In this globalized world, a Company’s sustainability is directly proportional to its Supply Chain performance.
Supply Chains are in the Driving Seat
The UN Guiding Principles on Business & Human Rights (UNGPs) were endorsed by the UN Human Rights Council in 2011. They have defined the global standard for corporate responsibility and at the core of that is the concept of human rights due diligence as a means for businesses to ‘know and show’ their impacts.
We are now seeing that shift being embedded into government policy in an increasing number of countries through National Action Plans (NAPs) and guidelines, legislated in some instances and encouraged via investor action e.g. Corporate Human Rights Benchmark.
The new legislation being developed from these NAPs has resulted in increased due diligence, especially in supply chains.
Some examples of NAPs are US California Transparency in Supply Chains Act, EU Directive on disclosure of non-financial and diversity information, UK Modern Slavery Act, French Duty of Vigilance Law, German CSR-Directive, Dutch Child Labour Law, EU Conflict Minerals, etc.
Human rights have also been embedded in the Indian National Voluntary Guidelines (NVG-Principle 5) and The Ten Principles of the UN Global Compact (Principle 1 & 2). The spotlight is surely on supply chains, with increased reporting requirements for these new developments.
Responsibly ‘Make in India’
The ‘Make in India’ programme has elevated India as a top business destination. Since India is a major supply base and aspires to be the preferred location for FDI, there is a huge opportunity to simultaneously drive economic growth and responsible business practices.
Although this is very encouraging, businesses in India continue to face numerous challenges for sustainable growth, especially in their supply chains such as lack of transparency, labour rights abuse, gender inequality, limited inclusion, climate change, water scarcity, poverty, compliance mind-sets and corruption.
Implications are Written on the Wall
In this super age of communication and interconnectedness, any business with ambiguity of its supply chain impacts is sitting on a ticking time bomb! It’s hardly a surprise that many exposes of issues in supply chains have occurred in lower tiers. Some of the emerging risks are:
International brands reducing or relocating sourcing from Indian supply chains is the first major implication. For example, cosmetic companies sourcing Mica from India (predominantly Jharkhand) are already switching to US sources.
With increased consumer awareness especially through the Internet, there are increased questions about where products are made and what the working conditions are at the factories or farms.
Lack of transparency leads to hidden inefficiencies in supply chains and this reduces the competitiveness of Indian businesses. The next growth story of India will be based on increased productivity and efficiencies and therefore supply chains will play a pivotal role.
Legal action and liabilities faced by brands in their home countries could be passed on to suppliers in India. Also, reporting requirements and disclosures will increase in the coming years.
The Power of Due Diligence
It’s a known fact now that a ‘One size fits all’ approach does not work for solving supply chain issues. Undertaking a Human Rights Due Diligence (HRDD) is a step that goes beyond traditional audits and creates meaningful dialogue on opportunities and challenges of businesses, most importantly with suppliers and partners.
Here are some proven models which I’ve tested and implemented in past 10 years:
- Knowing & showing: Establishing traceability in supply chains (both formal and informal). Disclosing supply chain maps and issues, sharing challenges and engaging with relevant stakeholders to create action plans.
- Measure & improve: Creating performance metrics to measure impacts of purchasing practices and developing incentive mechanisms for good performers (within business and suppliers). Creating new communication channels is essential to capture performance data. With Internet of Things (IoT) the possibilities of creating data collection points are infinite!
- Partnerships & Collaborations: Chronic social issues such as child labour and poverty cannot be effectively addressed by one business alone. Thus, creating leverage through collective action is the way forward (this is also one of the SDG goals).
- Redesign & rethinking: Going back to the drawing board with the business strategy and building brand value based on supply chain transparency. Two such examples are that of FairPhone and BodyShop. Businesses are increasingly adopting the UNGPs as their guiding framework for CSR, sustainability projects, reporting and strategy.
- Training & capacity building: Most new approaches required to increase transparency in supply chains are powerfully affirmative, transformative and even disruptive of traditional practices. This requires extensive training within companies and their supply chains apart from creation of other support systems that have not existed before.
Transparency in supply chain seems impossible at first but then in today’s world it’s hard to forego. The next chapter of India’s growth will be written by its supply chains driving a positive impact on people, environment and performance. This is our time, this is our opportunity!
transparency-in-supply-chainsThis article was written by Rishi Sher Singh. Rishi is an independent Supply Chain Sustainability professional, with hands-on experience in implementing sustainability projects in various sectors. He often explores new models on sustainability and speaks at global forums, such as UN Global Compact and engages with student groups in UK & Indian universities.