Tim Mohin outlines three steps to ensure your suppliers toe the line on responsibility

The trend toward outsourcing, coupled with high profile cases of poor conditions in the supply chains of global brands has led to an explosion of interest in the area of “supplier responsibility”. Stated simply, supplier responsibility is about holding suppliers accountable to the standards of conduct expected by the customer.

Supplier contracts typically include language mandating compliance with all applicable laws and regulations, but the social and environmental laws applicable to global supply chains vary from country to country. If the supplier is in a country where labour and environmental laws are inadequate or poorly enforced, the purchasing company could be exposed to liability. This is where a code of conduct comes into play. In essence, a code of conduct establishes a consistent “floor,” or the minimum expectations for your suppliers, regardless of the locally applicable laws or enforcement.

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Incorporating your company’s code of conduct into supplier contracts typically makes compliance binding, provides audit rights, and obliges suppliers to correct deficiencies. Your supplier management programme can be made stronger with attention to three basic programme elements:

1 Compliance: Conducting audits and correcting deficiencies can be large investment. Compliance is necessary but programs that are overly focused on compliance can diminish the trust and cooperation that are essential for performance improvement. One of the first compliance issues is how to prioritise suppliers for scrutiny. Most programmes rank suppliers by the magnitude of their business relationship and the probability (based on geographic or other factors) that the supplier may present risk.

2 Business integration: One of the most effective strategies for supplier responsibility is to integrate the program into standard business processes — especially supplier selection; supplier business reviews (SBRs); and supplier termination.

Supplier selection is the most opportune time to inject responsibility into the relationship as that is when a supplier is working to get your business. By including responsibility as one of the areas that are evaluated in the SBR, it becomes a fundamental part of the business relationship. This process also exposes senior managers from both companies to responsibility issues. Supplier termination rarely happens solely because of responsibility issues.

Nonetheless, it is important that responsibility criteria are included in the termination process to make it clear that responsibility is a critical part of the business relationship. Termination is not always the answer. If possible, it’s preferable for the supplier to address the problem. By working with suppliers to resolve serious issues, the buying company can use its economic influence to sustainably improve conditions.

3. Capacity-building: The goal is to give suppliers essential capabilities and self-sustaining systems that allow them to manage risk and opportunity for their business and for yours. Capacity-building ensures that both managers and workers in supply facilities have the knowledge, skills, and systems to manage human and natural resources safely and sustainably.

With globalisation opening access to markets with undeveloped regulation, many believe that there is now a “race to the bottom”. The field of supplier responsibility turns this concept on its head. Companies are increasingly using their buying power to drive improvements in responsibility throughout the global supply chain.

This article first appeared in “21st Century Corporate Citizenship, A Practical Guide to Delivering Value to Society and Your Business”, by Dave Stangis and Katherine Valvoda Smith. At the time of writing this piece Tim Mohin was the vice president of corporate citizenship at AMD. He is now chief executive at Global Reporting Initiative. Ethical Corporation readers benefit from a 30% discount when purchasing this book. Quote ‘TCCC30’ on the following page: http://books.emeraldinsight.com/offer