Options for Action
Roadmap
The roadmap shows the chronological sequence of steps in a collaboration with suppliers for responsible management in an international context. For this purpose, the roadmap outlines a continuous process that can be started anytime, according to the maturity level of responsible management and the business relationship, i.e. when entering a new buyer-supplier relationship and in an existing one. Having completed the third phase of the roadmap, the cycle starts all over again.
The results suggest that both formal and more informal approaches are needed in each of the three phases. The formal approach is based on clearly defined tools that are easy to document. By comparison, informal methods are less clearly defined and, therefore, often difficult to document.
The roadmap comprises the following three phases:
Familiarisation with the supplier’s business activities and establishing processes that define and specify the expectations regarding responsible management.
Tools and methods used in this phase:
- Periodic in-person meetings to discuss responsible management issues
- Regular contact(in person or remotely)
- Reliance on gut feeling based on previous experience
- Observing market developments in relation to ESG risks
- Due diligence analysis before entering a business relationship
- Risk profile
- Company’s Supplier Code of Conduct (CoC)
- Code of Conduct (CoC) of the supplier
Implementing knowledge transfer and mutual learning activities to (further) develop the suppliers’ (and the company’s) competencies and management practices, in relation to responsible management.
Tools and methods used in this phase:
- Trainings on responsible management
- Regular communication of company values
- Actively addressing responsible management issues
- Discussion and dialogue events
Ensuring responsible management by enforcing processes and aligning interests. Based on the behaviour of suppliers, targeted measures can be taken to enforce and promote responsible management.
Tools and methods used in this phase:
- Reward system for suppliers
- Creating an open environment to discuss issues regarding responsible management
- (Unannounced) audits
- Third-party audit reports
- IT-based monitoring tools
- Access to whistleblowing channels
- Measurable objectives(KPIs)
- Working together to resolve serious problems
- Termination of the business relationship in the event of a serious compliance violation
Toolkit
The toolkit presents the tools and methods for successfully implementing the concept of responsible management in the international supply chain (good practices). Since the company’s ability to influence the supplier and the associated ESG risk level impact the design of responsible collaboration, this section reviews the tools and methods to use in the respective constellations.
Tools and methods used independent of the supplier’s ESG risk level
Tools and methods used regardless of the ESG risk level associated with the supplier, are applied even if the supplier poses a low-level ESG risk. Except for ‘non-critical’ suppliers, with whom no tools and methods are used in the case of low ESG risk, mainly formal tools are used to create the framework conditions.
‘Strategic’ relationship:
1) Laying the foundations:
Establishing processes:
2) Learning:
Knowledge transfer:
3) Monitoring and promoting:
Aligning interests:
‘Bottleneck’ relationship:
1) Laying the foundations:
Establishing processes:
3) Monitoring and promoting:
Aligning interests:
‘Leverage’ relationship:
1) Laying the foundations:
Establishing processes:
‘Non-critical’ relationship:
None
Tools and methods used in case of elevated supplier ESG risk levels
Suppliers with an elevated ESG risk level can pose a major risk in legal and financial terms as well as in terms of a company’s image and legitimacy. Even if a company would generally like to avoid working with risky suppliers, doing without such business relationships is not always possible or economically justifiable. Therefore, companies try to ensure that their suppliers act responsibly by using resource-intensive tools and methods.
If a supplier represents an elevated level of ESG risk, the following tools and methods are used, depending on the type of relationship and hence the company’s ability to influence the supplier.
In the case of ‘strategic’ business relationships, due to their partnership and long-term orientation, it is possible to influence the supplier’s business practices to promote responsible management.
Tools and methods used for ‘strategic’ suppliers with elevated ESG risk levels:
1) Laying the foundations:
Establishing processes:
– Code of Conduct (CoC) of the supplier
– Risk profile
Familiarisation:
– Reliance on gut feeling
2) Learning:
Knowledge transfer:
– Trainings
Mutual learning:
– Actively addressing responsible management issues
– Discussion and dialogue events
– Monitoring and promoting
Enforcing processes:
– Measurable objectives (KPIs)
– Third-party audit reports
– Access to whistleblowing channels
– Resolving serious problems
Scenario: ‘Strategic’ supplier with elevated ESG risk level
You are working for a consumer goods company headquartered in Switzerland, which has a strategic business relationship with a university spin-off developing unique technologies in meat analogues. This innovative product category represents a strategic growth area for your company. At the same time, the supplier benefits from your company’s large distribution network to achieve its strategic growth targets.
At the beginning of the business relationship, the supplier signed your company’s supplier code of conduct. Since the due-diligence analysis has revealed that the start-up has an aggressive and uninhibited corporate culture, you grant its employees access to your company’s whistleblowing channel. An anonymous report indicating sexual harassment in the workplace on the part of the supplier proves to be valid.
As your company is interested in maintaining and developing the relationship with this supplier in the long term, even though this misconduct of the supplier could also damage your company’s reputation, you try to actively work with the supplier to solve the problem. To do this, actively address the wrongdoing and organise training on the issue with the supplier’s employees. Furthermore, you support the supplier in drawing up a code of conduct and signing it together.
For a company that has a business relationship with a ‘bottleneck’ supplier, even in the case of serious misconduct, it is not possible to easily terminate the business relationship in the short-to-medium term, due to shortages on the supply side and the limited number of potential substitute suppliers.
Tools and methods used for ‘bottleneck’ suppliers with elevated ESG risk levels:
1) Laying the foundations:
Establishing processes:
– Code of Conduct (CoC) of the supplier
Scenario: ‘Bottleneck’ supplier with elevated ESG risk level
You are working for a Swiss packaging material manufacturer with a production site in Eastern Europe. The manufacturing process is very energy-intensive. While other countries offer several energy suppliers from which to choose, in this country, you depend on the state monopolist.
The due-diligence analysis revealed that this supplier generates energy predominantly by burning coal and does not use renewable energy sources. This causes high levels of particulate matter and greenhouse gas emissions. To maintain production, you must purchase energy from this company, even if that does not correspond to your climate goals.
To signal to the supplier that responsible management is important to your company, you have signed the supplier’s code of conduct, even if the standards it sets out are lower than those of your own company. Although your company has little-to-no influence on this supplier’s business, your management strives to create an open environment for addressing issues regarding responsible management. In the absence of other options, your company is aiming to position itself as a strategic partner in the medium term, so the energy supplier meets your needs for renewable energy in the future.
When sourcing from a ‘leverage’ supplier, the power imbalance between the parties means that the company has a strong ability to influence the supplier, to enforce its concerns and ideas about responsible management. To keep the company as a client, the supplier is very likely to comply with its requirements.
Tools and methods used for ‘leverage’ suppliers with elevated ESG risk levels:
1) Laying the foundations:
Establishing processes:
– Risk profile
Familiarisation:
– Reliance on gut feeling
2) Learning:
Knowledge transfer:
– Trainings
Mutual learning:
– Discussion and dialogue events
3) Monitoring and promoting:
Enforcing processes:
– IT-based monitoring tools
– Measurable objectives (KPIs)
– Access to whistleblowing channels
– (Unannounced) audits
– Third-party audit reports
Aligning interests:
– Reward system for suppliers
Scenario: ’Leverage’ supplier with elevated ESG risk levelYou are working for a Swiss building technology company. Many logistics service providers are available to you for the storage, transport and distribution of your products. As you permanently place very attractive order volumes, the logistics companies are very interested in gaining or keeping you as a customer.
At the beginning of the business relationship, the supplier signed your company’s supplier code of conduct and you have conducted a due diligence analysis. As the logistics industry is usually characterised by high-level time pressure, you set measurable KPIs linked to a reward system. In addition, you use IT-based monitoring tools and (unannounced) audits to ensure, for example, that the supplier observes prescribed driving and rest times.
In the case of ‘non-critical’ suppliers, responsible management tools are only used if the business relationship is associated with an elevated ESG risk for the company.
Tools and methods used for ‘non-critical’ suppliers with elevated ESG risk levels:
1) Laying the foundations:
Familiarisation:
– Reliance on gut feeling
3) Monitoring and promoting:
Enforcing processes:
– IT-based monitoring tools
– Third-party audit reports
Aligning interests:
– Reward system for suppliers
Scenario: ‘Non-Critical’ supplier with elevated ESG risk levelsYou are working for a Swiss pharmaceutical company that regularly purchases flowers for company events and congresses. As this is a ‘non-critical’ business relationship; by default, no measures to ensure responsible management are used.
Since you have seen in the media that the expansion of flower plantations in East Africa has resulted in forced displacement and eviction of local indigenous people and child labour, you adjust the ESG risk assessment. To rule out the possibility that your company sources flowers from these plantations, you consult third-party audit reports on the supplier.
Tools and Methods
Laying the foundations for responsible collaboration
Description of the tool
Regular contact with your supplier refers to the act of regular close contact over and above normal buyer-supplier communication. This may, for instance, relate to improving supplier responsibility performance, making each other aware of potential responsibility risks, and learning from each other in relation to responsibility.
How to use the tool
If you and your supplier are located in different parts of the world, regular communication can occur through remote means, such as email, telephone or video calls. Alternatively, you may meet face-to-face at trade fairs or industry conferences, as well as regularly visiting each other’s business premises.
Towards the beginning of a buyer-supplier relationship, this tool can be used to define and come to an understanding of responsibility expectations. Defining responsibility expectations can be done more top-down and unilaterally by your company imposing your responsibility expectations onto your supplier. Alternatively, this can also be done in a more informal, bilateral and collaborative manner by sitting down with your supplier to discuss the business relationship and jointly set responsibility expectations for each other.
Being in regular contact with your suppliers can give you an early indication as to whether your supplier is acting responsibly and enforcing responsible values in their day-to-day business operations, or whether there are any potential red flags developing. This information can allow you to be more responsive with your actions and take a more proactive approach to ensuring responsibility.
Description of the tool
Reliance on gut feeling is a form of intuitive decision-making which reflects your inner reaction to a particular situation or supplier. Gut feeling is built from a combination of both knowing (intuition as knowledge) and sensing (intuition as a feeling). Accordingly, it captures both learnings from prior experiences, and simply, what feels right.
Trusting your gut is something which is often overlooked in decision making processes companies, in favour of making decisions based on rational analysis. However, it can still be an effective signal to help guide a decision.
How to use the tool
Intuition is a powerful tool, and sometimes you have to go with your gut. When investigating a potential supplier, there may sometimes be revealing red flags like certain discrepancies which pop up, which whilst you may not have the concrete data to prove the red flags, they may help to indicate which type of company you may be getting into business with. Alternatively, you may have a good feeling about a potential supplier.
This gut feeling and intuition will likely grow with time as you gain more experience. It is important to learn from past experiences with suppliers, both in relationships which went smoothly as well as those which were more unstable and reflect why the situation occurred the way it did. These learnings can be brought forward into future supplier relationships.
Whilst gut instinct cannot be relied upon as a stand-alone tool to decide which suppliers to work with and which not, it can nevertheless be a good indicator which may help guide your decision.
Examples/Links
Description of the tool
Observing market developments is a useful tool to know what is going on in the surroundings of your business partner. Being aware of the meta-trends prevailing and developing throughout relevant industries, or knowing what your customers and other stakeholders are thinking in relation to responsibility-related topics can be a good indicator for identifying potential risks within your supply chain. For instance, if a company offering a similar product/service as your supplier is implicated in a scandal, and this company’s customers are pushing for change, this may indicate a potential risk area that you may want to look out for within yourown supply chain.
How to use the tool
You can observe market developments through numerous means, such as:
- Keeping up to date with current affairs, particularly within your industry (e.g. through news media)
- Subscribe to mailing lists which inform you of the latest occurrences within your industry
- Communicate with customers and other stakeholders
Description of the tool
The goal of due diligence processes is to help you learn and understand where potential (future) risks in relation to a supplier may lie, which can help you mitigate them. Due diligence analyses are typically conducted prior to entering into a business relationship with a potential supplier and helps inform decision makers.
When doing due diligence, it is important that you have a comprehensive scope to your investigation. Nevertheless, you need to find an appropriate balance. Not carrying out a thorough-enough due diligence may leave you exposed to future (ESG) risks which you were not aware of. In contrast, conducting too thorough a due diligence investigation, and asking your supplier too many questions, may risk offending your supplier and erode the trust between the two parties. In this case, the supplier may choose not to work with you as a result. You should therefore seek to find a balance.
How to use the tool
There are many tools you can use to carry out due diligence:
- Ask your supplier to complete a self-assessment. Self-assessments are comprised of simple yet comprehensive questions to help companies understand the business environment, environmental consideration, workforce composition, health and safety, business ethics performance, etc., of suppliers. They can act as a quick-screening tool to help companies prioritise supplier efforts according to potential responsibility risks.
Examples/Links:
Sesotec (Supplier self-assessment)
Schaffler (Supplier self-assessment) - Check business registrations and public documents. You can check the website from the Registrar of Companies in your supplier’s country to check information such as their registration date and VAT information, or access the latest accounts on your supplier if available. This will allow you to compare the information you have on your supplier, to what is available publicly, to see if they correlate.
Examples/Links:
European Union (VIES VAT number validation) - Verify trade accreditations. Responsibility-related labels and certifications help to create transparency in buyer-supplier relationships, as well as throughout the entire supply chain. They help to showcase a company’s commitment to a particular area and helps to verify their responsible operation processes.
- Observe meta-trends and market developments throughout relevant industries. You can observe market developments through numerous means, such as keeping up to date with current affairs, particularly within your industry (e.g. through news media) or subscribing to mailing lists which inform you of the latest occurrences within your industry.
- Communicate with your supplier and review their non-financial reports. Through non-financial reports, e.g. Sustainability Reports or Corporate Responsibility Reports, companies can disclose the way they operate and their approach towards managing responsibility related topics. This creates transparency and allows for a greater understanding of the areas of value creation in the company.
Examples/Links:
Roche (Non-financial reporting)
Amcor (Sustainability Report) - Communicate with previous customers of your supplier. Supplier testimonials cannot always be trusted. There is always a possibility that references or statements on your supplier’s website may be embellished if they think they can get away with it. If possible, request to speak to these individuals to verify their experiences. Supplier forums may also be a good source of reviews of past experiences.
Description of the tool
Similar to due diligence processes, the goal of a supplier risk profile is to assess the risk to your firm posed by your supplier on an ongoing basis. The main difference between the supplier risk profile and due diligence processes, is that due diligence is conducted prior to entering into a business relationship with your supplier, whereas creating and maintaining a supplier risk profile is a continuous process throughout the duration of your business relationship with the supplier. As a result of creating a risk profile of your supplier, you should be able to prioritise and tailor your approach towards ensuring responsibility with your supplier. Creating and maintaining a supplier risk profile reflects the inevitable changing market dynamics, and allows your company to monitor and adjust your approach toward responsible management with each supplier. This will help you to implement an approach which is appropriate to the level of risk presented by your supplier.
How to use the tool
There are many tools you can use to create a supplier risk profile:
- Ask your supplier to complete a self-assessment
- Check business registrations and public documents.
- Verify trade accreditations
- Observe meta-trends and market developments throughout relevant industries
- Communicate with your supplier and review their non-financial reports
- Communicate with previous customers of your supplier.
For more information, please refer to Due diligence analysis.
Description of the tool
The goal of a company’s Supplier Code of Conduct is to ensure that a company’s suppliers operate with responsibility, provide safe working conditions, and treat their employees with respect. Supplier codes of conduct also ensure that the supplier’s manufacturing procedures are environmentally friendly and responsible.
How to use the tool
A typical Supplier Code of Conduct will include the following elements:
- Environmental policy (E): This comprises of the environmental soundness of products and materials used in business operations, as well as technology of transportation systems.
- Labour practice and standards (S): This includes policies and safeguards against child labour, working conditions, working hours, fair compensation, non-discrimination and harassment, ensuring occupational health and safety, right to association, etc.
- Governance (G): Establishing anti-corruption measures, and adhering to fair business practices in winning business contracts, employees, and in managing partner relationships (e.g. along the supply chain)
- Review and documentation policy: How the supplier behaviour will be monitored and reviewed in line with the agreed upon Supplier Code of Conduct.
The content of your company’s Supplier Code of Conduct can be tailored to your specific industry and business needs, as well as any particular responsibility-related risks you have identified for your company. You can also outline sanctions for malpractice.
Examples/Links:
Roche Supplier Code of Conduct
Nestlé Supplier Code of Conduct
Amcor Supplier Code of Conduct
Description of the tool
The Code of conduct of a company gives an overview of the company’s values and principles and is designed to provide a frame of reference to set the standards for business behaviour This includes integrity, honesty, fair dealing and compliance with applicable laws. It is usually internally oriented and directed at the employees of the company but can also include sections for business partners and/or investors.
How to use the tool
In some cases, in contrast to your supplier signing your code of conduct, your company may be asked or required instead to sign the Code of Conduct of the supplier. This may be the case if your company has a low ability to influence the supplier (e.g. with a ‘bottleneck’ supplier). In this case the supplier cannot be obliged to sign the company’s Supplier Code of conduct. In other cases, for instance, in a strategic relationship, you and your supplier may harmonise your standards. In this case, both buyer and supplier formally recognise the other’s standards, rather than signing a code of conduct.
A typical Code of Conduct will include the following elements:
- Compliance with laws, rules and regulations
- Business Integrity: This can include topics such as bribery and corruption, antitrust and fair dealing, reporting & accounting, taxes, customs, trade and export control, data privacy
- Personal Integrity: This can include topics such as conflicts of interest, gifts & entertainment, insider information and trading and confidential information
- Employment: This can include topics such as discrimination and harassment
- Sanctions
- Reporting of misconduct
Examples/Links
Nestlé Code of Business Conduct
Roche Group Code of Conduct
Learning for responsible collaboration
Description of the tool
Strategically managing your suppliers is critical for business success – you can’t give your best to your customers until you get the best from your suppliers. To get the best from your suppliers, you need to be able to train them to operate in line with the standards for responsibility that you expect.
How to use the tool
Trainings on responsible management can be done in numerous ways:
- Classroom based training and seminars: In-person training on topics of responsible management with a representative from your company or a third-party company specialising in supplier training. Such trainings/seminars usually take place at the supplier’s premises and often last an afternoon, or one to two days. The training may consist of training videos, case-studies, role-play, an assessment, etc.
- E-learnings: Online based training for the supplier on topics of responsible management, e.g. by providing your supplier with access to your own online training platform, or using an established online training platform from a third party. Because of the online format, the progress can be easily monitored. Additionally, the online format allows for more widespread and cost-effective adoption throughout the supplier base.
Examples/Links:
Roche E-Learning on Supplier Code of Conduct
- Workshops: This format is highly interactive and allows you and your suppliers to share experiences openly and constructively in relation to responsible management, as well as allow constructive solutions to be developed. They are very hands-on, with collaboration and interaction in the forefront. Workshops also provide the opportunity for your company to clearly communicate your responsibility-related expectations towards your suppliers. Typically, workshops are held in person and are for a longer duration (for instance, half a day or one full day), however, there are many existing online tools (such as Mural or Miro) that facilitate online collaboration.
- Coaching: Coaching is the process of equipping your suppliers with the resources and expertise they need to effectively grow and develop themselves and their company in . It takes a more holistic approach than other tools and utilises a systems-thinking methodology. It tends to be more short term and for the purpose of helping a supplier overcome a particular obstacle that you do not believe they can overcome independently. In the role of a coach, a representative from your company will help guide the supplier, allowing for opportunities to address qualitative issues in their business operations with respect to responsibility. In this role, a closer relationship is formed between the two companies and tends to occur on an informal basis. Due to the informal and flexible nature of coaching, the format can be fitted to meet the needs and requirements both of the company and the suppliers. Coaching activities can also start off small within the means of your abilities, and then be increased or scaled back when needed at future points in time.
The content of all above mentioned trainings, both analogue and online, can be tailored to your specific industry and business needs, as well as any particular ESG risks that have been identified.
Description of the tool
What is legal does not always equate to what is ethical. Companies often have company values that go above and beyond the prevailing legal landscape and rather lay out guiding principles for responsible, moral, ethical and integral behaviour. Nevertheless, For values to drive true action and provide a clear direction for responsible business practice by your supplier, these values need to be effectively and consistently communicated to suppliers if they are to be expected to act in line with them. It is important that everyone understands what they mean. By regularly and consistently communicating your company’s values, you explicitly signal to your supplier the type of behaviour which is important for your company, thereby leading by example.
How to use the tool
Consistent communication of company values is one way that companies can explicitly show their supplier what type of behaviour is important to them. This can be done, for example, through official corporate communications, during face-to-face meetings, or through recognising and celebrating suppliers who demonstrate the desired integrity values in practice.
Examples/Links
NiBusinessInfo Business values
Description of the tool
To ensure the responsible business practice of suppliers, it is important that you and your supplier have a shared knowledge of what is acceptable business conduct, as well as how to effectively implement this know-how. Actively addressing responsible management issues with your supplier is a simple yet effective way to create and maintain a close relationship with them, and learn about their business processes, without being overly intrusive.
How to use the tool
Actively addressing responsible management issues provides you with the opportunity to communicate and refamiliarize your supplier to your company values and expectations. If there is a particular area where you are unsatisfied with your supplier’s performance, or believe there is room for improvement, then this tool allows you to raise the awareness of your supplier to this issue so it can be addressed. If available and applicable, you can show your supplier hard evidence to support your argument and use it to educate your supplier on how to improve.
Description of the tool
Engaging in discussions with other industry players is a great way to learn from others to improve your own supply chain performance. Engaging in dialogue with your supplier is paramount to this.
How to use the tool
Communication with suppliers can take place in a face-to-face setting, via more remote means, or at different events such as fairs or conferences with the purpose of learning and improving business processes in relation to responsibility through the discussions which ensue.
Through discussion and deliberation (such as in round table events), those involved in industry dialogues and information exchange can benefit from shared experiences, create a relevant information base, and sharpen the collective clarity on prominent responsibility problems which are prevailing throughout the industry. Through information exchange, you will be able to share best practice experiences with peers, as well as learning from the experiences shared by others in the industry. You may also learn about new methodologies or software solutions available which may help you prevent, mitigate or overcome responsibility issues within your own supply chain. It is possible to also engage with your suppliers during these events. Alternatively, if your suppliers are not participating in the industry dialogue and information sharing event, then you can trickle down to them the information you have learnt, either through direct communication, or through your own actions.
Monitoring and promoting responsible collaboration
Description of the tool
(Unannounced) audits are a fundamental tool which companies can use to help ensure that their suppliers are doing business with responsibility, are acting in a fair and honest way, and are adhering to all ethical standards that companies must abide by. Not only can they use audits as a screening tool when approving new suppliers, but they also allow companies to continually review their suppliers to ensure that they are still compliant with regulations and expected standards.
How to use the tool
Audits of suppliers can take place in many forms:
- Desktop audits: This type of audit is used to check supplier documentation such as any responsibility labels and certificates the supplier may have achieved (e.g., ISO certifications), or employee training records. This type of audit can be performed remotely.
- In person audits: These audits are where a representative from your company visits your supplier’s operation sites. This can be done either announced or un-announced. With un-announced audits, your supplier will have no prior knowledge that you will be visiting their premises. These are becoming more popular with companies as they can provide your company with a more realistic view of the day-to-day operations. With announced audits, the supplier is given notice of your arrival, which opens the potential downside of your supplier having time to prepare in advance.
- Third party audits: These audits occur when you hire an independent auditing organisation to conduct an audit of your supplier to check that they are compliant and doing business with responsibility.
Examples/Links
ProQC Initial Supplier Evaluation Audit
Description of the tool
The tool of third-party audit reports refers to the use of platforms (e.g. Sedex, EcoVadis and BSCI) which aggregate the audit reports of different supply chain actors who are members of said platforms. Rather than requiring the audit of a supplier, and potentially requiring the duplication of work, effort and money through excessive auditing, the platforms can be checked to see if the supplier has a prior audit report which has been ordered previously by a third party and which also meets your standards. The platforms thus provide a single point of contact for supply chain performance information.
How to use the tool
Some initiatives use social auditing methodologies, where an auditor physically audits a company’s business or operation site, as well as financial and non-financial information. However, unlike a “traditional” audit, the audit report is uploaded to the platform. If your supplier has already been recently audited by another company and the report has been uploaded to the platform you will be able to review their audit report and conduct your necessary due diligence process, without having to request and conduct another audit of that supplier.
Examples/Links
amfori BSCI platform
Sedex SMETA Audit
Description of the tool
IT-based monitoring tools allow companies to proactively identify, investigate and mitigate any illegitimate business activities in the interactions with your suppliers, as well as throughout the supply chain.
How to use the tool
IT-based monitoring tools are rather flexible in that they can be done through various means, address different processes, and be done to varying extents. With the digital advancement in recent years, processes, and solutions available involve IT-based tools. For instance, there are software- and artificial intelligence-based solutions (e.g., by KPMG and SAS) which investigate the business practice of a company’s own staff in their interactions with suppliers. These use predictive modelling, artificial intelligence, and forensic capabilities to detect, mitigate and anticipate financial malpractice. Other solutions (e.g., by IntegrityNext) crawl social media platforms and messaging to identify potential threats and risk alerts about your suppliers. The artificial intelligence combines this with self-assessment data from the supplier to provide insights into the supplier’s overall compliance and identifies suppliers which may be more critical in terms of responsibility risks. The AI also calculates a responsibility score which can be used to help segment and prioritise your suppliers.
The ways within which you monitor the responsibility performance may also vary depending on the requirements and characteristics of different industries. To give an example, a company operating in the consumer food industry may monitor whether their suppliers are illegally logging to clear land for crops by observing temporal satellite imagery. Alternatively, a company operating in pharmaceuticals may use sensors to monitor the logistics processes according to health and safety requirements throughout their supply chain.
Examples/Links
KPMG Continuous Monitoring for Procurement Integrity
Integrity Next Supply Chain Sustainability
Elpro Cold Chain Monitoring
Article: Nestlé targets palm oil deforestation with ‘game-changing’ satellite monitoring tech
Description of the tool
Whistleblowing channels can be a highly effective measure to fight serious corporate misconduct. Typically, reports made through whistleblowing channels provide insights into malpractice in your own company; however, by providing your suppliers to access your own whistleblowing channels, whistleblowers are able to raise your attention also to malpractice throughout the supply chain.
How to use the tool
When setting up a whistleblowing system, there are several points to consider:
- Anonymous vs. known whistleblower identity: whistleblowing channels that allow for anonymous reporting tend to receive more reports of malpractice. However, some argue that the credibility of the report can be questioned if the whistleblower is not prepared to put their name to the report, arguing that the report may instead be a hoax or have malicious intent. On the other hand, whistleblowers who disclose their identity (whether willingly, forced, or becomes unintentionally revealed throughout the process) tend to face extreme stigmatisation and can be penalised for speaking up. This can act as a large deterrent to potential whistleblowers to disclose.
- Reward vs. no reward for disclosure: Some suggest that offering a reward such as a financial incentive may offset the risks involved for the whistleblower (such as repercussions of their identity being revealed) and can encourage more people to report. However, others argue that a financial reward will only lead to an increase in fake or malicious reports.
- Analogue vs. web-based: Traditionally, conventional whistleblowing channels were analogue, meaning that a whistleblower would make a report to e.g., an HR representative. Increasingly, however, whistleblowing channels are becoming more digital, with whistleblowers making a report on a web-based system, for instance, on the company website. It must be considered whether potential whistleblowers would trust an analogue or a web-based reporting system more.
- In-house vs. external reporting system: In-house reporting systems allow you to take direct control over the report and to investigate the report in the means that you see fit, even if you must later disclose the number and types of reports received and investigated. However, having an in-house reporting system can be rather resource-intensive and it may be more effective to instead use an outside provider. This would likely provide the whistleblower with more anonymity, since their identity was never made known to your company, however the act of investigating the report may be out of your control.
Examples/Links
Nestlé Compliance Reporting System
Amcor Whistleblower Service
Description of the tool
Measurable objectives, or KPIs, are targets for your supplier to follow to meet a certain desired level in terms of responsible management. Just how your company may have KPIs to measure your supplier’s performance in other areas, e.g. the supplier lead time, responsibility KPIs similarly help inform you of your supplier’s performance in relation to responsibility-related topics. An example of a responsibility-related KPI may be the amount of energy consumption from renewable sources.
Measurable objectives are helpful to manage your supplier’s performance, turning data into actionable intelligence for future responsibility-related improvement.
How to use the tool
KPIs for responsibility can be set either by your company, or the targets can be decided upon together with your supplier in collaboration. The KPIs can also be set at the beginning of a business relationship, or throughout the duration (if the buyer-supplier relationship has already been established).
In order for a KPI to be effective, it should be:
- Specific: be clear about what each KPI will measure, and why it’s important
- Measurable: the KPI must be measurable to a defined standard
- Achievable: your supplier must be able to deliver on the KPI
- Relevant: the KPI must measure something that matters and improves performance
- Time-Bound: the KPI should be achievable within an agreed time frame
Once the KPIs have been set, however, it is important that the status is reviewed periodically, for instance, annually. At this point, areas for improvement can be identified, and new targets set. It is important to also strive for continuous improvement in relation to the KPIs. They should not stagnate.
Description of the tool
One of the more creative ways within which you can foster responsible management throughout the supply chain is through incentivising your suppliers to do business with responsibility. To do this, supplier responsibility recognition schemes can be used to encourage and reward suppliers who demonstrate high responsibility performance standards.
How to use the tool
Suppliers could be nominated either by those within your own organisation, such as by your procurement team, or by outside parties. Depending on your business, you may decide to hold quarterly, semi-annually or annual rewards.
Nevertheless, there are a few factors to consider when implementing a responsibility recognition scheme, as well as rewarding your suppliers. It is important that you use relevant responsibility metrics to rate the performance of your supplier as well as gauge the competitive environment of your supplier. If your company decides to implement a responsibility recognition programme or finds a way to reward your supplier for their responsibility performance, it is important to find a balance between using the programme as a means to incentivise and foster desired behaviour, and on the flip side, the programme acting as a disincentive for continuous improvement and damaging supplier relations.
Examples/Links
Boeing Supplier Awards
Article about supplier incentive programmes
Description of the tool
It is important to foster engagement with suppliers regarding responsible management and embrace an open and sharing working relationship. If it comes to your attention that one of your suppliers has a responsibility related issue, it may be your company’s first response to want to cut ties with this supplier. However, upon reflection, this may not be an appropriate response, and is likely not going to solve the problem.
Instead, you can foster an open environment to discuss responsibility related issues with your supplier. Whilst it is not always easy to communicate without interjecting or jumping to conclusions about your supplier’s business, it is only through active listening that you will really hear what is going on. This will allow you to gain a better understanding, and allow both you and your supplier to work together to find a solution.
How to use the tool
There are some ways within which you can create an open environment to discuss responsible management issues with your supplier:
- Set clear expectations regarding communication at the beginning of your business relationship
- Be proactive and transparent in supplier communications
- Dedicate specific time with your suppliers where topics of interest can be raised
Examples/Links
Alliance for Integrity
Basel Institute on Governance