the forefront of a growing movement, differentiating from competitors, broadening customer appeal and adding brand value.