Description
Supply chain sustainability is increasingly recognized as a key component of corporate responsibility. Managing the social, environmental and economic impacts of supply chains, and combating corruption, makes good business sense as well as being the right thing to do. However, supply chains consist of continuously evolving markets and relationships. To navigate this complex terrain, we offer a few baseline definitions and practical steps that companies can take toward progress, using the United Nations Global Compact principles as the basis to work toward supply chain sustainability.
SUPPLY CHAIN
SUSTAINABILITY
A Practical Guide for Continuous Improvement
ii Supply Chain Sustainability
Launched in 2000, the United Nations Global Compact is both a policy platform and a practical framework for
companies that are committed to sustainability and responsible business practices. As a multi-stakeholder
leadership initiative, it seeks to align business operations and strategies with ten universally accepted
principles in the areas of human rights, labour, environment and anti-corruption and to catalyze actions in
support of broader United Nations goals. With more than 8,000 signatories in more than 135 countries, it is the
world’s largest voluntary corporate responsibility initiative. www.unglobalcompact.org
A leader in corporate responsibility since 1992, BSR works with its global network of more than 250 member
companies to develop sustainable business strategies and solutions through consulting, research and
cross-sector collaboration. With six of?ces in Asia, Europe, and North America, BSR uses its expertise in
the environment, human rights, economic development and governance and accountability to guide global
companies toward creating a just and sustainable world. www.bsr.org
Disclaimer
The inclusion of company examples in this publication is intended strictly for learning purposes and does not
constitute an endorsement of the individual companies.
Copyright
The material in this publication is copyrighted.
The UN Global Compact encourages the dissemination of the content for educational purposes.
Content from this publication may be used freely without prior permission, provided that clear attribution is given to
UN Global Compact and Business for Social Responsibility and that content is not used for commercial purposes.
© 2010, UN Global Compact Of?ce and Business for Social Responsibility
This guide was written by Cody Sisco, Blythe Chorn and Peder Michael Pruzan-Jorgensen, with signi?cant
editorial input from Cecilie Hultmann, the UN Global Compact Of?ce staff, BSR staff, and the UN Global
Compact Advisory Group members listed on Page 5.
Designer: Megan Larson
The Global Compact Of?ce and BSR would like to thank the following organizations for their generous support
for the development of this guidance:
1
Contents
Foreword 2
Georg Kell, Executive Director, UN Global Compact Offce
Aron Cramer, President and CEO, Business for Social Responsibility
Executive Summary
Practical Steps to Supply Chain Sustainability 5
1. Introduction 7
2. Getting Started on Supply Chain Sustainability 13
Developing the Business Case
Understanding the External Landscape
Establishing a Vision
3. Establishing Sustainability Expectations for the Supply Chain 21
Overview of Codes of Conduct
Writing the Code of Conduct
Using the Code of Conduct
4. Determining the Scope 25
Mapping the Supply Chain
Segmenting the Supply Chain
5. Engaging with Suppliers 33
Selecting Communications Channels
Monitoring and Evaluation
Remediation and Supplier Capability Building
6. Determining Roles & Responsibilities 43
Internal Alignment
Governance and Oversight: Executive Leadership and the Board
Cross-functional Coordination among Business Managers
Implementation by Supply Management Professionals
7. Industry Collaboration &
Multi-Stakeholder Partnerships 51
The Context for Collaboration
Opportunities and Risks of Collaboration
Multi-Stakeholder Partnerships
8. Establishing Goals &
Tracking and Communicating Performance 59
The Process of Goal Setting
Goals for Impact
Goals for Supplier Performance
Goals for Internal Performance
Measurement Processes and Practices
Communicating Progress and Reporting
Acknowledgements 64
2 Supply Chain Sustainability
Foreword
More and more companies are extending their commitment to
responsible business practices to their value chains, from subsid-
iaries to suppliers. They do so not only because of the inherent
social and environmental risks and the governance challenges the
supply chain poses, but also because of the many rewards supply
chain sustainability can deliver. Indeed, sustainable supply chain
management can be a strong driver of value and success – for
business as much as for society. By spreading good business prac-
tices around the globe, it has enormous potential to contribute to
more inclusive markets and advance sustainable development in
the spirit of the United Nations’ mission.
Today, UN Global Compact participants around the world are
demonstrating leadership by applying the ten principles in their
supply chains. However, developing sustainable supply chain pro-
grammes that encompass all of the Global Compact’s four issue
areas – human rights, labour, environment and anti-corruption
– remains a daunting challenge for many.
Supply Chain Sustainability: A Practical Guide to Continuous Improve-
ment, developed in collaboration with BSR, can help companies
overcome these challenges by offering practical guidance on how
to develop a sustainable supply chain programme based on the
values and principles of the Global Compact. Featuring numerous
examples of good corporate practice, the guide will assist compa-
nies in setting priorities for action that will lead to continuous
performance improvement.
We hope this publication will encourage more businesses to
embark on the journey towards more sustainable supply chains,
thereby delivering tangible and lasting benefts to business, the
environment and societies everywhere.
Georg Kell
Executive Director
U.N. Global Compact Offce
3
As the Global Compact’s ten principles reach their 10th anniversary,
it is more evident than ever that making them a reality requires
collaboration across the supply chains that defne global business in
the 21st century. Many companies’ most signifcant impacts on the
environment and society occur in their supply chains, and as these
networks have grown in scale and complexity over the past quarter-
century, so too have the opportunities for companies to promote
human rights, improve labour conditions, protect the environment
and support ethical business conduct. By working together, buyers
and suppliers can not only ensure a baseline standard of business
conduct is met but also collaborate to improve the impact of business
on society and the environment around the world.
We are very proud to have produced this guide on the anniversary to
encourage companies to apply the Global Compact’s ten principles
throughout global supply chains. BSR brings to this effort its exten-
sive knowledge on how to integrate fair working conditions and
good environmental practices throughout extended supply chains.
In partnership with our global network of member companies, as
well as their supply chain partners, we have worked in more than
30 countries to integrate environmental, social and governance
principles into supply chains in multiple industry sectors. Joining
forces with the extensive network of UN Global Compact signatories
across the globe represents a great opportunity to increase the Global
Compact’s impact.
We hope that this guide makes a signal contribution to advance fair
and sustainable working conditions for entire industries, geographies
and market segments by:
• Extending sustainability to small and medium-sized enterprises
• Creating better connections to frms in developing countries on key
social and environmental issues
• Supporting good governance and business ethics as a key pillar of
well-functioning markets.
This guide is designed to help companies initiate and advance their
supply chain sustainability efforts, but it should also be used to
broaden impact and enlist collective action for sustainability. BSR
is very proud to have partnered with the Global Compact, and we
look forward to supporting it and its signatory companies around
the world to make the vision of the Global Compact an even more
powerful reality.
Aron Cramer
President and CEO
BSR
4 Supply Chain Sustainability
United Nations Global Compact Advisory Group
on Supply Chain Sustainability
The Global Compact Offce has established an advisory group of Global Compact participants and
stakeholders. The role of the advisory group is to provide input to the overall strategy and work
done by the Global Compact Offce on the issue of supply chain sustainability, and to ensure that
the guidance material developed is robust and addresses the needs of business.
The advisory group is chaired by Mr. Mads Øvlisen, a member of the Global Compact Board.
We would like to thank Mr. Øvlisen and all of the members of the advisory group for their support
of this effort:
? Mr. Michael Wilhelmer, Manager, Global Procurement Services, ArcelorMittal (Luxembourg)
? Mr. Cody Sisco, Manager, Advisory Services, Business for Social Responsibility (Global)
? Mr. Gustavo Pérez Berlanga, Senior Vice President - CSR and Toks University, Cafeterias Toks S.A.
de C.V, (Mexico)
? Mr. Juan Antonio Espinosa, Procurement Director, Planning & Control, CEMEX (Mexico)
? Mr. Brian Glazebrook, Senior Manager - Value Chain Social Responsibility, Cisco Systems (USA)
? Dr. Bente Pretlove, Corporate Advisor - CSR & Sustainable Development, Det Norske Veritas (Norway)
? Ms. Vimal L Kumar, Head - Corporate Responsibility, DiGi Telecommunications Sdn Bhd (Malaysia)
? Ms. Tammy Rodriguez, Director of Corporate Responsibility, Esquel Group of Companies (China)
? Ms. Monique Oxender, Global Manager - Supply Chain Sustainability, Ford Motor Company (USA)
? Ms. Isabel Garro Hernández, Executive Director, Global Compact Local Network Spain (Spain)
? Ms. Claudine Musitelli, Director, Global Social Compliance Programme (GSCP) (Global)
? Mr. Paolo Pompilio, Diretor de Relações Corporativas e RSA, Grupo Pão de Açúcar - Companhia
Brasileira de Distribuição (Brazil)
? Ms. Zoe McMahon, Supply Chain Social and Environmental Responsibility Manager, Hewlett-Pack
ard (USA)
? Mr. Brian Larnerd, Senior Manager Corporate Social Responsibility & Chief Executive for the
Americas Of?ce, Hitachi, Ltd. (Japan)
? Dr. In-mo Cheong, General Manager Environment Strategy Planning, Huyndai Motor Company
(Republic of Korea)
? Mr. Greg Priest, Head of IWAY Compliance and Monitoring, IKEA (Sweden)
? Mr. Javier Chercoles Blazquez, CSR Global Director, Inditex, Industrias de Diseño Textil, S.A. (Spain)
? Mr. Sandeep Dadlani, Vice President - Retail, CPG & Logistics, Infosys Technologies Ltd (India)
? Ms. Trude Andersen, Head of CSR, Innovation Norway (Norway)
? Mr. Robert Jenkins, CEO, Integrated Contract and Supply Solutions - ISCS (United Arab Emirates)
? Mr. Jan-Willem Scheijgrond, Senior Director - Health, Safety and Environment, Koninklijke Philips
Electronics N.V. (Netherlands)
? Ms. Beroz Gazdar, Vice President - Infrastructure Development Sector, Mahindra & Mahindra
Limited (India)
? Ms. Hilary Parsons, Public Affairs Manager, Supply Chain, Nestle S.A. (Switzerland)
? Mr. Mika Kiiskinen, Senior Manager, Social & Ethical Issues Management, Nokia Corporation (Finland)
? Dr. Márcia Balisciano Director, Corporate Responsibility, Reed Elsevier Group plc (UK)
? Ms. Eileen Kaufman, Executive Director, Social Accountability International (SAI) (Global)
? Ms. Rachelle Jackson Director, Research & Development, STR Responsible Sourcing (USA)
? Mr. Koichi Kaneda, Senior Manager, CSR and Corporate Branding, Takeda Pharmaceutical Company
Limited (Japan)
? Mr. Anant Nadkarni, Vice President - Group Corporate Sustainability, Tata Council for Community
Initiatives (TCCI) (India)
? Mr. Stein Hansen, Senior Vice President, Business Assurance, Telenor Group (Norway)
? Mr. Alexander Seidler, Director, UBS AG (Switzerland)
? Mr. Willem-Jan Laan, Director Global External Affairs, Unilever (UK)
? Dr. Gerhard Prätorius, Head of Coordination CSR and Sustainability, Volkswagen AG (Germany)
5
Executive Summary: Practical
Steps to Supply Chain Sustainability
Supply chain sustainability is increasingly
recognized as a key component of corporate
responsibility. Managing the social, environ-
mental and economic impacts of supply chains,
and combating corruption, makes good busi-
ness sense as well as being the right thing to do.
However, supply chains consist of continuously
evolving markets and relationships. To navigate
this complex terrain, we offer a few baseline
defnitions and practical steps that companies
can take toward progress, using the United Na-
tions Global Compact principles as the basis to
work toward supply chain sustainability.
What is Supply Chain Sustainability?
Supply chain sustainability is the manage-
ment of environmental, social and economic
impacts, and the encouragement of good gov-
ernance practices, throughout the lifecycles
of goods and services. The objective of supply
chain sustainability is to create, protect and
grow long-term environmental, social and
economic value for all stakeholders involved
in bringing products and services to mar-
ket. By integrating the UN Global Compact
principles into supply chain relationships,
companies can advance corporate sustainabil-
ity and promote broader sustainable develop-
ment objectives.
Why is Supply Chain
Sustainability important?
There are numerous reasons why companies
start a supply chain sustainability journey.
Primary among them is to ensure compli-
ance with laws and regulations and to adhere
to and support international principles for
sustainable business conduct. In addition,
companies are increasingly taking actions
that result in better social, economic and en-
vironmental impacts because society expects
this and because there are business benefts
to doing so. By managing and seeking to
improve environmental, social and economic
performance and good governance through-
out supply chains, companies act in their
own interests, the interests of their stakehold-
ers and the interests of society at large.
COMMIT
MEASURE
IMPLEMENT
COMMUNICATE
DEFINE
ASSESS
COMMIT
? Develop the business case by under-
standing the external landscape and
business drivers. (Chapter 2)
? Establish a vision and objectives for
supply chain sustainability. (Chapter 2)
? Establish sustainability expectations
for the supply chain. (Chapter 3)
ASSESS
?Determine the scope of efforts based
on business priorities and impacts.
(Chapter 4)
DEFINE and IMPLEMENT
?Communicate expectations and
engage with suppliers to improve per-
formance. (Chapter 5)
?Ensure alignment and follow up
internally. (Chapter 6)
?Enter into collaboration and partner-
ships. (Chapter 7)
MEASURE and COMMUNICATE
?Track performance against goals and
be transparent and report on progress.
(Chapter 8)
This guide is intended
for companies with
signi?cant sourcing
activities that are inter-
ested in learning how to
incorporate sustainability
into their supply chain
management strategies
and practices.
WHAT STEPS CAN MY COMPANY TAKE?
This guide outlines practical steps companies can take to achieve supply chain sustainability and presents examples to inspire action.
The recommended steps summarized below are based on the Global Compact Management Model, which is a ?exible framework for
continuous improvement for the mainstreaming of the Global Compact into strategies and operations.
The steps described below and throughout the guide are not linear. Rather they represent complementary actions that companies
can take in order to achieve more sustainable supply chains. In addition, there are three principles for successful supply chain sus-
tainability management – governance, transparency and engagement – that are essential to every step of the model.
6 Supply Chain Sustainability
7
1. Introduction
This guide is intended to help companies,
both those who are new to and those experi-
enced in supply chain sustainability, to apply
the Global Compact principles throughout
their supply chains and to integrate sustain-
ability into their business strategies.
Supply Chain Sustainability Defned
In today’s globalized economy, outsourcing
business operations doesn’t mean outsourcing
responsibilities or risks—or that a company’s
responsibility ends once a product is sold.
Leading companies understand that they have
a role to play throughout the lifecycle of their
products and services. Supply chain sustain-
ability management is key to maintaining
the integrity of a brand, ensuring business
continuity and managing operational costs. It
is also an important aspect of the implemen-
tation of the Global Compact principles.
WORKING DEFINITIONS
“Sustainability” defnitions vary. For the
purposes of this guide, the defnition
encompasses the business role in addressing
environmental, social (human rights and
labour) and corporate governance issues,
as covered by the Global Compact’s ten
principles.
“Supply chain sustainability” is the
management of environmental, social and
economic impacts, and the encouragement
of good governance practices, throughout
the lifecycles of goods and services.
The objective of supply chain sustainabil-
ity is to create, protect and grow long-term
environmental, social and economic value for
all stakeholders involved in bringing products
and services to market. Through supply chain
sustainability, companies protect the long-
term viability of their business and secure a
social license to operate.
1
From Business for Social Responsibility.
ENVIRONMENTAL, SOCIAL AND ECONOMIC IMPACTS
EXIST THROUGHOUT EVERY STAGE OF SUPPLY CHAINS.
1
At every stage in the
life-cycle of speci?c
products there are so-
cial and environmental
impacts, or externali-
ties, on the environ-
ment and on people.
In addition, gover-
nance, or the account-
ability of organizations
to their stakeholders
for their conduct, is
important at every
stage throughout the
supply chain.
This guide focuses on
upstream business part-
ners, i.e. relationships
with suppliers, rather
than with distributors,
consumer use of prod-
ucts or end of life issues.
A focus on downstream
impacts of supply chains
may be addressed in the
future by the UN Global
Compact Of?ce.
In addition, this guide
focuses on the question
of whom companies buy
from and how they source
products, rather than
what they buy. This may
also be a future focus of
attention from the UN
Global Compact Of?ce.
END-OF-USE MANUFACTURING
MATERIAL INPUT
USE
DISTRIBUTION
Environment
Disposal
Extraction
Recycling
Transportation
8 Supply Chain Sustainability
About Supply Chain Sustainability & the United Nations Global Compact
The Global Compact encourages participants to engage with suppliers around the ten prin-
ciples and to advance sustainable development objectives as part of their commitment to the
Global Compact, and thereby to spread good corporate citizenship practices throughout the
global business community. As the table below outlines, the ten principles are also intricately
tied to sustainability in supply chains.
THE TEN PRINCIPLES RELATIONSHIP TO SUPPLY CHAIN SUSTAINABILITY
Human Rights
Principle 1: Businesses should
support and respect the
protection of internationally
proclaimed human rights; and
Principle 2: make sure
that they are not complicit
in human rights abuses.
Labour
Principle 3: Businesses should
uphold the freedom of as-
sociation and the effective
recognition of the right to
collective bargaining;
Principle 4: the elimination of
all forms of forced and com-
pulsory labour;
Principle 5: the effective aboli-
tion of child labour; and
Principle 6: the elimination of
discrimination in respect of
employment and occupation.
Companies have a responsibility to respect human
rights. The baseline responsibility is not to infringe on
the rights of others. In addition, business can take steps
to support and promote the realization of human rights,
and there are good business reasons to do so.
Labour conditions in of?ces, in factories, on farms and
at natural resource extraction sites such as mines,
particularly in the developing world, often fall sig-
ni?cantly below international standards and national
regulatory requirements and can lead to serious hu-
man rights abuses. Businesses should strive to uphold
international labour standards within their supply
chains, including the right to freely chose employment,
the freedom of children from labour, freedom from
discrimination and the freedom of association and
collective bargaining.
In addition, workers at times suffer from other labour
rights abuses, including excessive work hours, degrad-
ing treatment by employers and inhibited movement.
In order to avoid complicity in abuses, businesses
should seek to ensure that they do not cause the rights
of workers and others affected by their supply chain
to be infringed upon, including the right to freedom of
movement, freedom from inhumane treatment, the
right to equal pay for equal work and the right to rest
and leisure. The rights of all peoples to work in safe
and healthy working conditions are critically important
as well.
Companies can also begin to address human rights
(including and beyond labour conditions) alone or by
working with partners to promote a broad range of
human rights such as gender equality and access to
education and health.
THE TEN PRINCIPLES OF THE GLOBAL COMPACT AND
SUPPLY CHAIN SUSTAINABILITY
9
Environment
Principle 7: Businesses
should support a precaution-
ary approach to environmen-
tal challenges;
Principle 8: undertake initia-
tives to promote greater
environmental responsibility;
and
Principle 9: encourage the
development and diffusion
of environmentally friendly
technologies.
Environmental impacts from supply chains are often
severe, particularly where environmental regulations
are lax, price pressures are signi?cant and natural
resources are (or are perceived to be) abundant. These
impacts can include toxic waste, water pollution, loss
of biodiversity, deforestation, long term damage to
ecosystems, hazardous air emissions as well as high
greenhouse gas emissions and energy use. Companies
should engage with suppliers to improve environmen-
tal impacts, by applying the precautionary approach,
promoting greater environmental responsibility and the
usage of clean technologies.
Anti-Corruption
Principle 10: Businesses
should work against corrup-
tion in all its forms, including
extortion and bribery.
The signi?cant corruption risks in the supply chain
include procurement fraud and suppliers who engage
in corrupt practices involving governments. The direct
costs of this corruption are considerable, including
product quality, but are often dwarfed by indirect costs
related to management time and resources spent deal-
ing with issues such as legal liability and damage to a
company’s reputation. Companies that engage with their
supply chains through meaningful anti-corruption pro-
grammes can improve product quality, reduce fraud and
related costs, enhance their reputations for honest busi-
ness conduct, improve the environment for business and
create a more sustainable platform for future growth.
By virtue of their ongoing business relationships, every company makes direct economic
impacts through payments to employees, suppliers and governments and indirect eco-
nomic impacts through monetary ?ows throughout supply chains and beyond. Companies
which make their supply chains more economically inclusive can support further economic
development through for instance job creation and increased incomes. Economic develop-
ment has secondary impacts on socioeconomic development and the environment and is
therefore a critically important aspect of sustainability.
ABOUT SUSTAINABLE
DEVELOPMENT IMPACTS IN SUPPLY CHAINS
10 Supply Chain Sustainability
UN GLOBAL COMPACT SUSTAINABLE
SUPPLY CHAIN RESOURCES
Supply Chain Sustainability: An Online Assessment and Learning Tool
An interactive tool for customers to measure progress in implementing a holistic sustain-
able supply chain approach, assess gaps and share challenges and successes. Produced in
collaboration with BSR (Business for Social Responsibility).
Supply Chain Sustainability Website
Provides information on initiatives, resources and tools to assist companies in developing
more sustainable supply chains, as well as case examples of company practices.
http://supply-chain.unglobalcompact.org
Human Rights Working Group Good Practice Notes on Supply Chains
A series of Good Practice Notes on how companies can partner with suppliers, govern-
ments and civil society to promote human rights in supply chains.
Environmental Stewardship Resource
A strategic policy framework for environmental management and sustainability, including
strategies and guidance for supply chain implementation.
Fighting Corruption in the Supply Chain: A Guide for Customers and Suppliers
Practical guidance and tools for both customers and suppliers to engage in the ?ght
against corruption. A product of the UN Global Compact 10th Principle Working Group.
All resources can be accessed at: www.unglobalcompact.org/Issues/supply_chain
11
The holistic approach to supply chain sustain-
ability described in this guide can help your
company identify the key issues and consid-
erations for a supply chain sustainability ap-
proach that is aligned with the ten principles
of the Global Compact.
The guide is designed for individuals with
oversight of and input on corporate respon-
sibility and supply management priorities
and practices. The approaches described are
meant to be applicable to companies that are
new to supply chain sustainability as well as
those that have more experience. Advanced
practices are highlighted in boxes entitled
“On the Horizon.”
We begin in Chapter 2 by exploring the ratio-
nales and business drivers for supply chain
sustainability. We also discuss the importance
of understanding the external landscape and
of establishing a company-specifc vision for
supply chain sustainability.
In Chapter 3, we provide advice on designing
a supplier code of conduct that builds from the
Global Compact ten principles and other recog-
nized international standards, as well as offer-
ing guidance on how to put the code to use.
Chapter 4 describes the key factors in deter-
mining the scope of a supply chain sustain-
ability programme, and tools such as sup-
plier segmentation and risk assessment and
prioritization.
Chapter 5 describes options for engaging
with suppliers on supply chain sustainability.
It includes approaches for communicating
with suppliers, monitoring performance, and
building supplier capacity as well as leader-
ship activities in building suppliers’ sustain-
ability management systems.
Chapters 6 and 7 provide practical guid-
ance on internal responsibilities and
performance management for supply chain
sustainability. They outline concepts of
internal alignment as well as the suggested
roles for executive management and supply
management professionals. In addition,
they provide recommendations on goal
setting and metrics to track internal and
supplier performance in meeting your com-
pany’s supply chain sustainability expecta-
tions. They also explore the importance of
public reporting.
Chapter 8 describes how industry collabo-
ration and multi-stakeholder partnerships
can help extend the impact of supply chain
sustainability programmes and some of the
associated opportunities and risks.
There is still much to learn about supply
chain sustainability, and we welcome com-
ments on the content of this guide and other
materials as we seek to constantly improve
the availability and alignment of supply chain
sustainability tools for companies.
How to Use This Guide
UN GLOBAL COMPACT
AND BSR PARTNERSHIP
ON SUPPLY CHAIN
SUSTAINABILITY
The Global Compact and BSR have
launched a joint project to develop stra-
tegic guidance materials for business on
the implementation of the ten principles
in supply chain programmes and opera-
tions.
In addition to this guide, the Global
Compact and BSR will produce an online
self-assessment and learning tool for
companies to determine their current
level of supply chain sustainability imple-
mentation and to learn how to make
progress over time in implementing a
holistic approach. The content of the
learning tool closely mirrors this guide,
though it is presented in a more interac-
tive format.
This guide was released at the UN Global
Compact Leaders Summit in June 2010
and the tool is forthcoming in 2011.
12 Supply Chain Sustainability
“Business is often taking
the initiative to move
things forward. Focusing
only on the business
case underplays the
value that business is
and should be providing
in society and with
regards to development.”
– Mads Øvlisen, Chair of the UN Global
Compact Advisory Group on Supply Chain Sustainability.
13
The frst steps in developing a supply chain
sustainability programme are to evaluate the
business case for action and understand the ex-
ternal landscape. These efforts will help identify
the highest priority supply chain issues for your
company, evaluate risks and opportunities and
build the internal support to move forward.
Developing the Business Case
There are many compelling reasons for taking
action to improve social and environmental
impacts throughout the supply chain. Many
companies are driven by their corporate values
and culture to address sustainability issues. For
these companies, the fact that supply chain
sustainability is the right thing to do and is a
driver of social development and environmen-
tal protection helps create internal buy-in and
commitment.
Many companies also identify specifc busi-
ness drivers for supply chain sustainability.
The business case for a particular company de-
pends on a variety of issues including industry
sector, supply chain footprint, stakeholder ex-
pectations, business strategy and organization-
al culture. Supply chain sustainability manage-
ment practices that respond to multiple drivers
can maximize the value to business.
The most common business drivers for
supply chain sustainability are depicted in the
fgure below.
2. Getting Started on Supply
Chain Sustainability
BUSINESS DRIVERS
FOR SUPPLY CHAIN SUSTAINABILITY
Managing
business risks
Realizing
ef?ciencies
Creating
sustainable
products
? Minimize business
disruption from envi-
ronmental, social and
economic impacts
? Protect company’s
reputation and brand
value
? Reduce cost of
material inputs, energy,
transportation
? Increase labour pro-
ductivity
? Create ef?ciency
across supply chains
? Meet evolving cus-
tomer and business
partner requirements
? Innovate for chang-
ing market
GOVERNANCE, MANAGEMENT, TRANSPARENCY
BUILDING THE BUSINESS CASE FOR SUPPLY
CHAIN SUSTAINABILITY
2
2
From Business for Social Responsibility.
14 Supply Chain Sustainability
MANAGING RISK
Companies can protect themselves from
potential supply chain interruptions or
delays associated with suppliers’ human
rights, labour, environmental and gover-
nance practices by ensuring suppliers have
effective compliance programmes and
robust management systems covering all the
areas of the Global Compact Principles. For
companies who have a single source for key
inputs, managing risks is also critical to en-
suring continued access to those resources.
Increasingly, customer and investor
expectations are driving companies toward
more responsible supply chain management.
Strong management of social and environ-
mental issues can help companies address
reputational risks.
Finally, companies also use supply chain
sustainability to ensure that their suppliers
can adapt to anticipated strengthening of
environmental regulations, extended prod-
uct responsibility legislation and to reduce
potential future liability.
Example: Westpac, an Australian bank, has
used advertising campaigns and sponsorships
to link the company’s brand to social engage-
ment, environmental protection and sustain-
ability. Westpac recognizes that many of its
social, ethical and environmental impacts
reside as much in its supplier relationships (or
the ‘supply chain’) as in its own activities, and
that managing supply chain sustainability is
important to protect the company’s reputa-
tion and brand value. Risks associated with
supply management include negative publicity,
damage to a company’s reputation and actual
losses of customer base. Westpac carefully
manages these risks through a de?ned supply
chain management practice.
REALIZING EFFICIENCIES
A focus on realizing effciencies in the sup-
ply chain can reduce your company’s supply
costs while also reducing the environmental
footprint of your supply chain, including
energy, water and natural and synthetic
material use, as well as improving worker
health and, motivation, and productivity.
Benefts include:
Meeting Business
Objectives through
Supplier Chain
Sustainability
Example of Risk Man-
agement: Partnering
with suppliers to ensure
minimum standards in
management practices,
such as minimum hiring
age, contracts with work-
ers, health and safety
conditions, etc.
Example of Operation-
al Ef?ciency: Reducing
costs without negatively
impacting operations,
such as shipping prod-
ucts via ocean freight
rather than via air cargo
when practicable.
Example of Sustain-
able Products: Sourc-
ing raw materials with
social and environmental
impacts explicitly consid-
ered, such as biologically
based plastics that emit
relatively fewer green-
house gases throughout
their lifecycle.
• Strong labour and health and safety practic-
es which may result in cost effciency and
improved productivity
• Increased understanding of key processes
in the supply chain, including natural
resource management and extraction,
logistics and manufacturing, which enables
better management and stewardship of
resources
• More effciently designed processes and
systems which reduce required inputs and
lower costs
Productivity and effciency initiatives re-
quire a full understanding of the different
steps of the supply chain and the key social
and environmental impacts and cost driv-
ers. By addressing the root causes of issues
through strong communication capabilities,
in-depth understanding of business driv-
ers and sustainability trends and shared
assessments and priorities for improvement,
companies can drive improvements and
derive the benefts.
CREATING SUSTAINABLE PRODUCTS
Collaboration with suppliers on sustain-
ability issues can foster product innovation.
Companies embarking on such initiatives
have added new features and performance
characteristics to existing products and
even generated new products. For example,
sustainable products may result in fewer
negative environmental impacts than tradi-
tional products or have improved end of life
collection and disposal options. It is also pos-
sible for the sustainability of products to be a
differentiating factor and to lead to increased
sales for some companies.
Example: Ahlstrom Osnabrück, a Finnish
wallpaper company, began to develop prod-
ucts based on the Forest Stewardship Coun-
cil’s standard in the late 1990’s after a large
customer in the United Kingdom announced its
commitment to source products that adhered
to the FSC standard. By 2010, all of Ahlstrom
Osnabrück’s pulp suppliers were certi?ed to
either the FSC or the Programme for the En-
dorsement of Forest Certi?cation (PEFC) stan-
dards, and the company has 12 manufacturing
sites with FSC Chain-of-Custody certi?cation,
allowing the company to meet increased
marketplace demand for certi?ed sustainable
forest products.
15
“The purchasing power of a
corporation can become a unique
driver for bringing about positive
change in society. Companies must
use this power to achieve a purpose
and make their supply chain a
vehicle for inclusive growth. In a
developing economy like India, the
bulk of the workforce is employed in
the unorganized sector which often
constitutes the last mile of the supply
chain. If this workforce is exposed
to the advantages of good and clean
business practices, it would make
a great impact on their lives and on
the wellbeing of the nation.”
– Anand Mahindra, Vice Chairman & Managing Director,
Mahindra& Mahindra Limited
16 Supply Chain Sustainability
Understanding
the External Landscape
Beyond identifying business drivers, it is also
important to understand the external land-
scape of supply chain sustainability including
the approaches of peer companies, the expecta-
tions of stakeholders and opportunities to part-
ner with others (explored more in Chapter 8).
BENCHMARKING
AGAINST PEER COMPANIES
Your peer companies may have already
begun addressing supply chain sustainabil-
ity. Benchmarking against your peers may
provide you with a more sophisticated un-
derstanding of the business value as well as
ideas to incorporate into the design of your
supply chain sustainability programme. You
should seek to understand your peers’:
• Business case for supply chain
sustainability
• Understanding of human rights, labour, en-
vironment and governance risks, opportu-
nities and impacts and the resulting supply
chain focus
• Internal structure for managing supply
chain sustainability
• Codes of conduct, and the topics included
• Use of their code of conduct
? In 2009 the Global Compact conducted a survey of
its signatories, including questions related to supply
chain sustainability practices. More than 1,000 complet-
ed surveys were received from companies with diverse
pro?les in size, geographic presence and industry.
? 83 per cent of respondents indicated they consider
suppliers’ adherence to the Global Compact principles,
and 46 per cent of respondents from companies with
more than 50,000 employees indicated they strongly
consider adherence to the Global Compact principles by
supplier. However, approximately 30 per cent of respon-
dents from companies with fewer than 50,000 employ-
ees indicated they strongly consider adherence.
? Of the 17 per cent of respondents who do not consider
adherence at all, the top reasons for not considering
adherence included lack of capacity (28 percent), not
a priority (28 percent) and lack of knowledge how to
integrate principles with procurement practices (25
percent).
? Among companies that consider Global Compact
participation when selecting supply chain partners,
regarding the selection of new supply chain partners,
45 per cent rely on publicly available information, 37
per cent rely on self-assessment questionnaires, 37 per
cent review other proprietary information and 32 per
cent rely on on-site audits by company staff.
? Among companies that consider Global Compact
participation when selecting supply chain partners,
regarding the assessment of current supply chain
partners, 36 per cent rely on audits by company staff,
35 per cent rely on self-assessment questionnaire
responses and 32 per cent assess corporate responsi-
bility performance during regular business reviews.
? The largest companies (>50000 employees) indicated
they take a variety of actions to assist their supply chain
partners to improve and adhere to Global Compact prin-
ciples, including providing training on speci?c issues (31
per cent), assistance with setting and reviewing goals
(26 per cent), reviewing and commenting on remedia-
tion plans (26 per cent) and providing references to third
party experts, e.g. consultants, civil society organiza-
tions (24 per cent). However, for smaller companies, the
top response in all size categories to this question was
“no action taken.”
? Some 52 per cent all companies, and up to 84
per cent of the largest companies include corporate
responsibility expectations in relevant documents (e.g.
contracts, proposal requests, and purchase orders).
? Some 43 per cent of all companies and up to 72 per-
cent of the largest companies, provide training to their
procurement staff on corporate responsibility.
? However, 13 per cent of companies reward purchas-
ing decisions that balance business and corporate
responsibility criteria and 15 per cent reward suppliers
that perform well on business and corporate responsi-
bility criteria.
HOW DOES YOUR COMPANY COMPARE TO RELEVANT BENCHMARKS?
Highlights from the 2009 Global Compact Survey Results Related to Supply Chain Sustainability
17
• Approach and programmes to engage with
suppliers
• Metrics to evaluate the success of their
programme
• Reporting practices
Some industries have established joint codes
of conduct (see Chapter 3) and undertake
aspects of collaborative supplier engagement,
such as cooperation to conduct audits and
training. Benchmarking against peer compa-
nies can help you identify these collaborative
approaches and industry initiatives, which
are covered in detail in Chapter 8, to avoid
‘reinventing the wheel’ of supply chain
sustainability.
Finally, suppliers themselves can often
provide examples of good practices and
can communicate their needs to customers.
Understanding the
Expectations of Stakeholders
Companies should also invest in understand-
ing the expectations of their stakeholders
including national and local governments,
workers’ and employers’ organizations, non-
governmental organizations (NGOs), advocacy
and activist organizations, academic and issue
experts and community groups, as well as
suppliers themselves.
Moreover, companies can also beneft from
seeking input from customers and investors.
Customer and investor demand is a primary
driver for many supply chain sustainability pro-
grammes, and insights from these stakeholders
can help shape programmes to ensure that they
create the maximum return for the company.
Engaging stakeholders early and regularly
in the process of designing a programme can
help companies identify relevant standards
and approaches to sustainable supply chain
management. Some stakeholders are knowl-
edgeable about, and sometimes even involved
in the development of, different codes of con-
duct and certifcations for suppliers. Examples
include the Kimberly Process for jewelry,
Forest Stewardship Council Certifcation for
wood and paper products and the SA8000 for
responsible labour practices across industries.
They can help you evaluate the credibility of
different options and identify which might
be relevant inputs for your company’s pro-
gramme.
Emerging risks and opportunities in
supply chains. From customers and employ-
ees to activists and NGOs, stakeholders are
often the frst to identify emerging environ-
mental, social and economic issues in the
supply chain. Companies who engage early
and regularly with stakeholders have the
opportunity to take a proactive approach to
these issues and to partner with stakeholders
rather than discovering the issues through
an activist campaign. Early identifcation of
issues through stakeholder engagement can
also help companies take early leadership in
comparison to peers. See Chapter 8 for more
detail on multi-stakeholder collaboration.
Example: In developing its code of conduct,
Westpac consulted its Community Consulta-
tive Council, suppliers and NGOs. The company
included feedback from organizations such
as the Australian Conservation Foundation,
Australian Consumers’ Association, Austra-
lian Council of Social Security, Finance Sector
Union, Human Rights, and Equal Opportunity
Commission. Westpac listened and responded
to the issues raised by these groups. The
company also established a Sustainable Supply
Chain Management (SSCM) Policy Review Com-
mittee where internal and external stakehold-
ers’ perspectives on SSCM can be heard and
used to improve its processes.
The Importance
of Investors and
Customers as
Stakeholders in
Supply Chain
Sustainability
Customers and investors
are increasingly expect-
ing that companies
understand and manage
impacts in their
supply chains.
Investors want to ensure
that companies are
aware of and are mitigat-
ing key risks affecting
their supply chains.
In addition, they are
interested to know how
companies are creating
value from supply chain
sustainability.
Consumers and busi-
ness customers are also
encouraging companies
to more closely man-
age their supply chains.
In particular, some
consumers are seek-
ing more sustainable
products; while business
customers may include
supply chain sustain-
ability in their supplier
selection criteria.
18 Supply Chain Sustainability
Establishing a Vision
Having a clear vision and objectives for
your company’s sustainable supply chain
programme will provide direction for your
strategy and help to defne your company’s
commitment. A vision will be a helpful
yardstick in evaluating the success of the pro-
gramme and in identifying areas for continued
improvement.
It is important that the development of
the company’s vision and objectives are
championed from the top of your company.
This is critical to ensure the success of the
programme. Moreover, to ensure support from
company leaders, it is important for execu-
tives and senior managers from all parts of the
business related to the supply chain should
be consulted in this process and have a say
in the development of the company’s vision.
Companies should consider how they can
include representatives from supply manage-
ment functions such as procurement and
operations as well as corporate responsibility,
design, marketing, logistics, quality assur-
ance, compliance, legal, human resources and
environment, health and safety functions in
creating the vision, as each of these functions
will have a role to play in the implementation
of the sustainable supply chain programme.
For smaller companies, it is equally important
that leaders agree on the vision for sustainable
supply chains.
The output of the process should be a
statement of vision and commitment. As you
develop the statement, consider what is mo-
tivating the company to invest in sustainable
supply chain management. Are you driven by:
• Customer demands and concerns?
• NGO and activist claims over practices in
your supply chain that affect your brand
and reputation?
• Investor inquiries to understand how you
are managing supply chain risk?
• Non-compliance with regulations and
standards that is preventing you from doing
business?
• Rising costs as a result of increased demand
for and reduced supply of natural resourc-
es?
• Pressure from your industry peers who are
also developing sustainable supply chain
programmes?
• The company’s culture of strong emphasis
and performance on sustainability?
• Business interest in addressing macro issues
in the environment and society to ensure
long-term sustainability of operations?
It is also important to defne specifc objec-
tives and potential barriers or risk events
affecting their achievement. What is the
company hoping to achieve through a supply
chain programme? What are some long-term
outcomes you want to work toward? How will
a sustainable supply chain support your com-
pany’s business strategy? Objectives can vary
widely, including: strategic business goals (e.g.
creating long-term value for the company),
operational business goals (e.g. saving cost by
reducing wasted energy and materials), goals
to improve your company’s reputation (e.g.
wanting to change stakeholder opinions of
your company), and compliance-based goals
(e.g. ensuring activities meet all applicable
laws and regulations).
Based on the business motivations and
objectives, you can craft a vision statement
that refects what you consider long-term
success for a programme. Some examples of
company vision statements are provided in
the box at left. The vision for your company
may change over time. As you become aware
of issues and begin to understand and gain
experience, it may become necessary to “re-
set” the vision.
Example: Grupo Arcor, a food products and
confectionary business based in Argentina,
faced a growing number of requests and inquires
from clients, credit institutions, governments
and business chambers about the company’s
supply chain and sustainability. As a result, the
company created a Supplier Social Responsibil-
ity Programme, founded on a vision to integrate
Grupo Arcor’s CSR Policy into its supplier rela-
tionships. Its speci?c objectives are:
? To align suppliers with the company’s CSR
practices and supplier contractual policies
? To guarantee minimum common standards
in the company’s production and management
processes based on sustainability
? To increase and improve Grupo Arcor’s
supply sources while favoring the economic
inclusion of vulnerable groups with productive
activities which are normally excluded from the
competitive market.
The programme has three main strategies:
awareness and training; progressive CSR incor-
poration into the supplier recruitment policy;
and speci?c responsible purchasing projects.
19
Supply Chain Sustainability Vision Statements
L’OREAL
“We are committed to building strong and lasting
relationships with our customers and our suppliers, founded
on trust and mutual beneft. We do business with integrity:
we respect the laws of the countries in which we operate
and adhere to good corporate governance practices….We are
mindful of our impact on the natural environment…We are
committed to the respect of human rights. We want to end the
exploitation of children in the workplace and the use of forced
labour…We actively seek out and favour business partners who
share our values and our ethical commitments.”
NOKIA
“At Nokia, we work hard to anticipate risk, demonstrate
company values, enhance our governance practices, increase
employee satisfaction, and look after the environment and
communities where we do business. We expect the companies
in our supplier network to take a similar ethical business
approach and to demonstrate progress and achievements in
these areas as well as in educating and overseeing the prac-
tices of their own suppliers.
Our aim is to ensure that environmental, ethical and health
and safety issues, as well as labour practices, are not separate
add-on features, but are embedded within all our sourcing
processes, including supplier selection and relationship devel-
opment.”
20 Supply Chain Sustainability
21
3. Establishing Sustainability
Expectations for the Supply Chain
As you begin to solidify your vision for sup-
ply chain sustainability, an important next
step is to translate expectations into a clear
set of guidelines that will provide direction
to suppliers and internal colleagues. At a
minimum, you should expect suppliers to
comply with national laws and to take proac-
tive measures to avoid environmental and
social harm.
3
Overview of Codes of Conduct
Codes of conduct are critical to establishing
and managing expectations for both custom-
ers and suppliers. They create a shared foun-
dation for sustainability, from which supply
management professionals, suppliers and
other actors can make informed decisions.
For many companies, a supplier code of
conduct is a natural extension of corporate
values statements and seen as an affrmation
of existing expectations rather than a new set
of requirements.
When developing codes of conduct, there
are a number of international standards that
should also be consulted and referenced.
These are outlined below.
Adopting or Writing a
Code of Conduct
The Global Compact principles outline each
of the areas that need to be covered for a code
of conduct to be considered comprehensive.
Many companies will fnd during the external
landscape review described in Chapter 2
that other companies in their industry have
already created joint codes of conduct. These
codes are designed to minimize the burden
on suppliers by reducing the number of
standards with which they must demonstrate
compliance. They are also intended to stream-
line the process of conducting joint audits of
suppliers and to reduce the effort required of
companies to design their own codes.
However, there is a risk that joint codes
do not address all the issue areas of the
Global Compact, or will not meet specifc
concerns for your business. Your company
3
Protect, Respect and Remedy: a Framework for Business and Human Rights, Report of the Special Representative of the Secretary-General on
the issue of human rights and transnational corporations and other business enterprises, John Ruggie. 7 April 2008.
should consider whether adoption of one of
these joint standards will receive the full sup-
port of executive management and be used
in place of, or to augment, a unique code
created by company. And if you determine
that it is necessary for your company to write
its own code, joint codes can still be a helpful
starting place.
If there are no joint codes for your indus-
try that are comprehensive, or your company
determines that they aren’t appropriate for
your supply chain, there are several princi-
ples and initiatives that apply to supply chain
management that should be referenced.
For the social elements of the code, compa-
nies should refer to the UN Declaration of
Human Rights and the International Labour
Organization Core Conventions and Recom-
mendations which establish common expec-
tations on a broad range of issues concerning
work, employment, social security, social
policy and human rights.
Environmental topics that are most
relevant will vary by industry, which makes
dialogue and collaboration critical to identify-
ing which issues are most important to cover
in the code of conduct. It is also important
to regularly review the contents of the code
to determine whether updated language and
interpretation is needed.
22 Supply Chain Sustainability
Key steps in development of a code include:
1. Consult with stakeholders, including suppliers
2. Base expectations on existing international
norms of behavior rather than inventing
new standards, to avoid undermining
international law and prevent conficting ex-
pectations for suppliers with multiple buyers
3. Consult with the cross functional teams, in
particular supply management professionals
4. Consider a requirement that suppliers cas-
cade these expectations to their supply base
Examples: Though products are increasingly
delivered online, print publications are still a sig-
ni?cant part of Reed Elsevier’s business, and
the company purchases a large amount of paper.
Reed Elsevier’s challenge was to better under-
stand the sustainability of the paper it uses.
To ensure suppliers meet the ethical stan-
dards Reed Elsevier’s set for its own behavior, the
company began the Reed Elsevier (RE) Socially
Responsible Supplier (SRS) programme in 2003.
The cornerstone is the Reed Elsevier Supplier
Code of Conduct, which incorporates the ten prin-
ciples of the Global Compact. Suppliers are asked
to sign and prominently post the Code in their
workplaces. It also helps suppliers spread best
practice through their own supply chain by requir-
ing subcontractors to enter into a written commit-
ment that they will uphold the Supplier Code.
Reed Elsevier has also launched an annual
paper survey asking suppliers to communi-
cate their performance on all elements of the
Code and the ten principles, not only on key
environmental issues (such as mill standards,
forest certi?cation, recycled content, bleach-
ing, resource reduction efforts) but also on how
they ensure they do not use child and involun-
tary labour, avoid workplace discrimination and
promote freedom of association.
TOPICS AND REFERENCES TO CONSIDER IN
WRITING AND ADOPTING A SUPPLIER CODE OF CONDUCT
SAMPLE POLICY AREAS THAT ALIGN WITH THE GLOBAL COMPACT PRINCIPLES:
POTENTIAL SOURCES
TO REFERENCE:
Human Rights and Labour
1. Forced labour
2. Child labour
3. Working hours
4. Wages and bene?ts
5. Humane treatment
6. Nondiscrimination
7. Freedom of association and col-
lective bargaining
8. Occupational safety
9. Emergency preparedness
10. Occupational injury and illness
11. Fire safety
12. Industrial hygiene
13. Physically demanding work
14. Machine safeguarding
Environment
15. Material toxicity and chemicals
16. Raw material use
17. Recyclability and end of life of products
18. Greenhouse gas emissions
19. Energy use
20. Water use and waste water treatment
21. Air pollution
22. Biodiversity
United Nations Global Compact**
Universal Declaration of Human Rights
Protect, Respect and Remedy: a
Framework for Business and Human
Rights
ILO International Labour Standards
ILO Code of Practice in Safety and
Health
OECD Guidelines for Multinational
Enterprises
The Rio Declaration on Environment
and Development
United Nations Convention Against
Corruption
ISO 14001
SA 8000
OHSAS 18001
Anti-Corruption
23. Con?ict of interest
24. Gifts, meals and entertainment
25. Bribery and kickbacks
26. Accounting and business records
27. Protecting information
28. Reporting misconduct
** For detailed discussion of anti-corruption in the supply chain, including model language for a code of conduct, refer to the Global Compact publication “Fighting Corruption in the Supply Chain: A Guide for
Customers and Suppliers”.
23
Example: Levi Strauss & Co. was the ?rst
multinational company to establish Global Sourc-
ing and Operating Guidelines, which outline the
company’s commitment to responsible business
practices everywhere it conducts business. The
guidelines include two parts: (1) Country Assess-
ment Guidelines, which help assess potential
issues associated with conducting business in
speci?c countries, and (2) Terms and Conditions,
which help to identify business partners who fol-
low workplace standards and business practices
that are consistent with the company’s values.
The Electronic Industry Citizenship
Coalition (EICC), an industry association of
more than 40 of the leading companies in the
information and communications technology
industries, established a joint supply chain
code of conduct that provides a united voice
for customer expectations, streamlines the
oversight of supply chain conditions for both
suppliers and customers and allows both to
focus on changing social and environmental
conditions. Each member company in the EICC
has committed to adopting the code of conduct
and implementing it in their supply chain.
The Global Social Compliance
Programme is a global cross-industry
platform that seeks to harmonize supply
chain sustainability codes and approaches.
Using the Code
In order to meet your company’s goals for
supply chain sustainability, the code should
be used as the foundation for setting internal
and external expectations and as a framework
for action and engagement with suppliers and
other stakeholders.
A new code needs to be shared through-
out your company to raise awareness of the
standards it describes. Supply management
professionals will need to gain familiarity
with the elements of the code in order to
communicate it to existing and new suppliers
and to explain how your company intends
to work with suppliers to ensure compli-
ance and continuous improvement. Pos-
sible mechanisms include internal websites,
recurrent trainings particularly for new staff
and regular communications from senior
management to reinforce the importance of
the code. Also, depending on how large and
complicated your company’s structure is, it
may be helpful to establish internal poli-
cies and procedures to explain how the code
should be implemented by staff.
Companies often take a variety of
approaches to communicating codes to
suppliers including:
• A special, one-time communication. This
approach is often most effective when the
communication comes from a senior level
executive in your company such as the CEO
or Chief Procurement Offcer.
• Inclusion of the code at frst points of
contact with suppliers. Companies are
including the code at the very start of new
relationships with suppliers by posting it on
their websites and including it in Requests
for Proposals/Quotations. This helps to raise
awareness among potential suppliers of the
importance sustainability will play in their
relationship with the company.
• Integration of the code into supplier con-
tracts. Many companies also integrate the
code into supplier contracts, or into purchase
orders, by asking their suppliers to commit in
contracts to complying with the expectations
set out in the code.
• Review of the code at a regularly sched-
uled business meeting. Linking the
introduction of the code to an established
business process and having supply man-
agement professionals present the informa-
tion will demonstrate the strength of the
connection between business and sustain-
ability performance. It can also be useful to
have supply chain sustainability representa-
tives participate in these meetings if there
will be interactions between those individu-
als and suppliers in the future as part of the
engagement and evaluation process.
Example: Telenor, a global provider of
telecommunications services from Norway,
implements its code of conduct through agree-
ments on responsible business conduct with
suppliers. These agreements require suppliers
not only commit to the code, but also to allow
monitoring and sanctions for non-compliance.
Telenor also requires suppliers to cascade the
company’s code of conduct requirements to
their suppliers and reserves the right to moni-
tor any tier in the supply chain.
SAMPLE POLICY AREAS THAT ALIGN WITH THE GLOBAL COMPACT PRINCIPLES:
POTENTIAL SOURCES
TO REFERENCE:
Human Rights and Labour
1. Forced labour
2. Child labour
3. Working hours
4. Wages and bene?ts
5. Humane treatment
6. Nondiscrimination
7. Freedom of association and col-
lective bargaining
8. Occupational safety
9. Emergency preparedness
10. Occupational injury and illness
11. Fire safety
12. Industrial hygiene
13. Physically demanding work
14. Machine safeguarding
Environment
15. Material toxicity and chemicals
16. Raw material use
17. Recyclability and end of life of products
18. Greenhouse gas emissions
19. Energy use
20. Water use and waste water treatment
21. Air pollution
22. Biodiversity
United Nations Global Compact**
Universal Declaration of Human Rights
Protect, Respect and Remedy: a
Framework for Business and Human
Rights
ILO International Labour Standards
ILO Code of Practice in Safety and
Health
OECD Guidelines for Multinational
Enterprises
The Rio Declaration on Environment
and Development
United Nations Convention Against
Corruption
ISO 14001
SA 8000
OHSAS 18001
Anti-Corruption
23. Con?ict of interest
24. Gifts, meals and entertainment
25. Bribery and kickbacks
26. Accounting and business records
27. Protecting information
28. Reporting misconduct
24 Supply Chain Sustainability
25
The next step in designing a sustainable
supply chain programme is to determine the
scope of the programme. Often companies
that are just starting out in supply chain
sustainability seek to, or feel pressure to,
engage their entire supply chain. However,
given the size and spread of most companies’
supply chains, and the resources that will be
required for effective engagement, this is typi-
cally unrealistic.
Many companies therefore chose to focus
their programme on their “key” or most
“strategic” suppliers, which are often those
that the company sources directly from, has
signifcant spend with and/or views as critical
to production.
In addition, there may be particular “hot
spots” in your supply chain, even several steps
removed from your operations, which could
need immediate attention because of the high
level of risk. For example, electronics compa-
nies are beginning to focus on minerals that
are extracted from regions affected by social
confict and where human rights violations
are present.
The objective of determining the scope of
the programme is to identify which of your
suppliers you should engage with and to what
extent, noting that programme boundaries
tend to change over time as companies become
more sophisticated and capable to manage sup-
ply chain sustainability more effectively.
Examples: Ford Motor Company has made
it a priority to take action on forced labour in
the production of pig iron, which is used to
make steel, even though it is six or seven tiers
removed.
In the development of Telenor Group’s
responsible supply chain programme, Tele-
nor formally did not exclude any tier of the
supply chain from the start. Further, Telenor
also de?ned “suppliers” to include any kind of
contractual partner, except customers. The
practical scoping of this on operational level is
carried out through supply chain risk assess-
ment and prioritization within practical efforts.
4. Determining the Scope
Sub-tier suppliers are de?ned as those companies that supply to your suppliers—they
are all the companies that you don’t source from directly but that provide inputs for your
products and services.
For example, in the information technology sector, mining companies are sub-tier suppli-
ers because they provide the metal that goes into electronic components. Similarly, in the
?nancial services sector, some computer hardware manufacturers are sub-tier suppliers
because they provide the servers that other information technology companies use to oper-
ate data centres.
Many companies struggle with whether and how to include sub-tier suppliers in the scope
of their supply chain programme because of the lack of direct interaction and perceived
lack of in?uence.
However, many companies and industries have found that sub-tier suppliers have the
most signi?cant challenges in addressing sustainability issues. We recommend that com-
panies be aware of where sustainability challenges are likely to arise by mapping their
entire supply chain. You can then evaluate the importance of the issue to your business
and its potential impact on society to determine if or how to include it in the scope of your
supply chain sustainability programme.
THE IMPORTANCE OF LOOKING BEYOND
DIRECT SUPPLIER RELATIONSHIPS
26 Supply Chain Sustainability
Raw
Materials
Manufacturing/
Processing
Packaging
Transportation/
Storage
Retail
Consumer
Use/ End
of Life
SUPPLY CHAIN
GENERIC SUPPLY CHAIN STAGES FROM
A RETAILER PERSPECTIVE
Sample Supply
Chain Risk Events
for a Food Company*
Child Labour:
Allegations of child
labour on farms in supply
chain surface.
Working Hours &
Wages:
Workers in food process-
ing plants strike due to
low wages and unpaid
overtime wages.
Corruption:
A supplier’s manage-
ment misuses revenues
or royalties for corrupt
purposes.
Food Safety:
Processing plants fail to
properly clean machin-
ery and unintended and
potentially hazardous
substances end up in
product.
Indigenous People:
Farming is undertaken
on land that is sacred
or otherwise essential
to lives or livelihoods of
indigenous people.
Pollution:
Processing plants fail
to properly treat water
ef?uents and are not in
compliance with local
regulations.
* This list is provided for illustrative
purposes. It is not intended to be
comprehensive.
Mapping the Supply Chain
To understand the appropriate scope for man-
aging sustainability in your supply chain, you
must frst defne what your company’s supply
chain is. A supply chain map helps to trace
the key activities of organizations and people
involved in bringing a product or service from
raw material to market. A generic product
supply chain is illustrated below.
Of course, the supply chain of individual
products and services can look substantially
different. Supply chain mapping there-
fore needs to be conducted on a product
or service category basis. For companies
in service industries, like hospitality and
transportation, think of the various steps in
your service and focus on the supply chain
of key assets (such as ships in the transpor-
tation industry) and products that support
your service (such as food in the hospitality
industry).
We recommend focusing on the most
important product or service categories as
a starting point. This could be identifed by
reviewing procurement contracts or your
company’s cost of goods sold data, or similar
primary information. For example, an auto-
mobile rental services agency’s main assets
are its feet of cars and computer systems to
manage reservations, and both of these cat-
egories would need to be mapped.
To map your supply chain:
• Identify your major product and service
categories to map. Consider your com-
pany’s largest categories of procurement
spend and categories that are critical to
business operations.
• For each product or service category,
trace the fow of materials and informa-
tion. Don’t stop with your direct suppliers
— go back to raw materials and original sup-
pliers. Also, don’t make assumptions—work
to understand the relationships and transac-
tions as they actually exist. In some cases,
agents or wholesalers may play key roles.
• Gather information on the human rights,
labour, environmental and corruption
issues at every step of the supply chain.
Where are there potential risks and opportu-
nities associated with these issues? It can be
very useful to discuss with peer companies,
suppliers, industry bodies, civil society or-
ganizations and activists, as well as govern-
ment representatives to identify issues.
27
“We live in an increasingly
resource aware and resource
constrained world. We need
to live within our means
and not borrow from
the future. To build a
sustainable tomorrow we
need to make our supply
chain sustainable today.
In fact, I frmly believe that
increased sustainability
in the supply chain reduces
risks and increases profts
for all organizations and
stakeholders”
– Kris Gopalakrishnan, CEO and Co-Founder of Infosys
28 Supply Chain Sustainability
Segmenting the Supply Chain
With a more complete understanding of your
company’s supply chain, you can begin to
segment your suppliers to determine how to
commit resources to improve sustainability.
Segmentation allows companies to focus on
the most critical elements of the supply chain.
Good segmentation is a balance between ac-
knowledging that some risk will always exist but
that specifc risks need to be addressed to avoid
negative impacts to your business and to society.
There are a number of different criteria
to consider in supply chain segmentation
including, but not limited to:
• Risk to Society: Where are the biggest risks
to human rights, labour, the environment
and ethics in your supply chain?
• Business Risk: What are the risks in your
company’s supply chain that could impact
ability to do business and meet the vision
set forth for supply chain sustainability?
• Risk to Economic Development: What
are the risks for exclusion of small and
medium sized enterprises (SMEs) when
introducing code demands, monitoring and
auditing schemes?
SUPPLY CHAIN
SUSTAINABILITY RISKS MAPPING
RISK IMPACT / SEVERITY
RISK
LIKELIHOOD
Both business and societal risk can be
infuenced by:
• Spend: Which suppliers does your compa-
ny have the highest spend with, including
direct and indirect spend, and potentially
therefore the most infuence with?
• Country: Which countries do your suppliers
operate in, and which of those countries are
high risk because of weak legal and regulato-
ry frameworks, high levels of corruption, etc.?
• Category: Which suppliers, including sup-
pliers for products and processes, are most
business critical for your company?
• Tier: Which suppliers sell to your company
directly, and which are sub-tier suppliers?
• Nature of transaction: Does the transac-
tion contribute to increased or decreased
transparency and accountability for condi-
tions in the supply chain? For example,
sub-contracted labour, brokers, agents, and
middlemen may lead to gaps in knowledge,
awareness and infuence.
There are two main steps to mapping risk
in the supply chain:
1. Identifying Risk Events. Events, such
as underpayment of wages at a factory in
your supply chain, can create risk for your
business. Internally - and externally-driven
events that may not only be against the
law but may also affect the achievement of
your sustainable supply chain and business
objectives must be identifed. Risks can in-
clude business continuity, regulatory, repu-
tational, market acceptance and customer
requirements risks. External stakeholders
may also identify other social, environmen-
tal, economic and governance risks which
your company will have to evaluate for
their potential impact on your business.
2. Assessing the Likelihood and Severity of
Risk Events. Risk events should be analyzed
to understand their likelihood and poten-
tial impact. This will determine how they
should be managed under your company’s
supply chain sustainability programme.
Many companies fnd it helpful to plot each
risk event on a grid, where the two axes are
“likelihood of occurrence” and “severity of
consequences,” as in the mapping on the left.
It is also possible to include additional dimen-
sions and inputs to create the risk ranking.
For example, stakeholder perception of risks
29
may be different, and your company may
want to take this perspective into account as
well in setting priorities for action.
Finally, to use this analysis to effectively
segment your company’s supply chain, you
will need to translate risks to types of suppli-
ers. For example, an information technology
company may fnd that many of its highest
risks are focused on the raw minerals that are
used in manufacturing its products. It would
therefore want to focus its supply chain
sustainability programme at the base of its
supply chain programme. A pharmaceutical
company, on the other hand, may fnd that
many of its highest risks occur during trans-
portation of its products when the integrity
of its medicines and patient safety might be
at risk. This company would want to engage
with its logistics suppliers to address potential
business ethics, labour and business continu-
ity concerns. Some risks, such as greenhouse
gas emissions, packaging waste and environ-
mental management in logistics and trans-
portation are common to many industries,
and depending on the scale of activity, might
require different interventions.
Examples: Through its supplier mapping
exercise, CEMEX, a Mexican building materi-
als company, realized that 80 per cent of the
company’s spend in the supply chain goes
to 20 per cent of its suppliers. Given the
significant size of its total supply chain, and
the realistic ability of the company to affect
change in suppliers, CEMEX determined that
it could most effectively create sustainability
improvements and realize business value
from focusing on that 20 per cent.
ArcelorMittal, a mining company based
in Luxembourg, has a USD 50 billion supply
chain extending from basic raw materials like
iron ore to sophisticated downstream prod-
ucts and services. The company has mapped
out the most significant sustainability related
risks and opportunities for each category of
the supply chain based on desk research as
well as input from internal experts, users
and the respective category purchase teams.
ArcelorMittal has found that mapping risks in
a method that is both robust, but also simple
and aligned with the organization’s core
risk management approach, is essential to
crystallize the key priorities to be addressed.
The company chose a 2 x 2 matrix (Impact x
Likelihood) for each purchase category and
held workshops with participants from the
wider internal workgroups to discuss the
challenges as well as opportunities in each of
these categories. This process will need to be
repeated on a regular basis to ensure the risk
map remains up to date.
30 Supply Chain Sustainability
Example: In order to address environmen-
tal, health and safety impacts throughout
the company’s supply chain, Mahindra &
Mahindra Limited, an Indian industrial
group, started a programme to enable
knowledge and best practice sharing with
suppliers. A detailed questionnaire was sent
to all suppliers. This provided the basis for
understanding the current processes in the
supply chain and the level of the envi-
ronmental challenges, such as effects of
irresponsible waste disposal. Suppliers were
then categorized as follows
A. Supplier with hazardous process and
dangerous operations with no EMS/OHSAS
certi?cation
B. Supplier with hazardous process or/and dan-
gerous operations with EMS/OHSAS certi?cation
C. Supplier with non-hazardous process or/and
non-dangerous operations with no EMS/OHSAS
certi?cation
D. Supplier with non-hprocess or/and non-dan-
gerous operations with EMS/OHSAS certi?cation
Suppliers in categories A & B were determined
to be top priorities for the company’s continuous
improvement programme.
Control
Level
SUPPLIER CONTROL LEVELS
Guidlines
LEVEL 1
LEVEL 2
LEVEL 3
LEVEL 4
LEVEL 5
Low impact on CSR & compliance, no impact on production
Some impact on CSR & compliance, no impact on production
Some impact on CSR & compliance, indirect impact on production
Some impact on CSR & compliance, direct impact on production
Alternative supplier available
Some impact on CSR & compliance, direct impact on production
Alternative supplier not available, major problems maintaining pro-
duction
Example: Epson, a Japanese technology hardware and equipment company, has organized its
suppliers by control level. Suppliers are categorized into five levels depending on their impact
on the company’s CSR initiatives and ability to sustain production.
31
32 Supply Chain Sustainability
33
The ultimate goal of engaging with suppliers
is to develop a shared mindset about sustain-
ability issues, to build supplier ownership
of their sustainability vision, strategy and
performance and to work more closely with
suppliers with shared priorities.
There are many different levers compa-
nies can use to improve sustainability in the
supply chain. The mechanisms described in
this chapter are focused on raising aware-
ness and encouraging suppliers to integrate
and drive sustainability into their busi-
ness through setting expectations, ongoing
monitoring and partnering with suppliers to
overcome barriers to improvement.
The fgure below shows the tools that are
used by companies across a wide range of
industries to engage with suppliers on supply
chain sustainability. Each has specifc pur-
poses, and it is important to have a strategic
process to determine which supplier engage-
ment tools to use and to what extent.
5. Engaging with Suppliers
Monitoring & Evaluation
Ask suppliers to self-assess their sustainability performance.
Conduct on-site evaluations of performance
Remediation &
Capability Building
Ask suppliers to address issues of poor
performance. Provide training, resources,
and support to improve sustainability
management and performance.
Partnership
Support supplier
ownership to address
the root causes of poor
sustainability performance.
Setting Expectations
Communicate about your sustainability expectations to suppliers.
Incorporate expectations, including the code of conduct, into contracts.
TOOLS FOR ENGAGING WITH SUPPLIERS
ON SUSTAINABILITY
4
Broad
engagement
Deep
engagement
4
From Business for Social Responsibility.
34 Supply Chain Sustainability
Selecting Communications Channels
The frst step to improving sustainability in
the supply chain is to raise awareness of your
company’s expectations for sustainability per-
formance. Many companies use their codes of
conduct to do so (as described in Chapter 3).
In addition, there are two additional com-
munication methods to consider:
USING EXISTING CUSTOMER-SUPPLIER
COMMUNICATIONS.
Every company has some existing processes or
methods to communicate with suppliers. These
can vary from very basic to very sophisticated
approaches. Often these communications are
led by supply management professionals and fo-
cus on the business aspects of the relationship.
You should consider how to regularly
incorporate sustainability expectations and
dialogue into these communications to help
build shared mindset, reinforce key messages,
and provide the opportunity for feedback. This
approach has the beneft of providing a dia-
logue platform where the supplier can in turn
raise issues of constraints or tensions created
by your company’s demands (such as short
lead times or many changes to order specif-
cations). Having the right parties around the
table can help identify ways to meet both the
business and sustainability requirements.
ADDING SUSTAINABILITY TO THE
AGENDA OF SUPPLY CHAIN FORUMS.
By participating in supplier forums and talk-
ing about sustainability expectations in your
industry, you can help identify organizations
that share your company’s issues and priori-
ties. These discussions, which can include
suppliers, but also peers, partners, policymak-
ers and a broad range of other stakeholders,
allow you to share details about your com-
pany’s priorities and expectations, and learn
from others about their approaches. These
forums can also provide an important op-
portunity to get feedback on your programme
and identify areas for improvement, as well as
to build support for addressing systemic chal-
lenges that require a shared response
Examples: In 2006, the Fuji Xerox Co., Ltd., a
Japanese imaging technology company, began
the implementation of an ethical procurement
programme to address customers’ needs and re-
spond to their concerns related to management
at environmental and labour issues in manufac-
turing facilities, to minimize manufacturing and
brand risks from supplier noncompliance and to
improve product and manufacturing quality. As
the ?rst step in the development of the com-
pany’s programme, Fuji Xerox conducted “ethical
procurement study sessions” with its nine key
suppliers’ executives in 2006. The study sessions
included a ?ve-day study meeting in Shenzhen,
China, with approximately 50 participants,
including the executives of the suppliers, their
factory presidents in Shenzhen area and Fuji Xe-
rox of Shenzhen executives. The suppliers’ study
group was critical to the successful launch of
the company’s ethical procurement programme.
Many companies starting out in supply
chain sustainability are focused on
addressing situations when supplier
performance on sustainability issues
is poor. However, often suppliers are
more motivated by incentives for strong
performance than by negative conse-
quences.
As your supply chain sustainability
programme evolves, you should con-
sider establishing clear benchmarks and
rewards for consistently strong perfor-
mance. Incentives could include:
? Reducing the number of audits
conducted
? Establishing a preferred supplier
programme
? Increasing business
? Providing recognition and awards
? Allowing participation in strategic
buyer/supplier planning meetings
? Sharing costs for sustainability
improvements
? Providing assistance for capability
building
Example: Mahindra & Mahindra
Limited is an automobile and farm
equipment manufacturing company.
The Farm Equipment Sector has es-
tablished annual sustainability awards
for suppliers exhibiting progress on
sustainability as de?ned by Global Re-
porting Initiative (GRI) Guidelines. So
far, seventeen suppliers have received
training on GRI indicators and tools
like stakeholder engagement.
Creating Incentives for Strong Sustainability Performance ON THE HORIZON:
35
In 2009, The Coca-Cola Company, a food
and beverage company based in the United
States, brought a group of top global sup-
pliers to Atlanta to participate with senior
management in a discussion about the need
for business to embed sustainability as a
critical element of growth plans. During the
meeting, the Chairman and CEO shared his
thoughts on the evolution of supply chains,
including how low costs, speed, ef?ciency and
customization are merely the price of entry
to compete in today’s marketplace, and how
sustainability will be critical for consumer
and customer differentiation. Rather than set
top-down directives, the company sought sup-
pliers’ strategic counsel in ensuring long-term
mutual success in improving sustainability in
the supply chain. Following the summit, Coca-
Cola received nearly 200 proposals from sup-
pliers, including ideas and strategies related
to sustainable packaging, logistics, sustain-
able agriculture, water stewardship, and
portfolio innovation. Coca-Cola is developing
individual and collective action plans with the
32 suppliers who participated.
Monitoring and Evaluations
A monitoring system provides information
on whether suppliers are complying with the
codes and expectations your company has
put in place. Monitoring systems are effective
in establishing baseline measurements and
assessing recent and current performance
relative to minimum expectations. However,
compliance-based approaches to monitoring
have resulted in concerns about costs, disrup-
tions to production of suppliers, doubts about
the accuracy of the information collected
and potential risks to safety of workers. You
should carefully consider what approach to
use and with which suppliers, in order to get
reliable information collected and avoid over-
reliance on compliance audits.
SUPPLIER SELF-ASSESSMENTS
Many companies invite suppliers to self-assess
their sustainability performance as an initial
screen in selecting new suppliers or as part
of a risk assessment for identifying which
suppliers may require closer monitoring.
Self-assessments can provide customers with
useful information and also increase suppli-
ers’ understanding of customers’ expectations.
Many companies also fnd that self-assessments
Creating Incentives for Strong Sustainability Performance
are a good starting point to cover a signifcant
portion of the supplier base in a relatively
short time frame and at relatively lower cost
than audits.
However, reliable self-assessments depend
on trust, a suppliers’ competency to gather in-
formation from disparate parts of their organi-
zations and clear communications so that sup-
pliers understand what is being asked and how
their information will be used. For example, the
problem of double books is sometimes due to
suppliers’ concern that their poor performance
will result in immediate loss of business.
Example: Hewlett-Packard (HP), a large
computer company and member of the Elec-
tronic Industry Citizenship Coalition (EICC),
requests that suppliers identi?ed as high-
risk complete an electronic self-assessment
questionnaire to identify potential social and
environmental responsibility performance
risks. HP reviews the results of the self-
assessment and provides feedback to suppli-
ers, and suppliers create and implement an
improvement plan if necessary. In addition to
helping HP evaluate risk, self-assessments
have been shown to help HP suppliers become
more familiar with HP’s expectations of what
it means to conform to HP’s code of conduct.
36 Supply Chain Sustainability
Compliance audits are on-site evaluations of
supplier performance against your policies and
expectations. An audit typically includes several
elements as illustrated in the fgure below.
Audits can also include management systems
assessments which gather information on the
strength of suppliers’ sustainability management
systems. There are several audit protocols in
place in certain industries that can be leveraged.
For example, the Global Social Compliance
Programme has gathered audit process best prac-
tices in a set of reference tools that companies
can adopt or can use as a benchmark for their
own system.
Audits can be conducted by your company
staff or by a third-party auditing frm. The
questions of when, why and how to engage
external auditors should be driven by your
overall supply chain risk management objec-
tives. Both external and internal auditors offer
distinct advantages and there is no standard
“right way.” In fact, some companies use both.
In deciding whether to rely on external
auditors or to develop and maintain internal
capacity for auditing, consider what type and
level of expertise is needed to assess perfor-
mance against your policies, such as envi-
ronment or health and safety expertise and
regional presence and capacity. Also, individ-
ual qualifcations are also important and have
an impact on the integrity and quality of the
audit results. For companies with substantial
audit requirements, it’s important to carefully
Worker Interviews:
With a representative
sample of employees
regarding working conditions.
Records Review:
Checking employee
?les, timecards, health
and safety records, etc.
Management Interview:
Discussion of management
systems, wages paid,
working hours, etc.
Facility Tour:
Visual inspection of
facility for obvious
noncompliances.
SUPPLIER
AUDIT
COMPONENTS OF AN AUDIT
consider the cost, feasibility and effectiveness
of internal versus external investments. Also,
consider how suppliers will perceive and be
affected by audits, how critical they are to your
business and how much control your company
needs to have over the process and results.
Effective audits are driven by a variety of
factors including:
• Preparation and knowledge of factory,
workers and community prior to visit
• Maintaining independence from manage-
ment for credibility with workers
• Selecting a random sample of workers to
interview during all parts of assessments
• Holding informal conversations with work-
ers during times and in locations where
they are comfortable and secure
• Gathering enough information to ensure
understanding of factory conditions
• Documenting information and assessing
workers’ credibility
• Validating information from workers with
other sources
• Always being aware of the need to protect
workers’ confdentiality and safety
Examples: L’Oréal, a French cosmetics
company, requires suppliers to agree to be
audited by signing an “Ethical Commitment
Letter.” All subcontractors are audited wher-
ever they operate, as well as all suppliers of
raw materials, packaging, on-site security,
cleaning services, company cafeterias locat-
ed in “at risk” countries and all promotional
items suppliers. Other suppliers are audited
on a case by case basis, as necessary. Audits
are based on SA8000 standard, and carried
out by specialized, independent third party
auditors in the local language. Audits are
carried out during a pre-agreed period of 30
days, without a warning of the actual date.
They include a visit to the factory, workshops,
offices and on-site accommodation as well
as individual interviews with employees. The
cost of the initial audit is entirely supported
by L’Oréal, and the final report is sent in
parallel to L’Oréal and the supplier.
Over the past decade, Nike, a footwear and
apparel company, has experimented with us-
ing many tools for encouraging and enforcing
contract factories’ compliance with their code
37
of conduct and code leadership standards.
One of the main components of the company’s
monitoring programme is its Management
Audit Veri?cation (MAV) tool, which is a labour
assessment tool designed to audit performance
in ?ve key areas: work hours, wages, bene?ts,
grievance systems and freedom of associa-
tion. The audit focuses on the factory’s people
management systems and practices and is
performed by Nike’s compliance staff.
In order to ensure the integrity of the phar-
maceutical supply chain, Takeda, a Japanese
pharmaceutical company, implemented a
supplier qualification and monitoring process
that includes a risk assessment of poten-
tial partners from the viewpoints of qual-
ity assurance, EHS and security as well as
business performance. This process applies
to new suppliers of raw materials, contract
manufacturers and logistics service provid-
ers. In addition, Takeda conducts periodical
audits of suppliers of raw materials, contract
manufacturers, packagers, logistics centres
and dealers. A combination of monitoring and
audits by Takeda staff are complemented
by occasional support from external audi-
tors. Questionnaires, facility tours, reviews
of policy, standard operating procedures and
records and interviews are used to check
compliance with regulations and expectations
set by Takeda. The likelihood and severity of
the identified risk events are assessed and
corrective and preventive actions are tracked.
Remediation and
Capability Building
Supply chain sustainability is an evolving
vision, which means that it is critical to have
an approach that defnes and incentivizes
continuous improvement. This approach
should include both remediation of instances
of non-compliance as well as investment in
suppliers’ management capabilities.
Remediation can include a number of
activities:
• Working with suppliers to create a corrective
action plan for achieving compliance in a
clearly defned and reasonable time frame.
• Encouraging improvements through regu-
lar communications with non-compliant
suppliers.
• Defning a roadmap for gradually increas-
ing standards and expectations.
• Terminating supplier relationships when
serious shortcomings on “zero-tolerance”
issues are not remedied in spite of repeated
notifcations. Companies should identify
zero-tolerance issues and explain their
selection and consequences to suppliers in
advance. Companies should also explain in
advance the process for remediation and at
what point continued noncompliance may
result in termination.
It is important that remediation requirements
are communicated very clearly to suppliers,
and that there are established timelines and
consequences for not meeting them or con-
tinuing poor performance.
Examples: Philips, an electronics company
from the Netherlands, implemented a Sup-
plier Sustainability Involvement Programme
built on five pillars: setting out requirements;
building understanding and agreement;
monitoring identified risk suppliers through
audits using the EICC checklist; working
with suppliers to resolve issues quickly; and
engaging stakeholders. When non-confor-
mances are found during an audit, corrective
action plans (CAPs) are agreed upon within
30 days. Philips will work with the supplier
to define the CAP, specifying the required
steps, milestones and responsibilities, and to
track progress of the plan. Philips’ Supplier
Sustainability officers follow up monthly and
can escalate the issue to the responsible
purchasing manager as necessary.
De Beers, a diamond mining company,
launched its Best Practice Principles (BPP)
Assurance Programme to address social,
employment, business, health and safety and
environmental issues throughout the diamond
pipeline. De Beers’ clients and their signi?cant
contractors, who range from diamond cutters
and polishers to jewellery manufacturers to
retailers, must comply with the requirements
of these Principles. Where an infringement
against the requirements is raised, the client
or contractor is required to submit Correc-
tive Action Plans (CAPs) to address the issue.
Evidence is submitted online or the third party
auditor will re-visit the site to ensure that
CAPs have been successfully and continuously
Protecting
Workers Who
Participate in
the Monitoring
Process
? Workers who par-
ticipate in the monitoring
process should be pro-
tected from retaliation.
? Workers should be as-
sured that they can speak
freely and information
that they provide will not
be attributed to them as
individuals.
? Workers should be
provided means to com-
municate in their native
language, when possible.
38 Supply Chain Sustainability
implemented. The CAP process enforces con-
tinuous improvement and provides a structure
for ensuring sustainable solutions, and are
implemented to address the issue areas.
De Beers can be consulted during the CAP
process and provides advice, best practices
and information drawing on past experience
to help solve the problems more ef?ciently. In
addition, a manufacturer committee has been
created by the manufacturers themselves to
discuss and collaborate on industry-wide and
location-speci?c issues to ?nd sustainable
solutions to common issues.
Nestlé India, a food and beverage company,
established a dedicated supplier development
department in 2005 to achieve cost savings
by relying less on imports to overcome quality
and food safety issues, and to create a wider,
more ?exible supply base. The company
invests in working with suppliers through
training programmes and by providing techni-
cal assistance to suppliers to close safety and
quality gaps and improve suppliers’ manage-
ment systems and products. As a result of
these supplier development efforts, Nestle In-
dia has secured local sources of 12 previously
imported raw materials, avoided 10 single
supplier situations, developed more than 70
new Indian suppliers able to meet Nestlé’s
speci?cations and saved $US5 Million. By the
end of 2009, this initiative has also been rep-
licated in Bangladesh, Brazil, Indonesia, Iran,
Malaysia, Russia and South Africa.
Remediation efforts are most successful
in combination with efforts to build
suppliers’ management capabilities.
Capability building includes a variety of
efforts, from training for supplier personnel
to establishing worker hotlines and
resource networks. For example, through
a combination of practical workshops,
training and in-factory consultations, the
International Labour Organization’s (ILO)
Factory Improvement Programme (FIP)
helps factories increase competitiveness,
improve working conditions, and strengthen
collaboration and communications between
managers and workers.
Examples: HP completed a pilot worker
training project with two suppliers and us-
ing the support of a local worker-training
NGO to ensure that the EICC Code of
Conduct reaches workers as well as man-
agement at supplier factories. The training
reached more than 4,000 workers, helping
them understand their labour rights and
giving them a channel for communicating
concerns about their working environment.
The training covered:
? Raising labour rights awareness
? Establishing worker hotlines and teaching
employees to manage them
? Resolving labour issues with tailored instruc-
tion for worker representative committees
? Counseling skills and techniques for organiz-
ing communications programmes
The pilot was praised by NGOs for showing
how workers’ feedback helps senior managers
understand the demands and grievances of the
workers. HP has adapted the pilot project for
other factories and will continue to implement
similar programmes in 2010.
BSR’s China Training Initiative (CTI)
has delivered practical learning to manag-
ers from factories employing more than 1
million workers and has developed tools to
enhance managers’ abilities and their com-
mitment to improve working conditions. CTI
acts as a resource for buyers and manufac-
turers, bridging buyers’ expectations and
suppliers’ needs with the skills, tools and
resources to address corporate responsibil-
ity and sustainability challenges and meet
buyers’ expectations.
Providing tools
that suppliers
can access and
use independently
Creating or
supporting a
learning network
of suppliers
Integrating learning and
capability building into
auditing process
Providing supplier or
worker trainings
on major areas of
non-compliance
SUPPLIER
CAPABILITY
BUILDING
OPPORTUNITIES IN
SUPPLIER CAPABILITY BUILDING
39
“A sustainable supply
chain benefts our
business by mitigating
risks associated with
producing and delivering
our products and services
to our customers. It also
creates opportunities to
develop closer ties with
suppliers in the long-term
interest of the company.”
– Erik Engstrom, Chief Executive Offcer, Reed Elsevier
40 Supply Chain Sustainability
Example: Levi Strauss & Co. has devel-
oped several trainings to help implement
their Terms of Engagement (TOE). This
includes a detailed TOE Guidebook as a ref-
erence for factories, auditors, and external
stakeholders with an interest in factory
working conditions.
Engaging with Sub-Tier Suppliers
As described above, companies sometimes fnd
that they have signifcant risk in the suppliers
who are one or more links away in the supply
chain. For example, food and agricultural
companies have faced signifcant challenges
recently with child labour on farms which they
rarely buy from directly. The electronics indus-
try is struggling with mining in confict zones
for the minerals that go into their products.
Engaging with sub-tier suppliers has ad-
ditional complications beyond those described
above, including lack of transparency in the
supply chain and lack of company leverage.
To overcome these obstacles, companies are
pursuing a number of strategies including:
• Participation in industry collaborations.
By collaborating with other companies,
you can pool your leverage to increase your
voice to sub-tier suppliers. You can also
share the costs and resources required to
engage with these suppliers
• Engagement in public policy. Many com-
panies also overcome their lack of leverage
by seeking legal and regulatory redress of
sustainability issues.
• Supply chain optimization. Individual
companies can also take steps to shorten
their supply chains by grouping smaller
suppliers into cooperatives and reducing
middlemen. This can also increase the rev-
enue that small suppliers earn.
Example: Nestle’s stated vision for the
cocoa supply chain is to help cocoa farmers
run profitable farms, respect the environ-
ment, have a good quality of life and for their
children to benefit from an education and see
cocoa farming as a respectable profession.
However, in many cases, Nestle is more than
five layers of the supply chain away from
farmers. To address challenges with child la-
bour on cocoa farms, Nestle has joined with
other companies, the World Cocoa Founda-
tion, and the International Cocoa Initiative
to establish an industry-supported certifica-
tion programme involving the governments
of Cote d’Ivoire and Ghana. In addition to
setting and monitoring against standards for
child labour on cocoa farms, the programme
is providing training to improve farming prac-
tices, shortening the supply chain to make
sure that more of the value of the cocoa
reaches the farmers and supporting commu-
nity development.
Companies should encourage their
suppliers to begin their own sustain-
ability journey. One way is to encour-
age them to join and participate
actively in the Global Compact and
Local Networks around the world.
Joining the Global Compact is a sign
that the supplier is taking sustainabil-
ity issues seriously.
Example: Since 2005, Schneider
Electric, a French electric compo-
nents and equipment company, has
asked its suppliers and subcontrac-
tors to join the Global Compact.
Support of the Global Compact is one
of the criteria for becoming one of
Schneider Electric’s main suppliers.
Schneider Electric has established
a goal to source 60 per cent of the
company’s purchases from suppli-
ers who support the Global Compact
by the end of 2010. By the end of
2009, 33 per cent of the company’s
purchases were made with suppliers
who had signed the Global Compact,
and 1,153 of Schneider Electric’s
suppliers had signed the Global
Compact. The company’s purchas-
ing teams have been trained on the
Global Compact Principles to better
engage with suppliers on these
issues. Moreover, it closely moni-
tors which suppliers are in danger
of being delisted from the Global
Compact for failure to Communicate
on Progress.
Encouraging Suppliers to Join the Global Compact
ON THE HORIZON:
41
Encouraging Suppliers to Join the Global Compact
The ultimate goal of engaging with suppliers should be
supplier ownership of sustainability, which occurs when
suppliers integrate into their mission, strategy and deci-
sion-making the value, impact and return on investment of
responsible labour and environmental conditions.
While monitoring and remediation are essential for under-
standing risks and challenges in your company’s supply
chain, there are limits to what monitoring can achieve.
Monitoring is not the most effective tool for identifying the
root causes of issues, for establishing forward-looking ex-
pectations for improvement or for putting shared attention
on emerging issues, which are often sources of competitive
advantage and other business value.
Companies and suppliers both have equal roles in enabling
supplier ownership.
Speci?cally, companies should:
? Share relevant business information with suppliers
? Build long-term relationships
? Create incentives for sustainability
? Expect improvements to sustainability
management systems
? Encourage and reward transparency
? Be sensitive to how their own business practices may
impact suppliers ability to meet sustainability expectations
Similarly, suppliers should:
? Demonstrate personal executive commitment
? Incorporate sustainability into strategic planning and
valuation
? Demonstrate continuous improvement
? Proactively communicate CSR challenges and progress
to companies
Leading companies in supply chain sustainability are trying
to build supplier ownership through the development of
sustainability management systems. Some companies have
begun incorporating evaluation of sustainability manage-
ment systems into their audit protocols to raise awareness;
others are providing training and consulting for suppliers
on sustainability management system design. And some
companies have instituted improvement ladders which
emphasize a continuous improvement approach to sustain-
ability management systems development with increasing
incentives and reduced auditing.
Examples: Mahindra and Mahindra Limited works with
selected suppliers to improve their management capabili-
ties in a number of areas. The company’s Farm Equipment
Sector established the Mahindra Yellow Belt (MYB) Business
Partners’ Training Programme to help build suppliers’ capa-
bilities to address quality problems. The training programme
includes two days of training, a test to verify that the learning
objectives have been met and a follow up project to apply
the learning that is selected by the supplier and approved by
Mahindra.
Alcatel-Lucent, a French telecommunications company,
developed an assessment approach that could be broadly
used and would provide a critical analysis of the performance
of a supplier’s CSR management systems. The intent was
to go beyond traditional auditing methods and to develop a
more positive approach. In 2008 the company partnered with
EcoVadis to develop a web based collaborative platform to
enable a deeper assessment of suppliers’ CSR management
systems while focusing internal resources on more strategic
supplier development activities. The assessments are based
on international instruments, including the UN Global Com-
pact, the Global Reporting Initiative Indicators, and draft ISO
26000 guidelines and cover 21 CSR indicators customized
for 150 product categories. The supplier scorecard combines
several inputs, including (i) self reported information from
suppliers, (ii) document audits and (iii) a “360° watch” cover-
ing multiple stakeholders. 300 supplier assessments were
conducted in 2009, and more than half resulted additional
actions such as improvement plans or on-site audits. The
assessments generated fruitful discussions with suppliers on
the way sustainability was to be considered and the proposed
Moving from Monitoring to Transparency of
Sustainability Management Systems and Performance
ON THE HORIZON:
42 Supply Chain Sustainability
43
Supply chain sustainability strategies need
to be integrated and closely coordinated with
business strategies that affect supply chains.
Internal Alignment
One of the most persistent challenges to
supply chain sustainability is an unresolved
tension in many companies between supply
management professionals’ commercial objec-
tives and their sustainability objectives and
commitment to the Global Compact. This ten-
sion is manifested in different objectives for
sustainability and supply management staff.
A lack of internal alignment can have
negative impacts on suppliers’ supply chain
sustainability performance. For example, last
minute quantity changes can create signifcant
time pressures that erode working conditions
if suppliers are forced to increase worker over-
time schedules to meet compressed timetables.
Successful implementation of supply chain
sustainability programmes requires three
levels of internal responsibility as illustrated
in the fgure below.
Governance and Oversight:
Executive Leadership
and the Board of Directors
Executive and Board commitment, over-
sight and support are crucial in setting the
correct tone and direction for supply chain
sustainability. Executives should clearly
articulate the company’s vision and ap-
proach to supply chain sustainability with
concrete milestones and metrics. Written
and oral communication from executives
will help align business managers’ and
supply management professionals’ priori-
ties with these milestones and emphasize
the importance of sustainability as a way of
doing business. Executives and the Board
of Directors should also regularly review
progress against supply chain sustainability
goals. This senior level oversight will help
to hold people throughout the company
accountable. Executives should also provide
regular internal updates around the com-
pany’s sustainability priorities, successes
and challenges.
6. Determining Roles & Responsibilities
THE ELEMENTS OF INTERNAL
RESPONSIBILITY FOR SUPPLY CHAIN SUSTAINABILITY
Supply Management Professionals:
Implementation
Business Managers:
Cross-Functional Coordination
Executive Leadership:
Commitment, Oversight and Support
44 Supply Chain Sustainability
Executives should also support
supply management professionals’
communications with suppliers as
appropriate. Executives at suppliers will
appreciate the peer-to-peer interaction,
and the involvement of your company’s
senior leaders will help to demonstrate
the seriousness with which supply chain
sustainability is undertaken at your
company. As discussed in Chapter 3,
executives can help communicate about
the code of conduct. They can also participate
in supplier meetings as an incentive for strong
performance (see Chapter 5).
Business and implementation support
• SER Business Unit Liasons
(assigned by Supply Chain Board)
• Procurement Council
• Supplier Relationship Managers
Audit team members from:
• Global Procurement Services
• Environmental, Health and
Safety
Supplier Companies
HP Executive Council
(Includes CEO and heads of each HP business unit)
Supply Chain Board
(Supply Chain Sr. VPs from each HP business unit)
Supply Chain SER programme
(Sponsored by Suppy Chain Board)
Procurement Council
(Procurement leaders from
each HP business unit)
Supplier Relationship
Managers
Stakeholder
Advisory Council
Example: HP’s Supply Chain Social and Environmental Responsibility (SER) governance system
clari?es reporting and responsibility across relevant HP businesses and functions. All HP busi-
nesses sponsor and support the Supply Chain SER Programme through the Supply Chain Board,
which meets monthly and reports directly to the HP Executive Council.
45
“Nestlé believes that it is only by creating
value for society and shareholders at
the same time that we can have long
term business success. We call this Cre-
ating Shared Value. After analysing our
value chain we have determined that
the areas of greatest potential for joint
value optimization with society are wa-
ter, rural development and nutrition. By
working closely with our supply base of
540,000 farmers, we can help them be
more productive and emerge from pover-
ty. In return we receive a higher quality
end product which benefts the consum-
er and ultimately our business. We com-
mend this approach to other companies
and hope this new guide
will help spread best practice.”
– Peter Brabeck–Letmathe, Chairman of the Board, Nestlé SA
46 Supply Chain Sustainability
SUPPLY
MANAGEMENT
SUPPLY
MANAGEMENT
Cross-functional Coordination
among Business Managers
Competing requirements from different func-
tions internally can negatively impact supply
chain sustainability. To support sustainability
objectives and enable suppliers to meet ex-
pectations, alignment between a wide variety
of functions is required. In addition to supply
management professionals, product design,
business development, logistics, marketing
and sales can all impact supply chain sustain-
ability. Companies should consider how to
bring together cross-functional representa-
tives, as illustrated in the fgure below, to
get a clear picture of impacts and where they
arise in company decision making.
It is important that individual roles and re-
sponsibilities within the business are specifed
so that individuals can assume responsibility
for implementing and meeting the vision
and milestones set out by executives. These
objectives should be backed by incentives and
consequences.
Sustainable supply chain personnel should
also provide input to strategic planning pro-
cesses in functions throughout the company.
To build sustainability into decision making
processes, sustainability expertise should be
embedded in, or available to, every team with
an impact on the supply chain.
Example: Grupo Los Grobo, an agribusiness
company with operations throughout South
America, has established a supply chain commit-
tee led by the company’s CEO and coordinated
by the manager of supplies & outsourcing. Other
participants include designated representatives
of each of the areas of the company that have a
strategic relationship with suppliers (outsourcing
for commodity production services, logistics, ag-
ricultural inputs, etc). This committee is respon-
Logistics
Disconnected Structure Disconnected Structure
DESIGN
DEVELOPMENT
PRODUCTION
LOGISTICS
MARKETING
SALES
DESIGN
DEVELOPMENT
PRODUCTION
LOGISTICS
MARKETING
SALES
Sustainability
S
u
s
t
a
i
n
a
b
i
l
i
t
y
DISCONNECTED STRUCTURE INTEGRATED STRUCTURE
INTEGRATING SUSTAINABILITY ACROSS FUNCTIONS
5
5
From Business for Social Responsibility.
47
sible for establishing and setting objectives and
goals through the design of a strategic plan. Ob-
jectives are checked and, if necessary, set every
year. The results are analyzed, and a new strate-
gic plan is formulated. One of the latest tools to
be incorporated in strategic planning is the use
of the ONUDI “supplier development platform”.
This committee interacts with more than 5,000
small and medium sized supply companies.
Implementation by Supply
Management Professionals
Depending on the structure of your company,
the group of individuals with the most direct
contact with suppliers, referred to throughout
this guide as supply management professionals,
will have the most responsibility for communi-
cating sustainability expectations to suppliers
and holding suppliers accountable for meeting
your company’s expectations.
Supply management professionals have
three primary levers for moving the needle
on supply chain sustainability:
1. Selecting of new suppliers with relatively
high sustainability capabilities and practices
2. Engaging with existing suppliers to set and
raise expectations and ensure continuous
improvement in performance
3. Integrating sustainability considerations in
sourcing decisions such as consolidating
purchases and winding down product or
service lines
SELECTING SUPPLIERS
During the due diligence process of selecting
suppliers, companies can include social and
environmental management and performance
criteria alongside commercial criteria. This will
allow supply management professionals to
look at the full picture when evaluating sup-
pliers, and in some cases, avoid working with
suppliers that bring more sustainability risk to
the company. A standard practice is to review
responses to a supplier self-assessment ques-
tionnaire (described more fully in Chapter 5),
which asks for basic information about policies
and practices, and can be used in a risk assess-
ment to prioritize suppliers for follow up.
ENGAGING WITH EXISTING SUPPLIERS ON
CONTINUOUS IMPROVEMENT
Existing suppliers will also need to comply
with your company’s sustainability expecta-
tions. Depending on the current state of sus-
tainability management systems at any given
supplier, it may require investments in people
and systems that will take time to translate
into improved performance. Supply manage-
ment professionals should take a continuous
improvement approach to sustainability with
existing suppliers based on:
• Mutual transparency. Companies should
expect that suppliers will openly and
honestly share information related to their
sustainability performance. In return, com-
panies should provide clear expectations
and guidance as well as advanced notice of
changing policies or practices to suppliers.
• Realistic timelines. Companies should care-
fully consider what their minimum require-
ments are, e.g. legal compliance, and what
is a realistic timeline for improvements that
go beyond the minimum requirements.
• Continuous improvement. Companies can
work with suppliers toward management
excellence for sustainability and should
defne excellence in this context. Companies
can also help suppliers develop management
capacity by providing access to resources.
• Partnership. Companies should commit to
enabling open lines of communication with
suppliers between decision makers of both
parties. Customers can work in partnership
with suppliers to clearly defne roles and
responsibilities and to create and achieve
mutually agreeable goals.
Example: Timberland, an American foot-
wear company, has changed the way it works
with suppliers from a compliance-based
approach to a more collaborative approach
focused on workers. Instead of leaving a list
of violations for factory owners to resolve
and then checking back to verify improve-
ments, the company now works more closely
with factory management and their workers
to understand the root cause of workplace
issues in factories. The new approach puts
the workers themselves at the centre of the
process. Workers and their representatives
are now invited to opening and closing meet-
ings of supplier assessments and workers are
interviewed in groups as part of the assess-
ment process. In addition, worker code of
conduct committees are established, trained
and continuously involved in upholding the
code of conduct.
Relevance of
Sustainability to
Supply Management
Professionals
“Supply management
decisions have
a direct impact on
business results and
sustainability. There-
fore, supply manage-
ment professionals
have a responsibility to
raise the issue of the
development of a sus-
tainability programme
within the organization
with relevant stake-
holders, including the
establishment of a
sustainability strategy
and various enterprise
initiatives embedded
throughout the sup-
ply chain and a formal
written policy between
the organization and its
supplier companies.”
— Institute for Supply
Management
48 Supply Chain Sustainability
INTEGRATING SUSTAINABILITY
CONSIDERATIONS
Companies can take many steps to support
supply management professionals in inte-
grating sustainability and overcoming the
perceived tension between sustainability and
business drivers. Many companies begin by
providing advice on sustainability issues such
as human rights and environmental impacts
in a way that makes clear links to other busi-
ness factors, such as risk, quality, cost, etc.
Companies are also experimenting with
supplier scorecards which present informa-
tion about suppliers’ sustainability perfor-
mance alongside their business performance
to support integrated decision making. Lead-
ing companies are also placing sustainability
personnel within procurement to prevent
mixed messages to suppliers.
Examples: At Starbucks, buyers are trained
on supply chain sustainability issues and
how to address them, and have access to all
supplier sustainability assessment reports
performed for Starbucks. All communication
with suppliers comes from buyers. Star-
bucks’s Ethical Sourcing team, the company’s
sustainable supply chain experts, interacts
regularly with buyers regarding supplier as-
sessments and remediation matters. Training,
information access and communications are
all coordinated to equip buyers with the tools
to incorporate supplier sustainability into
their purchasing decisions.
Volkswagen Group established a “Sustain-
ability in Supplier Relations” programme
with four key elements: standard require-
ments, early detection of risks, integration
into procurement procedures and monitor-
ing and supplier development. Through the
programme, all procurement staff have been
briefed and sensitized to supplier shortcom-
ings as well as potential for improvement. In
addition, suppliers are offered coaching and
direct assistance to meet the requirements.
Suppliers can contact an email address or
fill out a self-assessment questionnaire and
an “Ad-hoc-Expert-Team,” consisting of the
environmental protection, human resources,
health and safety and purchasing as well as
quality assurance departments, will provide
assistance. Information is also made avail-
able to suppliers as a standard step in the
procurement process.
Optimizing the Supplier Base
Supply chain optimization is a funda-
mental business management tool
used to meet a number of objectives,
including elimination of waste, duplica-
tion and inef?ciency in procurement
and logistics processes. An uncharted
frontier for sustainable procurement
is for sustainability considerations to
become part of the decision making
process so that after going through a
consolidation initiative a company’s
supplier base performs better on social
and environmental issues.
ON THE HORIZON:
49
“At Restaurantes Toks, we
have the commitment
not only to deliver
products and services that
fulfll and exceeds our
customer’s expectations,
but to contribute in
the development of a
sustainable supply chain
for the beneft of our
business, our society
and our planet. Sharing
success is a must in the
process of assuring
long term sustainability
and growth.”
– Federico Bernaldo de Quiros, CEO, Restaurantes Toks
50 Supply Chain Sustainability
51
Industry collaboration and multi-stakeholder
partnerships are important tools for advanc-
ing your company’s supply chain sustain-
ability objectives, particularly for issues that
are too challenging and complex to tackle
alone. In addition, collaboration can increase
the impact and overall effciency of your
company’s supply chain sustainability efforts
by extending your reach, pooling resources,
reducing duplication and avoiding confict-
ing messages.
The Context for
Industry Collaboration
Many leading companies have come to see col-
laboration as an important element of address-
ing the root causes of sustainability issues. In
addition, collaborative efforts represent a way
for smaller companies with fewer resources to
take action and contribute to further supply
chain sustainability. Two primary types of
industry collaboration have emerged:
1. Best Practice Sharing. These industry col-
laborations, which can be focused in one
industry or across sectors, focus on sharing
knowledge about approaches and tools that
companies have found to be successful in
their individual supply chain sustainability
programmes. These groups often also create
tools together that refect the direction of
their programmes, although typically par-
ticipants to this type of collaboration are
not required to use the tools or to meet any
other standards for participation.
2. Joint Standards and Implementation.
These collaborations are typically focused
within one sector and aim to create con-
sistency among companies’ expectations
and supply chain sustainability pro-
grammes. As described briefy in Chapter
5, compliance based approaches to sup-
plier monitoring are frequently char-
acterized by inconsistency, duplication
and ineffciency among companies. For
suppliers that work with multiple custom-
ers that each have their own code, and ap-
proach for monitoring and remediation,
unaligned supply chain sustainability pro-
grammes can create a signifcant burden
and divert resources from compliance and
continuous improvement efforts.
For this reason, many groups have come
together to create shared codes of conduct,
which participating companies may or may
not be required to adopt, and they work
to engage suppliers on the shared code
together through joint assessments and au-
diting. Many of these groups also conduct
joint capability building for suppliers.
Example: Through the Sustainable Water
Group, a partnership of companies commit-
ted to managing water use and wastewater
discharge in global textile supply chains, Gap
Inc. has established a Clean Water Pro-
gramme to monitor denim laundries’ waste-
water discharge and require them to meet
the Sustainable Water Quality Guidelines.
This project allowed Gap to encourage peers
in the industry to adopt similar wastewater
procedures into their supply chains.
7. Industry Collaboration &
Multi-Stakeholder Partnerships
52 Supply Chain Sustainability
Opportunities and
Risks of Industry Collaboration
Industry collaboration can create signifcant
effciencies for suppliers and companies, but
it also comes with some risks. You should con-
sider both as you determine whether and on
what elements of your programme you want
to collaborate with other companies.
OPPORTUNITIES
In addition to the benefts that industry col-
laboration can create for suppliers discussed
above, the opportunities for companies are
signifcant:
• Leverage with Suppliers. Partnering with
peers on supply chain sustainability can
boost your company’s leverage with direct
as well as sub-tier suppliers. By collabo-
rating with peers, your expectations and
engagement approaches are not only more
aligned, but your voice to direct and sub-
tier suppliers will be much louder.
• Credibility with stakeholders. Participat-
ing in industry collaborations can dem-
onstrate your company’s awareness of the
challenges in supply chain sustainability
and help boost your credibility with exter-
nal stakeholders. Industry collaborations
can also provide an opportunity to discuss
controversial topics with external stake-
holders that your company may not be
comfortable addressing one on one.
• Resource sharing. The processes out-
lined in this Guide all require resource
investment, and particularly for smaller
companies or companies with recent com-
mitments, the time and money necessary
to implement a strong supply chain sus-
tainability programme can be signifcant
barriers. Industry collaboration can help
companies pool their resources and share
the expenses of establishing expectations
and engaging with suppliers.
RISKS
There are also some risks to industry collabo-
ration that you should consider:
• Internal commitment. Industry collabora-
tion can be challenging for some compa-
nies and could threaten your ability to
get internal commitment to supply chain
sustainability, particularly if potential
partners in industry collaboration are seen
as competitors or at markedly different
stages of supply chain sustainability. To
ensure buy-in, you should get a clear un-
derstanding of which companies you will
be partnering with and what their expecta-
tions are.
• Resource draining. While industry col-
laborations have the potential to create
cost and time effciencies for participants,
they also require investment, and may
not always deliver results. For example,
initiating shared action with partners
and agreeing to common expectations
and engagement processes can be quite
time intensive, and these efforts may take
signifcant amounts of time to mature and
create substantial impact.
• Unwillingness to change course. For col-
laborative efforts that are more established,
there is a possibility that other participants
in the collaboration will be unwilling to
change approaches to get alignment with
your company.
Example: De Beers, a diamond mining com-
pany based in Luxembourg, works with other
companies in the industry to address a range
of historical challenges including conflict
diamonds, a lack of commercial transparency
and poor working conditions in factories in
major cutting and polishing centres like Surat
in India.
Although the Kimberley Process Certifica-
tion Scheme and the World Diamond Council
System of Warranties were launched in 2003
to address the issue of conflict diamonds, no
single standard existed to verify full ethical
practices throughout the diamond pipeline
addressing social, employment, business,
health and safety, and environmental issues.
De Beers saw an opportunity to lever-
age its leadership position in the diamond
pipeline to establish a benchmark for best
practice not only within the diamond mining
sector, but also through the cutting, polish-
ing, and jewelry manufacturing pipeline. To
this end, De Beers launched the Best Practice
Principles (BPP) Assurance Programme in
2005 and made compliance to the standard
a contractual condition of supply to De Beers
customers and a requirement for all entities
within the De Beers Group.
53
PARTIAL LIST OF INDUSTRY COLLABORATIONS
AIM-Progress
AIM-PROGRESS is a forum of consumer goods companies assembled to enable and promote responsible sourcing practices
and sustainable production systems. It is a global initiative supported and sponsored by Association des Industries de
Marque (AIM) in Europe and the Grocery Manufacturers Association (GMA) in North America. Its key objectives include
development of a forum to exchange views regarding responsible sourcing practices and of common evaluation methods to
decrease duplicative auditing.
Apparel, Mills and Sundries Working Group
A working group of apparel and retail companies and their suppliers that collaborate to address sustainability issues up-
stream at the mills and sundries supplier level. The group is focused on implementation of its joint code of conduct through
supplier evaluations and trainings.
Business Social Compliance Initiative (BSCI)
The BSCI is a platform for retail, brand, importing and trading companies dedicated to the improvement of working condi-
tions in their supply chain worldwide. The organization has created a code of conduct and implement the BSCI Code through
a combination of external monitoring and collaborative capacity building activities.
Beyond Monitoring Working Group
BSR’s Beyond Monitoring Working Group is a collaboration of leading companies from many industries who embrace a vision
of supply chain sustainability that is driven by internal alignment, supplier ownership, worker empowerment, and public
policy engagement. Together these companies explore next generation supply chain sustainability approaches to improve
their individual companies’ programmes and to drive the ?eld forward.
Electronics Industry Citizenship Coalition (EICC)
The EICC promotes an industry code of conduct and shared implementation resources for global electronics supply chains
to improve working and environmental conditions. The EICC conducts joint audits, provides tools to audit compliance with
the code, offers resources for training for procurement and suppliers, and helps companies report progress. EICC member-
ship is available to electronic manufacturers, software ?rms, ICT ?rms, and manufacturing service providers, including
contracted ?rms that design, manufacture, or provide electronic goods, and as such covers the vast majority of the electron-
ics supply chain.
Ethical Trading Initiative
ETI is an alliance of companies, trade union organizations, and NGOs that are committed to working together to identify and
promote good practice in labour code implementation, including monitoring and verifying compliance with code provisions.
The Global e-Sustainability Initiative (GeSI)
GeSI brings together leading Information and Communication Technology (ICT) companies – including telecommunication
service providers and manufacturers as well as industry associations – and NGOs committed achieving sustainability objec-
tives through innovative technology.
Global Social Compliance Programme (GSCP)
The GSCP is a business-driven programme for companies whose vision is to harmonize existing efforts in order to deliver a
shared, global and sustainable approach for the continuous improvement of working and environmental conditions across
categories and sectors in the global supply chain. The GSCP offers a global platform to promote knowledge exchange and
best practices in order to build comparability and transparency between existing systems.
Fair Labour Association
FLA is a collaborative effort of its members to improve working conditions in factories around the world. Participating
companies commit to the FLA code, and the group has created a practical monitoring, remediation and veri?cation process
to achieve those standards.
ICTI-Care
ICTI CARE is the toy industry’s ethical manufacturing programme aimed at ensuring safe and humane workplace envi-
ronments for toy factory workers worldwide. To achieve these goals, the group provides education, training, and a uni?ed
monitoring programme for toy factories.
Social Accountability International (SAI)
SAI is a multistakeholder, multinational, multi-industry organization of business, labour and NGOs whose mission it to ad-
vance the human rights of workers around the world. It carries this out through training, capacity building, and the SA8000
workplace standard which is based on ILO and UN conventions.
54 Supply Chain Sustainability
Multi-Stakeholder Partnerships
In addition to collaborating with industry
peers, many companies are recognizing the
value of working with a broader range of
stakeholders. Chapter 2 described a range of
stakeholder groups that could provide input
on your company’s supply chain sustain-
ability strategy, including national and local
governments, workers’ and employers’ orga-
nizations, nongovernmental organizations,
advocacy and activist organizations, academic
and issue experts and community groups.
In recent years, more and more stakehold-
er groups have demonstrated willingness to
partner with companies. Many of these stake-
holders groups are knowledgeable about sus-
tainability issues andcan be useful partners,
beyond just sharingperspective and advice,
by working closely to address supply chain
challenges. They can assist with understand-
ing the context for sustainability challenges,
help with designing effective responses, and
acting as local implementing partners. In
addition, they can bring resources and legiti-
macy to supply chain sustainability efforts.
Business can also work with local
authorities to support local efforts and
improve capacity to address the root causes
for sustainability challenges that business
experience in supply chains.
Examples: Many companies have created
cost efficiencies by undertaking efforts to
reduce accidents and illnesses and improve
the overall health of workers in their supply
chains. Levi Strauss & Co., a U.S.-based
apparel company, has implemented a number
of worker rights and responsibilities and
health education training programmes at
suppliers’ factories, working in partnership
with civil society organizations, to improve
worker well-being, ensure worker rights
are respected and achieve savings through
increased productivity and reduced absentee-
ism. The company places an emphasis on
building the capabilities of these civil society
organizations to provide expanded services to
workers and factories.
Better Work is a unique partnership be-
tween the International Labour Organization
and the International Finance Corporation
dedicated to reducing poverty and providing a
fair framework for globalization in developing
countries through a comprehensive process
for assessment, remediation and in-factory
training tools. Companies have access to a
streamlined and more cost effective process
to get information about supplier compliance
and to track efforts to fix problems. Better
Work Buyers’ Forums are held at the inter-
national and in-country level. These forums
provide buyers with an opportunity to provide
feedback into Better Work expansion plans
and tools, and to engage in constructive
dialogue with relevant stakeholders including
national governments, unions, and manufac-
turer associations. There are active in-coun-
try forums in Cambodia, Jordan and Vietnam,
with explorations in Indonesia, Morocco,
Nicaragua, Haiti and Lesotho.
55
56 Supply Chain Sustainability
GLOBAL COMPACT LOCAL NETWORKS
More than 80 Global Compact Local Networks provide on-the-ground support for Global
Compact signatories around the world. Networks undertake a variety of activities to do
so, including identifying local priorities relating to responsible business practices, raising
awareness about local sustainability challenges and opportunities, organizing learning and
dialogue events, mobilizing collective action efforts and facilitating partnerships between
companies and local stakeholders to contribute to broader sustainable development objec-
tives. Networks also provide assistance to companies in preparing their annual Communi-
cation on Progress reports.
To advance supply chain sustainability, companies can work through Local Networks in
geographies where they have signi?cant numbers of suppliers. Companies can for instance
encourage suppliers to join the Global Compact and participate actively in Local Network
events to improve their own sustainability performance. Companies can also support Local
Networks by sharing knowledge and expertise, and providing ?nancial support to Local
Network activities.
Many Local Networks have engaged in activities to advance supply chain sustainability,
including:
The Global Compact Network Spain has worked extensively on the implementation
of the ten principles in the supply chain. The Network organized a learning forum where
companies from different sectors could exchange good supply chain practices. It also
published the guide “The Responsible Management of the Supply Chain”, focusing on risk
management and building long term relations with suppliers to improve responsible busi-
ness practices.
www.pactomundial.org/recursos/doc/Publicaciones/ASEPAM/23526_3133132009182520.pdf
The Global Compact Network Japan has convened a Working Group on Supply Chain
Management in which more than a dozen Japanese companies from different sectors
participate. The Network has analyzed the ethical sourcing-related issues of Japanese
companies and highlighted good practices. Among these issues are how companies can
more effectively engage with suppliers and realize the win-win-win potential of sustainable
supply chain management – for buyers, suppliers and societies.
57
“At Telenor, we aim to make corporate
responsibility an integral part of the way
we do business – and we realize that
our impact on society also extends to our
suppliers and business partners. Manag-
ing our supply chain towards responsible
business conduct is therefore something
we do not compromise within Telenor.
We shall not only demonstrate excellent
working conditions and environmental
management within all our own com-
panies, we also require that all our sup-
pliers meet the standards set down in
our Supplier Conduct Principles. We will
work towards our goals by driving con-
tinuous improvement through system-
atic engagement with our suppliers.”
– Jon Fredrik Baksaas, President & CEO of Telenor
58 Supply Chain Sustainability
59
While it is important to establish clear roles
for key functions throughout the company,
it is equally important to set comprehensive
performance goals. Explicit objectives for sup-
ply chain sustainability will provide individu-
als’ with direction in their tasks and will also
help your company evaluate the impact and
success of your programme.
The Process of Goal Setting
Goal setting should be a collaborative process
that involves leadership from each of the func-
tions that will have responsibility for meeting
established objectives. It’s also important to
ensure sustainable supply chain objectives
are aligned with business needs. Review your
company’s business strategy and objectives
and identify places where the supply chain
objectives you have defned support the com-
pany’s overall business objectives. Each supply
chain objective should support at least one
business objective, and your company’s execu-
tive leadership should endorse the goals.
Performance against goals will need to be
tracked year after year as part of a measureable
business objective. While this seems obvious,
it requires companies to go through the often
challenging process of defning what the de-
sired and realistic goals are and how and when
that goal should be met. Defning and tracking
progress towards goals demonstrates the value
of the work that is done to meet the goal.
Although goals are usually designed at
a high-level for the entire business, these
objectives need to be translated into action-
able targets for managers across all functions
in an integrated and coherent manner. Only
in this way can they be rolled out through-
out the company. For example, a goal on the
number of suppliers that attend sustainabili-
ty trainings can be translated into a target for
individual supply management professionals
within each sourcing group that manages
supplier relationships. Similarly, more micro-
level targets that can be rolled up provide a
picture of overall performance against goals.
Goals for Impact
Based on your company’s vision for supply
chain sustainability, objectives for business
impact should be fairly straightforward.
These can include meeting customer and
other stakeholder expectations, reducing
costs and expanding into new markets. It’s
also important to establish objectives for
the societal and environmental impacts of
your company’s supply chain sustainability
efforts. While some stakeholders are inter-
ested in understanding the processes through
which companies meet their supply chain
sustainability commitments, many are more
concerned with the value created. Suppliers
also seek to understand the value created for
their businesses through meeting responsible
sourcing requirements. Companies may in
some cases consider setting objectives related
to suppliers’ establishing their own sustain-
ability management systems, effects on the
environment such as greenhouse gas emis-
sions and waste and effects on workers and
communities. These may include workplace
injury and illness rates, total wages paid,
training and skills developed, and impact on
communities and local development such as
number of jobs created, income generated,
and infrastructure developed.
Example: Restaurantes Toks operates 84
restaurants in 20 cities throughout Mexico,
providing more than 6,500 jobs and serving
more than 21 million consumers each year.
In an effort to integrate poor rural communi-
ties into its supply chain, the company has
initiated a project working with a strawberry
marmalade production group formed and
managed by 13 women in Santa Rosa de Lima
in Central Mexico. In 2005, the per capita
income in Santa Rosa de Lima was less than
$US 60 per month, and the town’s popula-
tion was disproportionately female due to
high rates of illegal immigration by men to
the United States. Restaurantes Toks has
incorporated strawberry marmalade supplied
by the Santa Rosa de Lima Enterprise into its
menus, successfully integrating the commu-
nity into the company’s supply chain. Before
beginning to sell to Restaurantes Toks, the
Santa Rosa de Lima Enterprise provided
an income of $US 1,000 to all the families
in the community. The Santa Rosa de Lima
Enterprise now sells more than $US 461,000
8. Establishing Goals & Tracking and
Communicating Performance
60 Supply Chain Sustainability
worth of strawberry marmalade to Restau-
rantes Toks each year, radically increasing
the community’s per capita income. Further-
more, Restaurantes Toks is working with the
company to increase production capacities to
enable it to enter additional markets.
Due to the demonstrable impact of this
model on protecting and promoting human
and economic rights, Restaurantes Toks has
duplicated the approach with 10 other com-
munity food and handicraft production groups.
Example: Starting in 2000, Natura, a Brazil-
ian cosmetics company, began to implement
a strategy of using raw materials extracted
from Brazilian native vegetation as a plat-
form for its products. This strategy support-
ed the company’s goal to create and nourish
a business model that builds on existing
social networks and contributes to sustain-
able livelihoods derived from sustainable
extraction of non-timber forest products. The
company established relationships with three
poor communities, and they were contracted
in 2003 to produce priprioca, an ingredient
that provides fragrance to Natura’s cosmet-
ics. In order to ensure that the Brazilian flora
inputs were extracted according to rigorous
social and environmental standards, Natura
developed the Active Ingredient Certifica-
tion Programme. The certification process
had three phases: identification of areas
for potential suppliers, devising a certifica-
tion strategy and certification inspections.
Some 15 ingredients were certified through
this programme by 2006. In addition to
certification of the extractive products, the
programme also encouraged the formaliza-
tion of associations and cooperatives in the
supplier communities, enabling access to
commercial opportunities.
5
Goals for Supplier Performance
As discussed in Chapter 5, there are many
mechanisms you can use to track perfor-
mance of individual suppliers and encourage
supplier ownership. However, it is important
that companies set objectives for overall sup-
plier performance, which can be revised at
later dates with supplier input.
Goals for suppliers should be formulated
with inputs from management across func-
tions, especially procurement, to ensure
broad commitment and realistic goals. They
should establish objectives for overall supplier
performance against the expectations set by
your company. For example, companies often
set goals for the number of suppliers complet-
ing corrective action plans after they’ve been
audited (see Chapter 5). Companies should
also set goals for performance in specifc areas
such as human rights, labour, environment,
ethics and supplier management systems.
Goals for Internal Performance
As described in the preceding chapter, one of
the most persistent obstacles that companies
face in meeting their impact objectives and sup-
porting suppliers to meet supplier performance
objectives is the unresolved tension between
supply management professionals’ commercial
objectives and their desire to ensure fair work-
ing conditions and environmentally friendly
practices. To support increased attention from
supply management professionals on sustain-
ability issues, companies should consult with
leaders from supply management and other
functions to set objectives for internal imple-
mentation of supply chain sustainability.
Goals for internal performance should
provide guidance on expectations for how
sustainability will be integrated into supply
management decisions. For example, some
companies establish goals related to placing a
specifc percentage of their spend (or volume)
with the highest performing suppliers, while
others emphasize setting goals that make
sustainability a key factor alongside other
commercial and technical criteria, to be used
in making decisions about supply. Another
goal would be the percentage of supply man-
agement professionals receiving training in
sustainability issues.
Example: In 2009, Montepaschi Group, a
leading ?nancial institution in Italy, launched
its Sustainable Supply Chain programme as
a key component of its overall CSR strategy.
One of the group’s key objectives is to embed
the policy principles within its standard sourc-
ing processes. Speci?c objectives include:
Preference to suppliers who demonstrate
5
Natura’s Ekos: Perfume Essences Produce Sustainable Development in Brazil, Growing Inclusive Markets Case Study.
61
better management of environmental, social
and economical impacts within their produc-
tion and supply processes
? Using sustainability indicators as a key selec-
tion and evaluation factors for procurement of
goods and services
? Avoiding suppliers whose practices are not in
line with human rights, labour, environmental
or general regulations
? Adoption of fair and open communication
with suppliers
? Regular monitoring of supplier performance
in the context of the group policy and report-
ing of status and actions to stakeholders
Measurement
Processes and Practices
In order to evaluate performance against your
company’s supply chain sustainability goals,
you will need to collect and track perfor-
mance data over time. Much of this data, and
the processes and practices around it, will also
be critical to the implementation of aspects of
your company’s supply chain sustainability
programme already covered in this guide.
WHAT DATA TO COLLECT
Companies will need to collect data on both
supplier and supply management profession-
als’ performance. Metrics need to be designed
to allow for straightforward evaluation of
the company’s progress on its goals. Much
of this data will likely overlap with the data
that supply management professionals will
collect as part of evaluating suppliers, and
that other functions, such as Environment,
Health, and Safety, may also capture. You
should begin by analyzing the breadth and
quality of all existing metrics and data. As a
next step, you will probably need to spend
some time standardizing metrics so that if
different parts of the company are collecting
information on the same topics it is captured
in a unifed way.
HOW TO COLLECT DATA
Data collection can be challenging given the
vast number of suppliers that your company
may be evaluating and the number of sources
that data can originate from. In addition,
there are many examples of suppliers that
keep double books, coach workers to respond
falsely to worker interviews during audits,
bribe inspectors and fnd other ways to mask
the real situation in their company. This
SUPPLIER DATABASES
Fair Factories Clearinghouse (FCC): launched by U.S. footwear and
apparel ?rm Reebok International Ltd., the National Retail Federation,
Retail Council of Canada and World Monitors to create an online global
database to share factory audit and compliance data. The FCC, a non-
pro?t organization, offers members an online audit management sys-
tem and sharing platform to enable cost effective, well-informed ethical
business transactions and improved workplaces around the globe.
Suppliers Ethical Data Exchange (Sedex): Several U.K. food ?rms,
including Marks & Spencer plc, Safeway plc and Tesco plc, have teamed
up with the U.K. ethical trading consulting ?rm Impactt Ltd. to create
an online database for companies to consolidate and share their supply
chain audit information. The Web-based database catalogs audit informa-
tion such as working hours, compensation, labour conditions, freedom of
association and child labour.
Ecovadis: EcoVadis is operating an online collaborative platform allow-
ing companies to access to CSR ratings of suppliers covering 21 indica-
tors and 150 spend categories. 25 “Global 500” companies are using Eco-
Vadis to assess and develop the CSR management systems of thousands
of suppliers across 80 countries.
makes methods of ensuring the integrity of
data critically important to decision making.
In addition, transparency of supplier
information across functional and organi-
zational boundaries is often limited, and
companies often struggle with a lack of
effective communication and understand-
ing between companies and their suppliers
on the information they need to exchange.
Many companies are exploring information
technology platforms that will enable com-
prehensive data collection and management.
Cross-functional business managers can be
helpful in aligning internal systems and pro-
cesses. Collaboration with suppliers may also
be useful since they will be inputting data
and may be more inclined to engage with
your programme if they feel that they’ve had
a hand in shaping it.
There are a number of data sharing plat-
forms that can help collect and manage sup-
plier information about sustainability perfor-
mance. These include Sedex, EcoVadis, e-Tasc
and Fair Factories Clearinghouse. There are
also many information technology companies
that provide this type of resource as well.
62 Supply Chain Sustainability
HOW TO USE DATA
Finally, you need to plan for how data will
be used. As data is collected over time, your
company’s executive leadership should
receive regular updates on progress. Supply
management professionals in particular will
use much of the data on supplier performance
in decision making as described in Chapter 3.
Examples: Johnson Controls Inc., an Ameri-
can instrumentation company, established a
supplier sustainability rating system to assess
and rank suppliers based on whether they are
meeting the expectations expressed in the com-
pany’s ethics policy. Suppliers use a web-based
self-assessment to communicate the status of
their environmental, human rights, social and
governance programmes. The questionnaire,
which is completely electronic and resides on a
public web site so that all suppliers have easy
access to it, contains questions related to human
rights, working conditions, employee safety and
energy management. Because energy ef?ciency
and greenhouse gas emissions management
is a critical part of Johnson Controls’ business,
the questionnaire asks if the supplier is publicly
reporting its greenhouse gas emissions, and
speci?cally asks if the supplier is reporting to
the Carbon Disclosure Project. Once a supplier
completes the questionnaire, the respective pro-
curement managers are provided the results and
they determine the ranking of the suppliers, and
as appropriate, work with the supplier to ensure
they are fully compliant with expectations.
Example: Timberland, an American footwear
company, has created a “Green Index” envi-
ronmental rating system that measures and
communicates critical aspects of environmental
performance in a simple format to inform both
product design and consumer choices. The Green
Index rating system drives alignment of product
design and development with Timberland’s
corporate environmental strategy. The company
aims to reduce impacts in three broad areas:
climate, chemical use and resource consumption.
By providing clear environmental measures in
these areas, product creation teams can choose
processes that require less harmful chemicals
and increase the use of less carbon-intensive ma-
terials, as well as recycled, organic, and renew-
able materials. Applying the Green Index rating
and label across Timberland’s entire footwear
line (100 per cent of line to be rated by end 2011)
Global Reporting
Initiative (GRI)
GRI is the world’s most
widely used sustainabil-
ity reporting framework.
The GRI sets out prin-
ciples and indicators that
organizations can use to
measure and report their
economic, environmental
and social performance.
GRI is also the rec-
ommended reporting
language for Global
Compact companies
to communicate with
stakeholders on their
progress in implement-
ing the Global Compact
principles.
The GRI has formed a
multi-stakeholder Work-
ing Group to develop
recommendations on
how to enhance the GRI
Sustainability Reporting
Guidelines to improve
the quality of disclosure
on performance with
respect to supply chains.
For further information
see www.globalreporting.
org/CurrentPriorities/
SupplyChain.
is part of the way the company sets targets to im-
prove the environmental performance of products.
Communicating Progress
And Reporting
Public reporting can be a tool to stimulate
and enhance sustainability and transparency
in the supply chain. It also demonstrates the
management of environmental and social im-
pacts and the assurance of good governance
in the supply chain to both internal and
external stakeholders.
Global Compact signatories are required
to publicly communicate with stakehold-
ers on an annual basis on their progress in
implementing the ten principles. This annual
communication, or Communication on
Progress (COP) is an important demonstration
of the company’s commitment to the Global
Compact and its principles.
Beyond the COP, sustainability reporting is
the most common way for companies to com-
municate progress with stakeholders. While
the practice is evolving to include stand-alone
reports, online reporting, and integrated sus-
tainability and fnancial reports, the objectives
are to measure and disclose organizational
performance towards the goal of sustainable
development. Sustainability reporting is a
logical last step after having implemented a
supply chain sustainability approach and, as
the process requires companies to consider
their progress against goals and to be trans-
parent to internal and external stakeholders,
will help to improve it continuously.
Reports can be used for the following pur-
poses, among others:
• Source of best practices that can inspire
others and provide a benchmark for analy-
sis of sustainability performance.
• Self-evaluation and continuous improve-
ment in the process of implementing the
principles, including in the supply chain.
• Benchmarking and assessing sustainability
performance with respect to laws, norms,
codes, performance standards, and volun-
tary initiatives;
• Demonstrating how the organization infu-
ences and is infuenced by expectations
about sustainable development; and
• Comparing performance within an organi-
zation and between different organizations
over time.
63
64 Supply Chain Sustainability
Acknowledgements
A wide range of stakeholders were consulted throughout the
development of this guide, including Global Compact signatories, Global
Compact Local Network focal points, UN Agencies, issues experts, civil
society and members of BSR’s Beyond Monitoring Working Group. We
wish to thank the following individuals for taking the time to review and
comment on the draft versions of this guide:
Mr. Thomas Berkmark, CEO, Bergmark Sustainability AB (former
Sustainability Director, IKEA); Mr. K. Dilipraj. CSR Manager, BYD Company
Limited; Mr. Ricky Ho, Director & General Manager, CTPS; Mr. Pierre-
Francois Thaler, Executive Director, Ecovadis; Ethical Trading Initiative
Norway; Ms. Tábata Villares and Ms. Julia Zuanella Fernandes, Focal
Points, Ethos Institute and Global Compact Network Brazil; Global
Compact Japan Network Members; Dr. Lin Lah Tan, Network Focal Point,
Global Compact Network Malaysia; Ms. Valentine Papeians de Morchoven,
Analyst and Responsible of Human Rights and Labour Standards, Global
Compact Network Spain; Ms. Iuliia Petryshyn, Assistant, Global Compact
Of?ce; Mr. Sune Skadegaard Thoresen, Partner / Director, Global CSR;
Mr. Bastian Buck, Technical Development Coordinator, Global Reporting
Initiative (GRI); Ms. Eija Salo, Director, HRD, Global HR & Administration,
LITEONMOBILE / PERLOS; Mr. Mark Snyderman, Senior Knowledge
Leader, LRN and member of the UN Global Compact Working Group on
the 10th Principle; Ms. Lene Wendland, Adviser on Business and Human
Rights, Of?ce of the High Commissioner of Human Rights (OHCHR); Ms.
Mariam Ram, Managing Director, TNQ Books and Journals Pvt. Ltd.; Ms.
Susan Côté-Freeman, Programme Manager, Private Sector Programmes,
Transparency International; Mr. Casper Sonesson, Deputy Director,
Private Sector Division, United Nations Development Programme (UNDP);
Ms. Garette Clark, Programme Of?cer, United Nations Environment
Programme (UNEP); Ms. Natasha Weisert, Industrial Development Of?cer,
United Nations Industrial Development Organization (UNIDO);
Ms. Deborah Gallagher, Executive Director, Duke Environmental
Leadership Programme, Nicholas School of the Environment, Duke
University.
65
PHOTO CREDITS:
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Page 20 © Hard Rain Picture Library/
Andi Wijaya, UNEP
Page 24 © World Bank/Ray Witlin
Page 31 © World Bank/Jim Pickerell
Page 32 © istockphoto
Page 42 © UN Photo/Eskinder Debebe
Page 50 © World Bank/Ray Witlin
Page 55 © istockphoto
Page 58 © istockphoto
Page 63 © Hard Rain Picture Library/
Mark Edwards
HUMAN RIGHTS
Businesses should support and respect the protection of
internationally proclaimed human rights; and
make sure that they are not complicit in human rights abuses.
LABOUR
Businesses should uphold the freedom of association and the
effective recognition of the right to collective bargaining;
the elimination of all forms of forced and compulsory labour;
the effective abolition of child labour; and
the elimination of discrimination in respect of employment
and occupation.
ENVIRONMENT
Businesses should support a precautionary approach to
environmental challenges;
undertake initiatives to promote greater environmental
responsibility; and
encourage the development and diffusion of
environmentally friendly technologies.
ANTI-CORRUPTION
Businesses should work against corruption in all its forms,
including extortion and bribery.
Principle 1
Principle 2
Principle 3
Principle 4
Principle 5
Principle 6
Principle 7
Principle 8
Principle 9
Principle 10
The Ten Principles of the
United Nations Global Compact
Published by the UN Global Compact Of?ce
Contact: [email protected]
June 2010 | 1.5M
doc_445250163.pdf
Supply chain sustainability is increasingly recognized as a key component of corporate responsibility. Managing the social, environmental and economic impacts of supply chains, and combating corruption, makes good business sense as well as being the right thing to do. However, supply chains consist of continuously evolving markets and relationships. To navigate this complex terrain, we offer a few baseline definitions and practical steps that companies can take toward progress, using the United Nations Global Compact principles as the basis to work toward supply chain sustainability.
SUPPLY CHAIN
SUSTAINABILITY
A Practical Guide for Continuous Improvement
ii Supply Chain Sustainability
Launched in 2000, the United Nations Global Compact is both a policy platform and a practical framework for
companies that are committed to sustainability and responsible business practices. As a multi-stakeholder
leadership initiative, it seeks to align business operations and strategies with ten universally accepted
principles in the areas of human rights, labour, environment and anti-corruption and to catalyze actions in
support of broader United Nations goals. With more than 8,000 signatories in more than 135 countries, it is the
world’s largest voluntary corporate responsibility initiative. www.unglobalcompact.org
A leader in corporate responsibility since 1992, BSR works with its global network of more than 250 member
companies to develop sustainable business strategies and solutions through consulting, research and
cross-sector collaboration. With six of?ces in Asia, Europe, and North America, BSR uses its expertise in
the environment, human rights, economic development and governance and accountability to guide global
companies toward creating a just and sustainable world. www.bsr.org
Disclaimer
The inclusion of company examples in this publication is intended strictly for learning purposes and does not
constitute an endorsement of the individual companies.
Copyright
The material in this publication is copyrighted.
The UN Global Compact encourages the dissemination of the content for educational purposes.
Content from this publication may be used freely without prior permission, provided that clear attribution is given to
UN Global Compact and Business for Social Responsibility and that content is not used for commercial purposes.
© 2010, UN Global Compact Of?ce and Business for Social Responsibility
This guide was written by Cody Sisco, Blythe Chorn and Peder Michael Pruzan-Jorgensen, with signi?cant
editorial input from Cecilie Hultmann, the UN Global Compact Of?ce staff, BSR staff, and the UN Global
Compact Advisory Group members listed on Page 5.
Designer: Megan Larson
The Global Compact Of?ce and BSR would like to thank the following organizations for their generous support
for the development of this guidance:
1
Contents
Foreword 2
Georg Kell, Executive Director, UN Global Compact Offce
Aron Cramer, President and CEO, Business for Social Responsibility
Executive Summary
Practical Steps to Supply Chain Sustainability 5
1. Introduction 7
2. Getting Started on Supply Chain Sustainability 13
Developing the Business Case
Understanding the External Landscape
Establishing a Vision
3. Establishing Sustainability Expectations for the Supply Chain 21
Overview of Codes of Conduct
Writing the Code of Conduct
Using the Code of Conduct
4. Determining the Scope 25
Mapping the Supply Chain
Segmenting the Supply Chain
5. Engaging with Suppliers 33
Selecting Communications Channels
Monitoring and Evaluation
Remediation and Supplier Capability Building
6. Determining Roles & Responsibilities 43
Internal Alignment
Governance and Oversight: Executive Leadership and the Board
Cross-functional Coordination among Business Managers
Implementation by Supply Management Professionals
7. Industry Collaboration &
Multi-Stakeholder Partnerships 51
The Context for Collaboration
Opportunities and Risks of Collaboration
Multi-Stakeholder Partnerships
8. Establishing Goals &
Tracking and Communicating Performance 59
The Process of Goal Setting
Goals for Impact
Goals for Supplier Performance
Goals for Internal Performance
Measurement Processes and Practices
Communicating Progress and Reporting
Acknowledgements 64
2 Supply Chain Sustainability
Foreword
More and more companies are extending their commitment to
responsible business practices to their value chains, from subsid-
iaries to suppliers. They do so not only because of the inherent
social and environmental risks and the governance challenges the
supply chain poses, but also because of the many rewards supply
chain sustainability can deliver. Indeed, sustainable supply chain
management can be a strong driver of value and success – for
business as much as for society. By spreading good business prac-
tices around the globe, it has enormous potential to contribute to
more inclusive markets and advance sustainable development in
the spirit of the United Nations’ mission.
Today, UN Global Compact participants around the world are
demonstrating leadership by applying the ten principles in their
supply chains. However, developing sustainable supply chain pro-
grammes that encompass all of the Global Compact’s four issue
areas – human rights, labour, environment and anti-corruption
– remains a daunting challenge for many.
Supply Chain Sustainability: A Practical Guide to Continuous Improve-
ment, developed in collaboration with BSR, can help companies
overcome these challenges by offering practical guidance on how
to develop a sustainable supply chain programme based on the
values and principles of the Global Compact. Featuring numerous
examples of good corporate practice, the guide will assist compa-
nies in setting priorities for action that will lead to continuous
performance improvement.
We hope this publication will encourage more businesses to
embark on the journey towards more sustainable supply chains,
thereby delivering tangible and lasting benefts to business, the
environment and societies everywhere.
Georg Kell
Executive Director
U.N. Global Compact Offce
3
As the Global Compact’s ten principles reach their 10th anniversary,
it is more evident than ever that making them a reality requires
collaboration across the supply chains that defne global business in
the 21st century. Many companies’ most signifcant impacts on the
environment and society occur in their supply chains, and as these
networks have grown in scale and complexity over the past quarter-
century, so too have the opportunities for companies to promote
human rights, improve labour conditions, protect the environment
and support ethical business conduct. By working together, buyers
and suppliers can not only ensure a baseline standard of business
conduct is met but also collaborate to improve the impact of business
on society and the environment around the world.
We are very proud to have produced this guide on the anniversary to
encourage companies to apply the Global Compact’s ten principles
throughout global supply chains. BSR brings to this effort its exten-
sive knowledge on how to integrate fair working conditions and
good environmental practices throughout extended supply chains.
In partnership with our global network of member companies, as
well as their supply chain partners, we have worked in more than
30 countries to integrate environmental, social and governance
principles into supply chains in multiple industry sectors. Joining
forces with the extensive network of UN Global Compact signatories
across the globe represents a great opportunity to increase the Global
Compact’s impact.
We hope that this guide makes a signal contribution to advance fair
and sustainable working conditions for entire industries, geographies
and market segments by:
• Extending sustainability to small and medium-sized enterprises
• Creating better connections to frms in developing countries on key
social and environmental issues
• Supporting good governance and business ethics as a key pillar of
well-functioning markets.
This guide is designed to help companies initiate and advance their
supply chain sustainability efforts, but it should also be used to
broaden impact and enlist collective action for sustainability. BSR
is very proud to have partnered with the Global Compact, and we
look forward to supporting it and its signatory companies around
the world to make the vision of the Global Compact an even more
powerful reality.
Aron Cramer
President and CEO
BSR
4 Supply Chain Sustainability
United Nations Global Compact Advisory Group
on Supply Chain Sustainability
The Global Compact Offce has established an advisory group of Global Compact participants and
stakeholders. The role of the advisory group is to provide input to the overall strategy and work
done by the Global Compact Offce on the issue of supply chain sustainability, and to ensure that
the guidance material developed is robust and addresses the needs of business.
The advisory group is chaired by Mr. Mads Øvlisen, a member of the Global Compact Board.
We would like to thank Mr. Øvlisen and all of the members of the advisory group for their support
of this effort:
? Mr. Michael Wilhelmer, Manager, Global Procurement Services, ArcelorMittal (Luxembourg)
? Mr. Cody Sisco, Manager, Advisory Services, Business for Social Responsibility (Global)
? Mr. Gustavo Pérez Berlanga, Senior Vice President - CSR and Toks University, Cafeterias Toks S.A.
de C.V, (Mexico)
? Mr. Juan Antonio Espinosa, Procurement Director, Planning & Control, CEMEX (Mexico)
? Mr. Brian Glazebrook, Senior Manager - Value Chain Social Responsibility, Cisco Systems (USA)
? Dr. Bente Pretlove, Corporate Advisor - CSR & Sustainable Development, Det Norske Veritas (Norway)
? Ms. Vimal L Kumar, Head - Corporate Responsibility, DiGi Telecommunications Sdn Bhd (Malaysia)
? Ms. Tammy Rodriguez, Director of Corporate Responsibility, Esquel Group of Companies (China)
? Ms. Monique Oxender, Global Manager - Supply Chain Sustainability, Ford Motor Company (USA)
? Ms. Isabel Garro Hernández, Executive Director, Global Compact Local Network Spain (Spain)
? Ms. Claudine Musitelli, Director, Global Social Compliance Programme (GSCP) (Global)
? Mr. Paolo Pompilio, Diretor de Relações Corporativas e RSA, Grupo Pão de Açúcar - Companhia
Brasileira de Distribuição (Brazil)
? Ms. Zoe McMahon, Supply Chain Social and Environmental Responsibility Manager, Hewlett-Pack
ard (USA)
? Mr. Brian Larnerd, Senior Manager Corporate Social Responsibility & Chief Executive for the
Americas Of?ce, Hitachi, Ltd. (Japan)
? Dr. In-mo Cheong, General Manager Environment Strategy Planning, Huyndai Motor Company
(Republic of Korea)
? Mr. Greg Priest, Head of IWAY Compliance and Monitoring, IKEA (Sweden)
? Mr. Javier Chercoles Blazquez, CSR Global Director, Inditex, Industrias de Diseño Textil, S.A. (Spain)
? Mr. Sandeep Dadlani, Vice President - Retail, CPG & Logistics, Infosys Technologies Ltd (India)
? Ms. Trude Andersen, Head of CSR, Innovation Norway (Norway)
? Mr. Robert Jenkins, CEO, Integrated Contract and Supply Solutions - ISCS (United Arab Emirates)
? Mr. Jan-Willem Scheijgrond, Senior Director - Health, Safety and Environment, Koninklijke Philips
Electronics N.V. (Netherlands)
? Ms. Beroz Gazdar, Vice President - Infrastructure Development Sector, Mahindra & Mahindra
Limited (India)
? Ms. Hilary Parsons, Public Affairs Manager, Supply Chain, Nestle S.A. (Switzerland)
? Mr. Mika Kiiskinen, Senior Manager, Social & Ethical Issues Management, Nokia Corporation (Finland)
? Dr. Márcia Balisciano Director, Corporate Responsibility, Reed Elsevier Group plc (UK)
? Ms. Eileen Kaufman, Executive Director, Social Accountability International (SAI) (Global)
? Ms. Rachelle Jackson Director, Research & Development, STR Responsible Sourcing (USA)
? Mr. Koichi Kaneda, Senior Manager, CSR and Corporate Branding, Takeda Pharmaceutical Company
Limited (Japan)
? Mr. Anant Nadkarni, Vice President - Group Corporate Sustainability, Tata Council for Community
Initiatives (TCCI) (India)
? Mr. Stein Hansen, Senior Vice President, Business Assurance, Telenor Group (Norway)
? Mr. Alexander Seidler, Director, UBS AG (Switzerland)
? Mr. Willem-Jan Laan, Director Global External Affairs, Unilever (UK)
? Dr. Gerhard Prätorius, Head of Coordination CSR and Sustainability, Volkswagen AG (Germany)
5
Executive Summary: Practical
Steps to Supply Chain Sustainability
Supply chain sustainability is increasingly
recognized as a key component of corporate
responsibility. Managing the social, environ-
mental and economic impacts of supply chains,
and combating corruption, makes good busi-
ness sense as well as being the right thing to do.
However, supply chains consist of continuously
evolving markets and relationships. To navigate
this complex terrain, we offer a few baseline
defnitions and practical steps that companies
can take toward progress, using the United Na-
tions Global Compact principles as the basis to
work toward supply chain sustainability.
What is Supply Chain Sustainability?
Supply chain sustainability is the manage-
ment of environmental, social and economic
impacts, and the encouragement of good gov-
ernance practices, throughout the lifecycles
of goods and services. The objective of supply
chain sustainability is to create, protect and
grow long-term environmental, social and
economic value for all stakeholders involved
in bringing products and services to mar-
ket. By integrating the UN Global Compact
principles into supply chain relationships,
companies can advance corporate sustainabil-
ity and promote broader sustainable develop-
ment objectives.
Why is Supply Chain
Sustainability important?
There are numerous reasons why companies
start a supply chain sustainability journey.
Primary among them is to ensure compli-
ance with laws and regulations and to adhere
to and support international principles for
sustainable business conduct. In addition,
companies are increasingly taking actions
that result in better social, economic and en-
vironmental impacts because society expects
this and because there are business benefts
to doing so. By managing and seeking to
improve environmental, social and economic
performance and good governance through-
out supply chains, companies act in their
own interests, the interests of their stakehold-
ers and the interests of society at large.
COMMIT
MEASURE
IMPLEMENT
COMMUNICATE
DEFINE
ASSESS
COMMIT
? Develop the business case by under-
standing the external landscape and
business drivers. (Chapter 2)
? Establish a vision and objectives for
supply chain sustainability. (Chapter 2)
? Establish sustainability expectations
for the supply chain. (Chapter 3)
ASSESS
?Determine the scope of efforts based
on business priorities and impacts.
(Chapter 4)
DEFINE and IMPLEMENT
?Communicate expectations and
engage with suppliers to improve per-
formance. (Chapter 5)
?Ensure alignment and follow up
internally. (Chapter 6)
?Enter into collaboration and partner-
ships. (Chapter 7)
MEASURE and COMMUNICATE
?Track performance against goals and
be transparent and report on progress.
(Chapter 8)
This guide is intended
for companies with
signi?cant sourcing
activities that are inter-
ested in learning how to
incorporate sustainability
into their supply chain
management strategies
and practices.
WHAT STEPS CAN MY COMPANY TAKE?
This guide outlines practical steps companies can take to achieve supply chain sustainability and presents examples to inspire action.
The recommended steps summarized below are based on the Global Compact Management Model, which is a ?exible framework for
continuous improvement for the mainstreaming of the Global Compact into strategies and operations.
The steps described below and throughout the guide are not linear. Rather they represent complementary actions that companies
can take in order to achieve more sustainable supply chains. In addition, there are three principles for successful supply chain sus-
tainability management – governance, transparency and engagement – that are essential to every step of the model.
6 Supply Chain Sustainability
7
1. Introduction
This guide is intended to help companies,
both those who are new to and those experi-
enced in supply chain sustainability, to apply
the Global Compact principles throughout
their supply chains and to integrate sustain-
ability into their business strategies.
Supply Chain Sustainability Defned
In today’s globalized economy, outsourcing
business operations doesn’t mean outsourcing
responsibilities or risks—or that a company’s
responsibility ends once a product is sold.
Leading companies understand that they have
a role to play throughout the lifecycle of their
products and services. Supply chain sustain-
ability management is key to maintaining
the integrity of a brand, ensuring business
continuity and managing operational costs. It
is also an important aspect of the implemen-
tation of the Global Compact principles.
WORKING DEFINITIONS
“Sustainability” defnitions vary. For the
purposes of this guide, the defnition
encompasses the business role in addressing
environmental, social (human rights and
labour) and corporate governance issues,
as covered by the Global Compact’s ten
principles.
“Supply chain sustainability” is the
management of environmental, social and
economic impacts, and the encouragement
of good governance practices, throughout
the lifecycles of goods and services.
The objective of supply chain sustainabil-
ity is to create, protect and grow long-term
environmental, social and economic value for
all stakeholders involved in bringing products
and services to market. Through supply chain
sustainability, companies protect the long-
term viability of their business and secure a
social license to operate.
1
From Business for Social Responsibility.
ENVIRONMENTAL, SOCIAL AND ECONOMIC IMPACTS
EXIST THROUGHOUT EVERY STAGE OF SUPPLY CHAINS.
1
At every stage in the
life-cycle of speci?c
products there are so-
cial and environmental
impacts, or externali-
ties, on the environ-
ment and on people.
In addition, gover-
nance, or the account-
ability of organizations
to their stakeholders
for their conduct, is
important at every
stage throughout the
supply chain.
This guide focuses on
upstream business part-
ners, i.e. relationships
with suppliers, rather
than with distributors,
consumer use of prod-
ucts or end of life issues.
A focus on downstream
impacts of supply chains
may be addressed in the
future by the UN Global
Compact Of?ce.
In addition, this guide
focuses on the question
of whom companies buy
from and how they source
products, rather than
what they buy. This may
also be a future focus of
attention from the UN
Global Compact Of?ce.
END-OF-USE MANUFACTURING
MATERIAL INPUT
USE
DISTRIBUTION
Environment
Disposal
Extraction
Recycling
Transportation
8 Supply Chain Sustainability
About Supply Chain Sustainability & the United Nations Global Compact
The Global Compact encourages participants to engage with suppliers around the ten prin-
ciples and to advance sustainable development objectives as part of their commitment to the
Global Compact, and thereby to spread good corporate citizenship practices throughout the
global business community. As the table below outlines, the ten principles are also intricately
tied to sustainability in supply chains.
THE TEN PRINCIPLES RELATIONSHIP TO SUPPLY CHAIN SUSTAINABILITY
Human Rights
Principle 1: Businesses should
support and respect the
protection of internationally
proclaimed human rights; and
Principle 2: make sure
that they are not complicit
in human rights abuses.
Labour
Principle 3: Businesses should
uphold the freedom of as-
sociation and the effective
recognition of the right to
collective bargaining;
Principle 4: the elimination of
all forms of forced and com-
pulsory labour;
Principle 5: the effective aboli-
tion of child labour; and
Principle 6: the elimination of
discrimination in respect of
employment and occupation.
Companies have a responsibility to respect human
rights. The baseline responsibility is not to infringe on
the rights of others. In addition, business can take steps
to support and promote the realization of human rights,
and there are good business reasons to do so.
Labour conditions in of?ces, in factories, on farms and
at natural resource extraction sites such as mines,
particularly in the developing world, often fall sig-
ni?cantly below international standards and national
regulatory requirements and can lead to serious hu-
man rights abuses. Businesses should strive to uphold
international labour standards within their supply
chains, including the right to freely chose employment,
the freedom of children from labour, freedom from
discrimination and the freedom of association and
collective bargaining.
In addition, workers at times suffer from other labour
rights abuses, including excessive work hours, degrad-
ing treatment by employers and inhibited movement.
In order to avoid complicity in abuses, businesses
should seek to ensure that they do not cause the rights
of workers and others affected by their supply chain
to be infringed upon, including the right to freedom of
movement, freedom from inhumane treatment, the
right to equal pay for equal work and the right to rest
and leisure. The rights of all peoples to work in safe
and healthy working conditions are critically important
as well.
Companies can also begin to address human rights
(including and beyond labour conditions) alone or by
working with partners to promote a broad range of
human rights such as gender equality and access to
education and health.
THE TEN PRINCIPLES OF THE GLOBAL COMPACT AND
SUPPLY CHAIN SUSTAINABILITY
9
Environment
Principle 7: Businesses
should support a precaution-
ary approach to environmen-
tal challenges;
Principle 8: undertake initia-
tives to promote greater
environmental responsibility;
and
Principle 9: encourage the
development and diffusion
of environmentally friendly
technologies.
Environmental impacts from supply chains are often
severe, particularly where environmental regulations
are lax, price pressures are signi?cant and natural
resources are (or are perceived to be) abundant. These
impacts can include toxic waste, water pollution, loss
of biodiversity, deforestation, long term damage to
ecosystems, hazardous air emissions as well as high
greenhouse gas emissions and energy use. Companies
should engage with suppliers to improve environmen-
tal impacts, by applying the precautionary approach,
promoting greater environmental responsibility and the
usage of clean technologies.
Anti-Corruption
Principle 10: Businesses
should work against corrup-
tion in all its forms, including
extortion and bribery.
The signi?cant corruption risks in the supply chain
include procurement fraud and suppliers who engage
in corrupt practices involving governments. The direct
costs of this corruption are considerable, including
product quality, but are often dwarfed by indirect costs
related to management time and resources spent deal-
ing with issues such as legal liability and damage to a
company’s reputation. Companies that engage with their
supply chains through meaningful anti-corruption pro-
grammes can improve product quality, reduce fraud and
related costs, enhance their reputations for honest busi-
ness conduct, improve the environment for business and
create a more sustainable platform for future growth.
By virtue of their ongoing business relationships, every company makes direct economic
impacts through payments to employees, suppliers and governments and indirect eco-
nomic impacts through monetary ?ows throughout supply chains and beyond. Companies
which make their supply chains more economically inclusive can support further economic
development through for instance job creation and increased incomes. Economic develop-
ment has secondary impacts on socioeconomic development and the environment and is
therefore a critically important aspect of sustainability.
ABOUT SUSTAINABLE
DEVELOPMENT IMPACTS IN SUPPLY CHAINS
10 Supply Chain Sustainability
UN GLOBAL COMPACT SUSTAINABLE
SUPPLY CHAIN RESOURCES
Supply Chain Sustainability: An Online Assessment and Learning Tool
An interactive tool for customers to measure progress in implementing a holistic sustain-
able supply chain approach, assess gaps and share challenges and successes. Produced in
collaboration with BSR (Business for Social Responsibility).
Supply Chain Sustainability Website
Provides information on initiatives, resources and tools to assist companies in developing
more sustainable supply chains, as well as case examples of company practices.
http://supply-chain.unglobalcompact.org
Human Rights Working Group Good Practice Notes on Supply Chains
A series of Good Practice Notes on how companies can partner with suppliers, govern-
ments and civil society to promote human rights in supply chains.
Environmental Stewardship Resource
A strategic policy framework for environmental management and sustainability, including
strategies and guidance for supply chain implementation.
Fighting Corruption in the Supply Chain: A Guide for Customers and Suppliers
Practical guidance and tools for both customers and suppliers to engage in the ?ght
against corruption. A product of the UN Global Compact 10th Principle Working Group.
All resources can be accessed at: www.unglobalcompact.org/Issues/supply_chain
11
The holistic approach to supply chain sustain-
ability described in this guide can help your
company identify the key issues and consid-
erations for a supply chain sustainability ap-
proach that is aligned with the ten principles
of the Global Compact.
The guide is designed for individuals with
oversight of and input on corporate respon-
sibility and supply management priorities
and practices. The approaches described are
meant to be applicable to companies that are
new to supply chain sustainability as well as
those that have more experience. Advanced
practices are highlighted in boxes entitled
“On the Horizon.”
We begin in Chapter 2 by exploring the ratio-
nales and business drivers for supply chain
sustainability. We also discuss the importance
of understanding the external landscape and
of establishing a company-specifc vision for
supply chain sustainability.
In Chapter 3, we provide advice on designing
a supplier code of conduct that builds from the
Global Compact ten principles and other recog-
nized international standards, as well as offer-
ing guidance on how to put the code to use.
Chapter 4 describes the key factors in deter-
mining the scope of a supply chain sustain-
ability programme, and tools such as sup-
plier segmentation and risk assessment and
prioritization.
Chapter 5 describes options for engaging
with suppliers on supply chain sustainability.
It includes approaches for communicating
with suppliers, monitoring performance, and
building supplier capacity as well as leader-
ship activities in building suppliers’ sustain-
ability management systems.
Chapters 6 and 7 provide practical guid-
ance on internal responsibilities and
performance management for supply chain
sustainability. They outline concepts of
internal alignment as well as the suggested
roles for executive management and supply
management professionals. In addition,
they provide recommendations on goal
setting and metrics to track internal and
supplier performance in meeting your com-
pany’s supply chain sustainability expecta-
tions. They also explore the importance of
public reporting.
Chapter 8 describes how industry collabo-
ration and multi-stakeholder partnerships
can help extend the impact of supply chain
sustainability programmes and some of the
associated opportunities and risks.
There is still much to learn about supply
chain sustainability, and we welcome com-
ments on the content of this guide and other
materials as we seek to constantly improve
the availability and alignment of supply chain
sustainability tools for companies.
How to Use This Guide
UN GLOBAL COMPACT
AND BSR PARTNERSHIP
ON SUPPLY CHAIN
SUSTAINABILITY
The Global Compact and BSR have
launched a joint project to develop stra-
tegic guidance materials for business on
the implementation of the ten principles
in supply chain programmes and opera-
tions.
In addition to this guide, the Global
Compact and BSR will produce an online
self-assessment and learning tool for
companies to determine their current
level of supply chain sustainability imple-
mentation and to learn how to make
progress over time in implementing a
holistic approach. The content of the
learning tool closely mirrors this guide,
though it is presented in a more interac-
tive format.
This guide was released at the UN Global
Compact Leaders Summit in June 2010
and the tool is forthcoming in 2011.
12 Supply Chain Sustainability
“Business is often taking
the initiative to move
things forward. Focusing
only on the business
case underplays the
value that business is
and should be providing
in society and with
regards to development.”
– Mads Øvlisen, Chair of the UN Global
Compact Advisory Group on Supply Chain Sustainability.
13
The frst steps in developing a supply chain
sustainability programme are to evaluate the
business case for action and understand the ex-
ternal landscape. These efforts will help identify
the highest priority supply chain issues for your
company, evaluate risks and opportunities and
build the internal support to move forward.
Developing the Business Case
There are many compelling reasons for taking
action to improve social and environmental
impacts throughout the supply chain. Many
companies are driven by their corporate values
and culture to address sustainability issues. For
these companies, the fact that supply chain
sustainability is the right thing to do and is a
driver of social development and environmen-
tal protection helps create internal buy-in and
commitment.
Many companies also identify specifc busi-
ness drivers for supply chain sustainability.
The business case for a particular company de-
pends on a variety of issues including industry
sector, supply chain footprint, stakeholder ex-
pectations, business strategy and organization-
al culture. Supply chain sustainability manage-
ment practices that respond to multiple drivers
can maximize the value to business.
The most common business drivers for
supply chain sustainability are depicted in the
fgure below.
2. Getting Started on Supply
Chain Sustainability
BUSINESS DRIVERS
FOR SUPPLY CHAIN SUSTAINABILITY
Managing
business risks
Realizing
ef?ciencies
Creating
sustainable
products
? Minimize business
disruption from envi-
ronmental, social and
economic impacts
? Protect company’s
reputation and brand
value
? Reduce cost of
material inputs, energy,
transportation
? Increase labour pro-
ductivity
? Create ef?ciency
across supply chains
? Meet evolving cus-
tomer and business
partner requirements
? Innovate for chang-
ing market
GOVERNANCE, MANAGEMENT, TRANSPARENCY
BUILDING THE BUSINESS CASE FOR SUPPLY
CHAIN SUSTAINABILITY
2
2
From Business for Social Responsibility.
14 Supply Chain Sustainability
MANAGING RISK
Companies can protect themselves from
potential supply chain interruptions or
delays associated with suppliers’ human
rights, labour, environmental and gover-
nance practices by ensuring suppliers have
effective compliance programmes and
robust management systems covering all the
areas of the Global Compact Principles. For
companies who have a single source for key
inputs, managing risks is also critical to en-
suring continued access to those resources.
Increasingly, customer and investor
expectations are driving companies toward
more responsible supply chain management.
Strong management of social and environ-
mental issues can help companies address
reputational risks.
Finally, companies also use supply chain
sustainability to ensure that their suppliers
can adapt to anticipated strengthening of
environmental regulations, extended prod-
uct responsibility legislation and to reduce
potential future liability.
Example: Westpac, an Australian bank, has
used advertising campaigns and sponsorships
to link the company’s brand to social engage-
ment, environmental protection and sustain-
ability. Westpac recognizes that many of its
social, ethical and environmental impacts
reside as much in its supplier relationships (or
the ‘supply chain’) as in its own activities, and
that managing supply chain sustainability is
important to protect the company’s reputa-
tion and brand value. Risks associated with
supply management include negative publicity,
damage to a company’s reputation and actual
losses of customer base. Westpac carefully
manages these risks through a de?ned supply
chain management practice.
REALIZING EFFICIENCIES
A focus on realizing effciencies in the sup-
ply chain can reduce your company’s supply
costs while also reducing the environmental
footprint of your supply chain, including
energy, water and natural and synthetic
material use, as well as improving worker
health and, motivation, and productivity.
Benefts include:
Meeting Business
Objectives through
Supplier Chain
Sustainability
Example of Risk Man-
agement: Partnering
with suppliers to ensure
minimum standards in
management practices,
such as minimum hiring
age, contracts with work-
ers, health and safety
conditions, etc.
Example of Operation-
al Ef?ciency: Reducing
costs without negatively
impacting operations,
such as shipping prod-
ucts via ocean freight
rather than via air cargo
when practicable.
Example of Sustain-
able Products: Sourc-
ing raw materials with
social and environmental
impacts explicitly consid-
ered, such as biologically
based plastics that emit
relatively fewer green-
house gases throughout
their lifecycle.
• Strong labour and health and safety practic-
es which may result in cost effciency and
improved productivity
• Increased understanding of key processes
in the supply chain, including natural
resource management and extraction,
logistics and manufacturing, which enables
better management and stewardship of
resources
• More effciently designed processes and
systems which reduce required inputs and
lower costs
Productivity and effciency initiatives re-
quire a full understanding of the different
steps of the supply chain and the key social
and environmental impacts and cost driv-
ers. By addressing the root causes of issues
through strong communication capabilities,
in-depth understanding of business driv-
ers and sustainability trends and shared
assessments and priorities for improvement,
companies can drive improvements and
derive the benefts.
CREATING SUSTAINABLE PRODUCTS
Collaboration with suppliers on sustain-
ability issues can foster product innovation.
Companies embarking on such initiatives
have added new features and performance
characteristics to existing products and
even generated new products. For example,
sustainable products may result in fewer
negative environmental impacts than tradi-
tional products or have improved end of life
collection and disposal options. It is also pos-
sible for the sustainability of products to be a
differentiating factor and to lead to increased
sales for some companies.
Example: Ahlstrom Osnabrück, a Finnish
wallpaper company, began to develop prod-
ucts based on the Forest Stewardship Coun-
cil’s standard in the late 1990’s after a large
customer in the United Kingdom announced its
commitment to source products that adhered
to the FSC standard. By 2010, all of Ahlstrom
Osnabrück’s pulp suppliers were certi?ed to
either the FSC or the Programme for the En-
dorsement of Forest Certi?cation (PEFC) stan-
dards, and the company has 12 manufacturing
sites with FSC Chain-of-Custody certi?cation,
allowing the company to meet increased
marketplace demand for certi?ed sustainable
forest products.
15
“The purchasing power of a
corporation can become a unique
driver for bringing about positive
change in society. Companies must
use this power to achieve a purpose
and make their supply chain a
vehicle for inclusive growth. In a
developing economy like India, the
bulk of the workforce is employed in
the unorganized sector which often
constitutes the last mile of the supply
chain. If this workforce is exposed
to the advantages of good and clean
business practices, it would make
a great impact on their lives and on
the wellbeing of the nation.”
– Anand Mahindra, Vice Chairman & Managing Director,
Mahindra& Mahindra Limited
16 Supply Chain Sustainability
Understanding
the External Landscape
Beyond identifying business drivers, it is also
important to understand the external land-
scape of supply chain sustainability including
the approaches of peer companies, the expecta-
tions of stakeholders and opportunities to part-
ner with others (explored more in Chapter 8).
BENCHMARKING
AGAINST PEER COMPANIES
Your peer companies may have already
begun addressing supply chain sustainabil-
ity. Benchmarking against your peers may
provide you with a more sophisticated un-
derstanding of the business value as well as
ideas to incorporate into the design of your
supply chain sustainability programme. You
should seek to understand your peers’:
• Business case for supply chain
sustainability
• Understanding of human rights, labour, en-
vironment and governance risks, opportu-
nities and impacts and the resulting supply
chain focus
• Internal structure for managing supply
chain sustainability
• Codes of conduct, and the topics included
• Use of their code of conduct
? In 2009 the Global Compact conducted a survey of
its signatories, including questions related to supply
chain sustainability practices. More than 1,000 complet-
ed surveys were received from companies with diverse
pro?les in size, geographic presence and industry.
? 83 per cent of respondents indicated they consider
suppliers’ adherence to the Global Compact principles,
and 46 per cent of respondents from companies with
more than 50,000 employees indicated they strongly
consider adherence to the Global Compact principles by
supplier. However, approximately 30 per cent of respon-
dents from companies with fewer than 50,000 employ-
ees indicated they strongly consider adherence.
? Of the 17 per cent of respondents who do not consider
adherence at all, the top reasons for not considering
adherence included lack of capacity (28 percent), not
a priority (28 percent) and lack of knowledge how to
integrate principles with procurement practices (25
percent).
? Among companies that consider Global Compact
participation when selecting supply chain partners,
regarding the selection of new supply chain partners,
45 per cent rely on publicly available information, 37
per cent rely on self-assessment questionnaires, 37 per
cent review other proprietary information and 32 per
cent rely on on-site audits by company staff.
? Among companies that consider Global Compact
participation when selecting supply chain partners,
regarding the assessment of current supply chain
partners, 36 per cent rely on audits by company staff,
35 per cent rely on self-assessment questionnaire
responses and 32 per cent assess corporate responsi-
bility performance during regular business reviews.
? The largest companies (>50000 employees) indicated
they take a variety of actions to assist their supply chain
partners to improve and adhere to Global Compact prin-
ciples, including providing training on speci?c issues (31
per cent), assistance with setting and reviewing goals
(26 per cent), reviewing and commenting on remedia-
tion plans (26 per cent) and providing references to third
party experts, e.g. consultants, civil society organiza-
tions (24 per cent). However, for smaller companies, the
top response in all size categories to this question was
“no action taken.”
? Some 52 per cent all companies, and up to 84
per cent of the largest companies include corporate
responsibility expectations in relevant documents (e.g.
contracts, proposal requests, and purchase orders).
? Some 43 per cent of all companies and up to 72 per-
cent of the largest companies, provide training to their
procurement staff on corporate responsibility.
? However, 13 per cent of companies reward purchas-
ing decisions that balance business and corporate
responsibility criteria and 15 per cent reward suppliers
that perform well on business and corporate responsi-
bility criteria.
HOW DOES YOUR COMPANY COMPARE TO RELEVANT BENCHMARKS?
Highlights from the 2009 Global Compact Survey Results Related to Supply Chain Sustainability
17
• Approach and programmes to engage with
suppliers
• Metrics to evaluate the success of their
programme
• Reporting practices
Some industries have established joint codes
of conduct (see Chapter 3) and undertake
aspects of collaborative supplier engagement,
such as cooperation to conduct audits and
training. Benchmarking against peer compa-
nies can help you identify these collaborative
approaches and industry initiatives, which
are covered in detail in Chapter 8, to avoid
‘reinventing the wheel’ of supply chain
sustainability.
Finally, suppliers themselves can often
provide examples of good practices and
can communicate their needs to customers.
Understanding the
Expectations of Stakeholders
Companies should also invest in understand-
ing the expectations of their stakeholders
including national and local governments,
workers’ and employers’ organizations, non-
governmental organizations (NGOs), advocacy
and activist organizations, academic and issue
experts and community groups, as well as
suppliers themselves.
Moreover, companies can also beneft from
seeking input from customers and investors.
Customer and investor demand is a primary
driver for many supply chain sustainability pro-
grammes, and insights from these stakeholders
can help shape programmes to ensure that they
create the maximum return for the company.
Engaging stakeholders early and regularly
in the process of designing a programme can
help companies identify relevant standards
and approaches to sustainable supply chain
management. Some stakeholders are knowl-
edgeable about, and sometimes even involved
in the development of, different codes of con-
duct and certifcations for suppliers. Examples
include the Kimberly Process for jewelry,
Forest Stewardship Council Certifcation for
wood and paper products and the SA8000 for
responsible labour practices across industries.
They can help you evaluate the credibility of
different options and identify which might
be relevant inputs for your company’s pro-
gramme.
Emerging risks and opportunities in
supply chains. From customers and employ-
ees to activists and NGOs, stakeholders are
often the frst to identify emerging environ-
mental, social and economic issues in the
supply chain. Companies who engage early
and regularly with stakeholders have the
opportunity to take a proactive approach to
these issues and to partner with stakeholders
rather than discovering the issues through
an activist campaign. Early identifcation of
issues through stakeholder engagement can
also help companies take early leadership in
comparison to peers. See Chapter 8 for more
detail on multi-stakeholder collaboration.
Example: In developing its code of conduct,
Westpac consulted its Community Consulta-
tive Council, suppliers and NGOs. The company
included feedback from organizations such
as the Australian Conservation Foundation,
Australian Consumers’ Association, Austra-
lian Council of Social Security, Finance Sector
Union, Human Rights, and Equal Opportunity
Commission. Westpac listened and responded
to the issues raised by these groups. The
company also established a Sustainable Supply
Chain Management (SSCM) Policy Review Com-
mittee where internal and external stakehold-
ers’ perspectives on SSCM can be heard and
used to improve its processes.
The Importance
of Investors and
Customers as
Stakeholders in
Supply Chain
Sustainability
Customers and investors
are increasingly expect-
ing that companies
understand and manage
impacts in their
supply chains.
Investors want to ensure
that companies are
aware of and are mitigat-
ing key risks affecting
their supply chains.
In addition, they are
interested to know how
companies are creating
value from supply chain
sustainability.
Consumers and busi-
ness customers are also
encouraging companies
to more closely man-
age their supply chains.
In particular, some
consumers are seek-
ing more sustainable
products; while business
customers may include
supply chain sustain-
ability in their supplier
selection criteria.
18 Supply Chain Sustainability
Establishing a Vision
Having a clear vision and objectives for
your company’s sustainable supply chain
programme will provide direction for your
strategy and help to defne your company’s
commitment. A vision will be a helpful
yardstick in evaluating the success of the pro-
gramme and in identifying areas for continued
improvement.
It is important that the development of
the company’s vision and objectives are
championed from the top of your company.
This is critical to ensure the success of the
programme. Moreover, to ensure support from
company leaders, it is important for execu-
tives and senior managers from all parts of the
business related to the supply chain should
be consulted in this process and have a say
in the development of the company’s vision.
Companies should consider how they can
include representatives from supply manage-
ment functions such as procurement and
operations as well as corporate responsibility,
design, marketing, logistics, quality assur-
ance, compliance, legal, human resources and
environment, health and safety functions in
creating the vision, as each of these functions
will have a role to play in the implementation
of the sustainable supply chain programme.
For smaller companies, it is equally important
that leaders agree on the vision for sustainable
supply chains.
The output of the process should be a
statement of vision and commitment. As you
develop the statement, consider what is mo-
tivating the company to invest in sustainable
supply chain management. Are you driven by:
• Customer demands and concerns?
• NGO and activist claims over practices in
your supply chain that affect your brand
and reputation?
• Investor inquiries to understand how you
are managing supply chain risk?
• Non-compliance with regulations and
standards that is preventing you from doing
business?
• Rising costs as a result of increased demand
for and reduced supply of natural resourc-
es?
• Pressure from your industry peers who are
also developing sustainable supply chain
programmes?
• The company’s culture of strong emphasis
and performance on sustainability?
• Business interest in addressing macro issues
in the environment and society to ensure
long-term sustainability of operations?
It is also important to defne specifc objec-
tives and potential barriers or risk events
affecting their achievement. What is the
company hoping to achieve through a supply
chain programme? What are some long-term
outcomes you want to work toward? How will
a sustainable supply chain support your com-
pany’s business strategy? Objectives can vary
widely, including: strategic business goals (e.g.
creating long-term value for the company),
operational business goals (e.g. saving cost by
reducing wasted energy and materials), goals
to improve your company’s reputation (e.g.
wanting to change stakeholder opinions of
your company), and compliance-based goals
(e.g. ensuring activities meet all applicable
laws and regulations).
Based on the business motivations and
objectives, you can craft a vision statement
that refects what you consider long-term
success for a programme. Some examples of
company vision statements are provided in
the box at left. The vision for your company
may change over time. As you become aware
of issues and begin to understand and gain
experience, it may become necessary to “re-
set” the vision.
Example: Grupo Arcor, a food products and
confectionary business based in Argentina,
faced a growing number of requests and inquires
from clients, credit institutions, governments
and business chambers about the company’s
supply chain and sustainability. As a result, the
company created a Supplier Social Responsibil-
ity Programme, founded on a vision to integrate
Grupo Arcor’s CSR Policy into its supplier rela-
tionships. Its speci?c objectives are:
? To align suppliers with the company’s CSR
practices and supplier contractual policies
? To guarantee minimum common standards
in the company’s production and management
processes based on sustainability
? To increase and improve Grupo Arcor’s
supply sources while favoring the economic
inclusion of vulnerable groups with productive
activities which are normally excluded from the
competitive market.
The programme has three main strategies:
awareness and training; progressive CSR incor-
poration into the supplier recruitment policy;
and speci?c responsible purchasing projects.
19
Supply Chain Sustainability Vision Statements
L’OREAL
“We are committed to building strong and lasting
relationships with our customers and our suppliers, founded
on trust and mutual beneft. We do business with integrity:
we respect the laws of the countries in which we operate
and adhere to good corporate governance practices….We are
mindful of our impact on the natural environment…We are
committed to the respect of human rights. We want to end the
exploitation of children in the workplace and the use of forced
labour…We actively seek out and favour business partners who
share our values and our ethical commitments.”
NOKIA
“At Nokia, we work hard to anticipate risk, demonstrate
company values, enhance our governance practices, increase
employee satisfaction, and look after the environment and
communities where we do business. We expect the companies
in our supplier network to take a similar ethical business
approach and to demonstrate progress and achievements in
these areas as well as in educating and overseeing the prac-
tices of their own suppliers.
Our aim is to ensure that environmental, ethical and health
and safety issues, as well as labour practices, are not separate
add-on features, but are embedded within all our sourcing
processes, including supplier selection and relationship devel-
opment.”
20 Supply Chain Sustainability
21
3. Establishing Sustainability
Expectations for the Supply Chain
As you begin to solidify your vision for sup-
ply chain sustainability, an important next
step is to translate expectations into a clear
set of guidelines that will provide direction
to suppliers and internal colleagues. At a
minimum, you should expect suppliers to
comply with national laws and to take proac-
tive measures to avoid environmental and
social harm.
3
Overview of Codes of Conduct
Codes of conduct are critical to establishing
and managing expectations for both custom-
ers and suppliers. They create a shared foun-
dation for sustainability, from which supply
management professionals, suppliers and
other actors can make informed decisions.
For many companies, a supplier code of
conduct is a natural extension of corporate
values statements and seen as an affrmation
of existing expectations rather than a new set
of requirements.
When developing codes of conduct, there
are a number of international standards that
should also be consulted and referenced.
These are outlined below.
Adopting or Writing a
Code of Conduct
The Global Compact principles outline each
of the areas that need to be covered for a code
of conduct to be considered comprehensive.
Many companies will fnd during the external
landscape review described in Chapter 2
that other companies in their industry have
already created joint codes of conduct. These
codes are designed to minimize the burden
on suppliers by reducing the number of
standards with which they must demonstrate
compliance. They are also intended to stream-
line the process of conducting joint audits of
suppliers and to reduce the effort required of
companies to design their own codes.
However, there is a risk that joint codes
do not address all the issue areas of the
Global Compact, or will not meet specifc
concerns for your business. Your company
3
Protect, Respect and Remedy: a Framework for Business and Human Rights, Report of the Special Representative of the Secretary-General on
the issue of human rights and transnational corporations and other business enterprises, John Ruggie. 7 April 2008.
should consider whether adoption of one of
these joint standards will receive the full sup-
port of executive management and be used
in place of, or to augment, a unique code
created by company. And if you determine
that it is necessary for your company to write
its own code, joint codes can still be a helpful
starting place.
If there are no joint codes for your indus-
try that are comprehensive, or your company
determines that they aren’t appropriate for
your supply chain, there are several princi-
ples and initiatives that apply to supply chain
management that should be referenced.
For the social elements of the code, compa-
nies should refer to the UN Declaration of
Human Rights and the International Labour
Organization Core Conventions and Recom-
mendations which establish common expec-
tations on a broad range of issues concerning
work, employment, social security, social
policy and human rights.
Environmental topics that are most
relevant will vary by industry, which makes
dialogue and collaboration critical to identify-
ing which issues are most important to cover
in the code of conduct. It is also important
to regularly review the contents of the code
to determine whether updated language and
interpretation is needed.
22 Supply Chain Sustainability
Key steps in development of a code include:
1. Consult with stakeholders, including suppliers
2. Base expectations on existing international
norms of behavior rather than inventing
new standards, to avoid undermining
international law and prevent conficting ex-
pectations for suppliers with multiple buyers
3. Consult with the cross functional teams, in
particular supply management professionals
4. Consider a requirement that suppliers cas-
cade these expectations to their supply base
Examples: Though products are increasingly
delivered online, print publications are still a sig-
ni?cant part of Reed Elsevier’s business, and
the company purchases a large amount of paper.
Reed Elsevier’s challenge was to better under-
stand the sustainability of the paper it uses.
To ensure suppliers meet the ethical stan-
dards Reed Elsevier’s set for its own behavior, the
company began the Reed Elsevier (RE) Socially
Responsible Supplier (SRS) programme in 2003.
The cornerstone is the Reed Elsevier Supplier
Code of Conduct, which incorporates the ten prin-
ciples of the Global Compact. Suppliers are asked
to sign and prominently post the Code in their
workplaces. It also helps suppliers spread best
practice through their own supply chain by requir-
ing subcontractors to enter into a written commit-
ment that they will uphold the Supplier Code.
Reed Elsevier has also launched an annual
paper survey asking suppliers to communi-
cate their performance on all elements of the
Code and the ten principles, not only on key
environmental issues (such as mill standards,
forest certi?cation, recycled content, bleach-
ing, resource reduction efforts) but also on how
they ensure they do not use child and involun-
tary labour, avoid workplace discrimination and
promote freedom of association.
TOPICS AND REFERENCES TO CONSIDER IN
WRITING AND ADOPTING A SUPPLIER CODE OF CONDUCT
SAMPLE POLICY AREAS THAT ALIGN WITH THE GLOBAL COMPACT PRINCIPLES:
POTENTIAL SOURCES
TO REFERENCE:
Human Rights and Labour
1. Forced labour
2. Child labour
3. Working hours
4. Wages and bene?ts
5. Humane treatment
6. Nondiscrimination
7. Freedom of association and col-
lective bargaining
8. Occupational safety
9. Emergency preparedness
10. Occupational injury and illness
11. Fire safety
12. Industrial hygiene
13. Physically demanding work
14. Machine safeguarding
Environment
15. Material toxicity and chemicals
16. Raw material use
17. Recyclability and end of life of products
18. Greenhouse gas emissions
19. Energy use
20. Water use and waste water treatment
21. Air pollution
22. Biodiversity
United Nations Global Compact**
Universal Declaration of Human Rights
Protect, Respect and Remedy: a
Framework for Business and Human
Rights
ILO International Labour Standards
ILO Code of Practice in Safety and
Health
OECD Guidelines for Multinational
Enterprises
The Rio Declaration on Environment
and Development
United Nations Convention Against
Corruption
ISO 14001
SA 8000
OHSAS 18001
Anti-Corruption
23. Con?ict of interest
24. Gifts, meals and entertainment
25. Bribery and kickbacks
26. Accounting and business records
27. Protecting information
28. Reporting misconduct
** For detailed discussion of anti-corruption in the supply chain, including model language for a code of conduct, refer to the Global Compact publication “Fighting Corruption in the Supply Chain: A Guide for
Customers and Suppliers”.
23
Example: Levi Strauss & Co. was the ?rst
multinational company to establish Global Sourc-
ing and Operating Guidelines, which outline the
company’s commitment to responsible business
practices everywhere it conducts business. The
guidelines include two parts: (1) Country Assess-
ment Guidelines, which help assess potential
issues associated with conducting business in
speci?c countries, and (2) Terms and Conditions,
which help to identify business partners who fol-
low workplace standards and business practices
that are consistent with the company’s values.
The Electronic Industry Citizenship
Coalition (EICC), an industry association of
more than 40 of the leading companies in the
information and communications technology
industries, established a joint supply chain
code of conduct that provides a united voice
for customer expectations, streamlines the
oversight of supply chain conditions for both
suppliers and customers and allows both to
focus on changing social and environmental
conditions. Each member company in the EICC
has committed to adopting the code of conduct
and implementing it in their supply chain.
The Global Social Compliance
Programme is a global cross-industry
platform that seeks to harmonize supply
chain sustainability codes and approaches.
Using the Code
In order to meet your company’s goals for
supply chain sustainability, the code should
be used as the foundation for setting internal
and external expectations and as a framework
for action and engagement with suppliers and
other stakeholders.
A new code needs to be shared through-
out your company to raise awareness of the
standards it describes. Supply management
professionals will need to gain familiarity
with the elements of the code in order to
communicate it to existing and new suppliers
and to explain how your company intends
to work with suppliers to ensure compli-
ance and continuous improvement. Pos-
sible mechanisms include internal websites,
recurrent trainings particularly for new staff
and regular communications from senior
management to reinforce the importance of
the code. Also, depending on how large and
complicated your company’s structure is, it
may be helpful to establish internal poli-
cies and procedures to explain how the code
should be implemented by staff.
Companies often take a variety of
approaches to communicating codes to
suppliers including:
• A special, one-time communication. This
approach is often most effective when the
communication comes from a senior level
executive in your company such as the CEO
or Chief Procurement Offcer.
• Inclusion of the code at frst points of
contact with suppliers. Companies are
including the code at the very start of new
relationships with suppliers by posting it on
their websites and including it in Requests
for Proposals/Quotations. This helps to raise
awareness among potential suppliers of the
importance sustainability will play in their
relationship with the company.
• Integration of the code into supplier con-
tracts. Many companies also integrate the
code into supplier contracts, or into purchase
orders, by asking their suppliers to commit in
contracts to complying with the expectations
set out in the code.
• Review of the code at a regularly sched-
uled business meeting. Linking the
introduction of the code to an established
business process and having supply man-
agement professionals present the informa-
tion will demonstrate the strength of the
connection between business and sustain-
ability performance. It can also be useful to
have supply chain sustainability representa-
tives participate in these meetings if there
will be interactions between those individu-
als and suppliers in the future as part of the
engagement and evaluation process.
Example: Telenor, a global provider of
telecommunications services from Norway,
implements its code of conduct through agree-
ments on responsible business conduct with
suppliers. These agreements require suppliers
not only commit to the code, but also to allow
monitoring and sanctions for non-compliance.
Telenor also requires suppliers to cascade the
company’s code of conduct requirements to
their suppliers and reserves the right to moni-
tor any tier in the supply chain.
SAMPLE POLICY AREAS THAT ALIGN WITH THE GLOBAL COMPACT PRINCIPLES:
POTENTIAL SOURCES
TO REFERENCE:
Human Rights and Labour
1. Forced labour
2. Child labour
3. Working hours
4. Wages and bene?ts
5. Humane treatment
6. Nondiscrimination
7. Freedom of association and col-
lective bargaining
8. Occupational safety
9. Emergency preparedness
10. Occupational injury and illness
11. Fire safety
12. Industrial hygiene
13. Physically demanding work
14. Machine safeguarding
Environment
15. Material toxicity and chemicals
16. Raw material use
17. Recyclability and end of life of products
18. Greenhouse gas emissions
19. Energy use
20. Water use and waste water treatment
21. Air pollution
22. Biodiversity
United Nations Global Compact**
Universal Declaration of Human Rights
Protect, Respect and Remedy: a
Framework for Business and Human
Rights
ILO International Labour Standards
ILO Code of Practice in Safety and
Health
OECD Guidelines for Multinational
Enterprises
The Rio Declaration on Environment
and Development
United Nations Convention Against
Corruption
ISO 14001
SA 8000
OHSAS 18001
Anti-Corruption
23. Con?ict of interest
24. Gifts, meals and entertainment
25. Bribery and kickbacks
26. Accounting and business records
27. Protecting information
28. Reporting misconduct
24 Supply Chain Sustainability
25
The next step in designing a sustainable
supply chain programme is to determine the
scope of the programme. Often companies
that are just starting out in supply chain
sustainability seek to, or feel pressure to,
engage their entire supply chain. However,
given the size and spread of most companies’
supply chains, and the resources that will be
required for effective engagement, this is typi-
cally unrealistic.
Many companies therefore chose to focus
their programme on their “key” or most
“strategic” suppliers, which are often those
that the company sources directly from, has
signifcant spend with and/or views as critical
to production.
In addition, there may be particular “hot
spots” in your supply chain, even several steps
removed from your operations, which could
need immediate attention because of the high
level of risk. For example, electronics compa-
nies are beginning to focus on minerals that
are extracted from regions affected by social
confict and where human rights violations
are present.
The objective of determining the scope of
the programme is to identify which of your
suppliers you should engage with and to what
extent, noting that programme boundaries
tend to change over time as companies become
more sophisticated and capable to manage sup-
ply chain sustainability more effectively.
Examples: Ford Motor Company has made
it a priority to take action on forced labour in
the production of pig iron, which is used to
make steel, even though it is six or seven tiers
removed.
In the development of Telenor Group’s
responsible supply chain programme, Tele-
nor formally did not exclude any tier of the
supply chain from the start. Further, Telenor
also de?ned “suppliers” to include any kind of
contractual partner, except customers. The
practical scoping of this on operational level is
carried out through supply chain risk assess-
ment and prioritization within practical efforts.
4. Determining the Scope
Sub-tier suppliers are de?ned as those companies that supply to your suppliers—they
are all the companies that you don’t source from directly but that provide inputs for your
products and services.
For example, in the information technology sector, mining companies are sub-tier suppli-
ers because they provide the metal that goes into electronic components. Similarly, in the
?nancial services sector, some computer hardware manufacturers are sub-tier suppliers
because they provide the servers that other information technology companies use to oper-
ate data centres.
Many companies struggle with whether and how to include sub-tier suppliers in the scope
of their supply chain programme because of the lack of direct interaction and perceived
lack of in?uence.
However, many companies and industries have found that sub-tier suppliers have the
most signi?cant challenges in addressing sustainability issues. We recommend that com-
panies be aware of where sustainability challenges are likely to arise by mapping their
entire supply chain. You can then evaluate the importance of the issue to your business
and its potential impact on society to determine if or how to include it in the scope of your
supply chain sustainability programme.
THE IMPORTANCE OF LOOKING BEYOND
DIRECT SUPPLIER RELATIONSHIPS
26 Supply Chain Sustainability
Raw
Materials
Manufacturing/
Processing
Packaging
Transportation/
Storage
Retail
Consumer
Use/ End
of Life
SUPPLY CHAIN
GENERIC SUPPLY CHAIN STAGES FROM
A RETAILER PERSPECTIVE
Sample Supply
Chain Risk Events
for a Food Company*
Child Labour:
Allegations of child
labour on farms in supply
chain surface.
Working Hours &
Wages:
Workers in food process-
ing plants strike due to
low wages and unpaid
overtime wages.
Corruption:
A supplier’s manage-
ment misuses revenues
or royalties for corrupt
purposes.
Food Safety:
Processing plants fail to
properly clean machin-
ery and unintended and
potentially hazardous
substances end up in
product.
Indigenous People:
Farming is undertaken
on land that is sacred
or otherwise essential
to lives or livelihoods of
indigenous people.
Pollution:
Processing plants fail
to properly treat water
ef?uents and are not in
compliance with local
regulations.
* This list is provided for illustrative
purposes. It is not intended to be
comprehensive.
Mapping the Supply Chain
To understand the appropriate scope for man-
aging sustainability in your supply chain, you
must frst defne what your company’s supply
chain is. A supply chain map helps to trace
the key activities of organizations and people
involved in bringing a product or service from
raw material to market. A generic product
supply chain is illustrated below.
Of course, the supply chain of individual
products and services can look substantially
different. Supply chain mapping there-
fore needs to be conducted on a product
or service category basis. For companies
in service industries, like hospitality and
transportation, think of the various steps in
your service and focus on the supply chain
of key assets (such as ships in the transpor-
tation industry) and products that support
your service (such as food in the hospitality
industry).
We recommend focusing on the most
important product or service categories as
a starting point. This could be identifed by
reviewing procurement contracts or your
company’s cost of goods sold data, or similar
primary information. For example, an auto-
mobile rental services agency’s main assets
are its feet of cars and computer systems to
manage reservations, and both of these cat-
egories would need to be mapped.
To map your supply chain:
• Identify your major product and service
categories to map. Consider your com-
pany’s largest categories of procurement
spend and categories that are critical to
business operations.
• For each product or service category,
trace the fow of materials and informa-
tion. Don’t stop with your direct suppliers
— go back to raw materials and original sup-
pliers. Also, don’t make assumptions—work
to understand the relationships and transac-
tions as they actually exist. In some cases,
agents or wholesalers may play key roles.
• Gather information on the human rights,
labour, environmental and corruption
issues at every step of the supply chain.
Where are there potential risks and opportu-
nities associated with these issues? It can be
very useful to discuss with peer companies,
suppliers, industry bodies, civil society or-
ganizations and activists, as well as govern-
ment representatives to identify issues.
27
“We live in an increasingly
resource aware and resource
constrained world. We need
to live within our means
and not borrow from
the future. To build a
sustainable tomorrow we
need to make our supply
chain sustainable today.
In fact, I frmly believe that
increased sustainability
in the supply chain reduces
risks and increases profts
for all organizations and
stakeholders”
– Kris Gopalakrishnan, CEO and Co-Founder of Infosys
28 Supply Chain Sustainability
Segmenting the Supply Chain
With a more complete understanding of your
company’s supply chain, you can begin to
segment your suppliers to determine how to
commit resources to improve sustainability.
Segmentation allows companies to focus on
the most critical elements of the supply chain.
Good segmentation is a balance between ac-
knowledging that some risk will always exist but
that specifc risks need to be addressed to avoid
negative impacts to your business and to society.
There are a number of different criteria
to consider in supply chain segmentation
including, but not limited to:
• Risk to Society: Where are the biggest risks
to human rights, labour, the environment
and ethics in your supply chain?
• Business Risk: What are the risks in your
company’s supply chain that could impact
ability to do business and meet the vision
set forth for supply chain sustainability?
• Risk to Economic Development: What
are the risks for exclusion of small and
medium sized enterprises (SMEs) when
introducing code demands, monitoring and
auditing schemes?
SUPPLY CHAIN
SUSTAINABILITY RISKS MAPPING
RISK IMPACT / SEVERITY
RISK
LIKELIHOOD
Both business and societal risk can be
infuenced by:
• Spend: Which suppliers does your compa-
ny have the highest spend with, including
direct and indirect spend, and potentially
therefore the most infuence with?
• Country: Which countries do your suppliers
operate in, and which of those countries are
high risk because of weak legal and regulato-
ry frameworks, high levels of corruption, etc.?
• Category: Which suppliers, including sup-
pliers for products and processes, are most
business critical for your company?
• Tier: Which suppliers sell to your company
directly, and which are sub-tier suppliers?
• Nature of transaction: Does the transac-
tion contribute to increased or decreased
transparency and accountability for condi-
tions in the supply chain? For example,
sub-contracted labour, brokers, agents, and
middlemen may lead to gaps in knowledge,
awareness and infuence.
There are two main steps to mapping risk
in the supply chain:
1. Identifying Risk Events. Events, such
as underpayment of wages at a factory in
your supply chain, can create risk for your
business. Internally - and externally-driven
events that may not only be against the
law but may also affect the achievement of
your sustainable supply chain and business
objectives must be identifed. Risks can in-
clude business continuity, regulatory, repu-
tational, market acceptance and customer
requirements risks. External stakeholders
may also identify other social, environmen-
tal, economic and governance risks which
your company will have to evaluate for
their potential impact on your business.
2. Assessing the Likelihood and Severity of
Risk Events. Risk events should be analyzed
to understand their likelihood and poten-
tial impact. This will determine how they
should be managed under your company’s
supply chain sustainability programme.
Many companies fnd it helpful to plot each
risk event on a grid, where the two axes are
“likelihood of occurrence” and “severity of
consequences,” as in the mapping on the left.
It is also possible to include additional dimen-
sions and inputs to create the risk ranking.
For example, stakeholder perception of risks
29
may be different, and your company may
want to take this perspective into account as
well in setting priorities for action.
Finally, to use this analysis to effectively
segment your company’s supply chain, you
will need to translate risks to types of suppli-
ers. For example, an information technology
company may fnd that many of its highest
risks are focused on the raw minerals that are
used in manufacturing its products. It would
therefore want to focus its supply chain
sustainability programme at the base of its
supply chain programme. A pharmaceutical
company, on the other hand, may fnd that
many of its highest risks occur during trans-
portation of its products when the integrity
of its medicines and patient safety might be
at risk. This company would want to engage
with its logistics suppliers to address potential
business ethics, labour and business continu-
ity concerns. Some risks, such as greenhouse
gas emissions, packaging waste and environ-
mental management in logistics and trans-
portation are common to many industries,
and depending on the scale of activity, might
require different interventions.
Examples: Through its supplier mapping
exercise, CEMEX, a Mexican building materi-
als company, realized that 80 per cent of the
company’s spend in the supply chain goes
to 20 per cent of its suppliers. Given the
significant size of its total supply chain, and
the realistic ability of the company to affect
change in suppliers, CEMEX determined that
it could most effectively create sustainability
improvements and realize business value
from focusing on that 20 per cent.
ArcelorMittal, a mining company based
in Luxembourg, has a USD 50 billion supply
chain extending from basic raw materials like
iron ore to sophisticated downstream prod-
ucts and services. The company has mapped
out the most significant sustainability related
risks and opportunities for each category of
the supply chain based on desk research as
well as input from internal experts, users
and the respective category purchase teams.
ArcelorMittal has found that mapping risks in
a method that is both robust, but also simple
and aligned with the organization’s core
risk management approach, is essential to
crystallize the key priorities to be addressed.
The company chose a 2 x 2 matrix (Impact x
Likelihood) for each purchase category and
held workshops with participants from the
wider internal workgroups to discuss the
challenges as well as opportunities in each of
these categories. This process will need to be
repeated on a regular basis to ensure the risk
map remains up to date.
30 Supply Chain Sustainability
Example: In order to address environmen-
tal, health and safety impacts throughout
the company’s supply chain, Mahindra &
Mahindra Limited, an Indian industrial
group, started a programme to enable
knowledge and best practice sharing with
suppliers. A detailed questionnaire was sent
to all suppliers. This provided the basis for
understanding the current processes in the
supply chain and the level of the envi-
ronmental challenges, such as effects of
irresponsible waste disposal. Suppliers were
then categorized as follows
A. Supplier with hazardous process and
dangerous operations with no EMS/OHSAS
certi?cation
B. Supplier with hazardous process or/and dan-
gerous operations with EMS/OHSAS certi?cation
C. Supplier with non-hazardous process or/and
non-dangerous operations with no EMS/OHSAS
certi?cation
D. Supplier with non-hprocess or/and non-dan-
gerous operations with EMS/OHSAS certi?cation
Suppliers in categories A & B were determined
to be top priorities for the company’s continuous
improvement programme.
Control
Level
SUPPLIER CONTROL LEVELS
Guidlines
LEVEL 1
LEVEL 2
LEVEL 3
LEVEL 4
LEVEL 5
Low impact on CSR & compliance, no impact on production
Some impact on CSR & compliance, no impact on production
Some impact on CSR & compliance, indirect impact on production
Some impact on CSR & compliance, direct impact on production
Alternative supplier available
Some impact on CSR & compliance, direct impact on production
Alternative supplier not available, major problems maintaining pro-
duction
Example: Epson, a Japanese technology hardware and equipment company, has organized its
suppliers by control level. Suppliers are categorized into five levels depending on their impact
on the company’s CSR initiatives and ability to sustain production.
31
32 Supply Chain Sustainability
33
The ultimate goal of engaging with suppliers
is to develop a shared mindset about sustain-
ability issues, to build supplier ownership
of their sustainability vision, strategy and
performance and to work more closely with
suppliers with shared priorities.
There are many different levers compa-
nies can use to improve sustainability in the
supply chain. The mechanisms described in
this chapter are focused on raising aware-
ness and encouraging suppliers to integrate
and drive sustainability into their busi-
ness through setting expectations, ongoing
monitoring and partnering with suppliers to
overcome barriers to improvement.
The fgure below shows the tools that are
used by companies across a wide range of
industries to engage with suppliers on supply
chain sustainability. Each has specifc pur-
poses, and it is important to have a strategic
process to determine which supplier engage-
ment tools to use and to what extent.
5. Engaging with Suppliers
Monitoring & Evaluation
Ask suppliers to self-assess their sustainability performance.
Conduct on-site evaluations of performance
Remediation &
Capability Building
Ask suppliers to address issues of poor
performance. Provide training, resources,
and support to improve sustainability
management and performance.
Partnership
Support supplier
ownership to address
the root causes of poor
sustainability performance.
Setting Expectations
Communicate about your sustainability expectations to suppliers.
Incorporate expectations, including the code of conduct, into contracts.
TOOLS FOR ENGAGING WITH SUPPLIERS
ON SUSTAINABILITY
4
Broad
engagement
Deep
engagement
4
From Business for Social Responsibility.
34 Supply Chain Sustainability
Selecting Communications Channels
The frst step to improving sustainability in
the supply chain is to raise awareness of your
company’s expectations for sustainability per-
formance. Many companies use their codes of
conduct to do so (as described in Chapter 3).
In addition, there are two additional com-
munication methods to consider:
USING EXISTING CUSTOMER-SUPPLIER
COMMUNICATIONS.
Every company has some existing processes or
methods to communicate with suppliers. These
can vary from very basic to very sophisticated
approaches. Often these communications are
led by supply management professionals and fo-
cus on the business aspects of the relationship.
You should consider how to regularly
incorporate sustainability expectations and
dialogue into these communications to help
build shared mindset, reinforce key messages,
and provide the opportunity for feedback. This
approach has the beneft of providing a dia-
logue platform where the supplier can in turn
raise issues of constraints or tensions created
by your company’s demands (such as short
lead times or many changes to order specif-
cations). Having the right parties around the
table can help identify ways to meet both the
business and sustainability requirements.
ADDING SUSTAINABILITY TO THE
AGENDA OF SUPPLY CHAIN FORUMS.
By participating in supplier forums and talk-
ing about sustainability expectations in your
industry, you can help identify organizations
that share your company’s issues and priori-
ties. These discussions, which can include
suppliers, but also peers, partners, policymak-
ers and a broad range of other stakeholders,
allow you to share details about your com-
pany’s priorities and expectations, and learn
from others about their approaches. These
forums can also provide an important op-
portunity to get feedback on your programme
and identify areas for improvement, as well as
to build support for addressing systemic chal-
lenges that require a shared response
Examples: In 2006, the Fuji Xerox Co., Ltd., a
Japanese imaging technology company, began
the implementation of an ethical procurement
programme to address customers’ needs and re-
spond to their concerns related to management
at environmental and labour issues in manufac-
turing facilities, to minimize manufacturing and
brand risks from supplier noncompliance and to
improve product and manufacturing quality. As
the ?rst step in the development of the com-
pany’s programme, Fuji Xerox conducted “ethical
procurement study sessions” with its nine key
suppliers’ executives in 2006. The study sessions
included a ?ve-day study meeting in Shenzhen,
China, with approximately 50 participants,
including the executives of the suppliers, their
factory presidents in Shenzhen area and Fuji Xe-
rox of Shenzhen executives. The suppliers’ study
group was critical to the successful launch of
the company’s ethical procurement programme.
Many companies starting out in supply
chain sustainability are focused on
addressing situations when supplier
performance on sustainability issues
is poor. However, often suppliers are
more motivated by incentives for strong
performance than by negative conse-
quences.
As your supply chain sustainability
programme evolves, you should con-
sider establishing clear benchmarks and
rewards for consistently strong perfor-
mance. Incentives could include:
? Reducing the number of audits
conducted
? Establishing a preferred supplier
programme
? Increasing business
? Providing recognition and awards
? Allowing participation in strategic
buyer/supplier planning meetings
? Sharing costs for sustainability
improvements
? Providing assistance for capability
building
Example: Mahindra & Mahindra
Limited is an automobile and farm
equipment manufacturing company.
The Farm Equipment Sector has es-
tablished annual sustainability awards
for suppliers exhibiting progress on
sustainability as de?ned by Global Re-
porting Initiative (GRI) Guidelines. So
far, seventeen suppliers have received
training on GRI indicators and tools
like stakeholder engagement.
Creating Incentives for Strong Sustainability Performance ON THE HORIZON:
35
In 2009, The Coca-Cola Company, a food
and beverage company based in the United
States, brought a group of top global sup-
pliers to Atlanta to participate with senior
management in a discussion about the need
for business to embed sustainability as a
critical element of growth plans. During the
meeting, the Chairman and CEO shared his
thoughts on the evolution of supply chains,
including how low costs, speed, ef?ciency and
customization are merely the price of entry
to compete in today’s marketplace, and how
sustainability will be critical for consumer
and customer differentiation. Rather than set
top-down directives, the company sought sup-
pliers’ strategic counsel in ensuring long-term
mutual success in improving sustainability in
the supply chain. Following the summit, Coca-
Cola received nearly 200 proposals from sup-
pliers, including ideas and strategies related
to sustainable packaging, logistics, sustain-
able agriculture, water stewardship, and
portfolio innovation. Coca-Cola is developing
individual and collective action plans with the
32 suppliers who participated.
Monitoring and Evaluations
A monitoring system provides information
on whether suppliers are complying with the
codes and expectations your company has
put in place. Monitoring systems are effective
in establishing baseline measurements and
assessing recent and current performance
relative to minimum expectations. However,
compliance-based approaches to monitoring
have resulted in concerns about costs, disrup-
tions to production of suppliers, doubts about
the accuracy of the information collected
and potential risks to safety of workers. You
should carefully consider what approach to
use and with which suppliers, in order to get
reliable information collected and avoid over-
reliance on compliance audits.
SUPPLIER SELF-ASSESSMENTS
Many companies invite suppliers to self-assess
their sustainability performance as an initial
screen in selecting new suppliers or as part
of a risk assessment for identifying which
suppliers may require closer monitoring.
Self-assessments can provide customers with
useful information and also increase suppli-
ers’ understanding of customers’ expectations.
Many companies also fnd that self-assessments
Creating Incentives for Strong Sustainability Performance
are a good starting point to cover a signifcant
portion of the supplier base in a relatively
short time frame and at relatively lower cost
than audits.
However, reliable self-assessments depend
on trust, a suppliers’ competency to gather in-
formation from disparate parts of their organi-
zations and clear communications so that sup-
pliers understand what is being asked and how
their information will be used. For example, the
problem of double books is sometimes due to
suppliers’ concern that their poor performance
will result in immediate loss of business.
Example: Hewlett-Packard (HP), a large
computer company and member of the Elec-
tronic Industry Citizenship Coalition (EICC),
requests that suppliers identi?ed as high-
risk complete an electronic self-assessment
questionnaire to identify potential social and
environmental responsibility performance
risks. HP reviews the results of the self-
assessment and provides feedback to suppli-
ers, and suppliers create and implement an
improvement plan if necessary. In addition to
helping HP evaluate risk, self-assessments
have been shown to help HP suppliers become
more familiar with HP’s expectations of what
it means to conform to HP’s code of conduct.
36 Supply Chain Sustainability
Compliance audits are on-site evaluations of
supplier performance against your policies and
expectations. An audit typically includes several
elements as illustrated in the fgure below.
Audits can also include management systems
assessments which gather information on the
strength of suppliers’ sustainability management
systems. There are several audit protocols in
place in certain industries that can be leveraged.
For example, the Global Social Compliance
Programme has gathered audit process best prac-
tices in a set of reference tools that companies
can adopt or can use as a benchmark for their
own system.
Audits can be conducted by your company
staff or by a third-party auditing frm. The
questions of when, why and how to engage
external auditors should be driven by your
overall supply chain risk management objec-
tives. Both external and internal auditors offer
distinct advantages and there is no standard
“right way.” In fact, some companies use both.
In deciding whether to rely on external
auditors or to develop and maintain internal
capacity for auditing, consider what type and
level of expertise is needed to assess perfor-
mance against your policies, such as envi-
ronment or health and safety expertise and
regional presence and capacity. Also, individ-
ual qualifcations are also important and have
an impact on the integrity and quality of the
audit results. For companies with substantial
audit requirements, it’s important to carefully
Worker Interviews:
With a representative
sample of employees
regarding working conditions.
Records Review:
Checking employee
?les, timecards, health
and safety records, etc.
Management Interview:
Discussion of management
systems, wages paid,
working hours, etc.
Facility Tour:
Visual inspection of
facility for obvious
noncompliances.
SUPPLIER
AUDIT
COMPONENTS OF AN AUDIT
consider the cost, feasibility and effectiveness
of internal versus external investments. Also,
consider how suppliers will perceive and be
affected by audits, how critical they are to your
business and how much control your company
needs to have over the process and results.
Effective audits are driven by a variety of
factors including:
• Preparation and knowledge of factory,
workers and community prior to visit
• Maintaining independence from manage-
ment for credibility with workers
• Selecting a random sample of workers to
interview during all parts of assessments
• Holding informal conversations with work-
ers during times and in locations where
they are comfortable and secure
• Gathering enough information to ensure
understanding of factory conditions
• Documenting information and assessing
workers’ credibility
• Validating information from workers with
other sources
• Always being aware of the need to protect
workers’ confdentiality and safety
Examples: L’Oréal, a French cosmetics
company, requires suppliers to agree to be
audited by signing an “Ethical Commitment
Letter.” All subcontractors are audited wher-
ever they operate, as well as all suppliers of
raw materials, packaging, on-site security,
cleaning services, company cafeterias locat-
ed in “at risk” countries and all promotional
items suppliers. Other suppliers are audited
on a case by case basis, as necessary. Audits
are based on SA8000 standard, and carried
out by specialized, independent third party
auditors in the local language. Audits are
carried out during a pre-agreed period of 30
days, without a warning of the actual date.
They include a visit to the factory, workshops,
offices and on-site accommodation as well
as individual interviews with employees. The
cost of the initial audit is entirely supported
by L’Oréal, and the final report is sent in
parallel to L’Oréal and the supplier.
Over the past decade, Nike, a footwear and
apparel company, has experimented with us-
ing many tools for encouraging and enforcing
contract factories’ compliance with their code
37
of conduct and code leadership standards.
One of the main components of the company’s
monitoring programme is its Management
Audit Veri?cation (MAV) tool, which is a labour
assessment tool designed to audit performance
in ?ve key areas: work hours, wages, bene?ts,
grievance systems and freedom of associa-
tion. The audit focuses on the factory’s people
management systems and practices and is
performed by Nike’s compliance staff.
In order to ensure the integrity of the phar-
maceutical supply chain, Takeda, a Japanese
pharmaceutical company, implemented a
supplier qualification and monitoring process
that includes a risk assessment of poten-
tial partners from the viewpoints of qual-
ity assurance, EHS and security as well as
business performance. This process applies
to new suppliers of raw materials, contract
manufacturers and logistics service provid-
ers. In addition, Takeda conducts periodical
audits of suppliers of raw materials, contract
manufacturers, packagers, logistics centres
and dealers. A combination of monitoring and
audits by Takeda staff are complemented
by occasional support from external audi-
tors. Questionnaires, facility tours, reviews
of policy, standard operating procedures and
records and interviews are used to check
compliance with regulations and expectations
set by Takeda. The likelihood and severity of
the identified risk events are assessed and
corrective and preventive actions are tracked.
Remediation and
Capability Building
Supply chain sustainability is an evolving
vision, which means that it is critical to have
an approach that defnes and incentivizes
continuous improvement. This approach
should include both remediation of instances
of non-compliance as well as investment in
suppliers’ management capabilities.
Remediation can include a number of
activities:
• Working with suppliers to create a corrective
action plan for achieving compliance in a
clearly defned and reasonable time frame.
• Encouraging improvements through regu-
lar communications with non-compliant
suppliers.
• Defning a roadmap for gradually increas-
ing standards and expectations.
• Terminating supplier relationships when
serious shortcomings on “zero-tolerance”
issues are not remedied in spite of repeated
notifcations. Companies should identify
zero-tolerance issues and explain their
selection and consequences to suppliers in
advance. Companies should also explain in
advance the process for remediation and at
what point continued noncompliance may
result in termination.
It is important that remediation requirements
are communicated very clearly to suppliers,
and that there are established timelines and
consequences for not meeting them or con-
tinuing poor performance.
Examples: Philips, an electronics company
from the Netherlands, implemented a Sup-
plier Sustainability Involvement Programme
built on five pillars: setting out requirements;
building understanding and agreement;
monitoring identified risk suppliers through
audits using the EICC checklist; working
with suppliers to resolve issues quickly; and
engaging stakeholders. When non-confor-
mances are found during an audit, corrective
action plans (CAPs) are agreed upon within
30 days. Philips will work with the supplier
to define the CAP, specifying the required
steps, milestones and responsibilities, and to
track progress of the plan. Philips’ Supplier
Sustainability officers follow up monthly and
can escalate the issue to the responsible
purchasing manager as necessary.
De Beers, a diamond mining company,
launched its Best Practice Principles (BPP)
Assurance Programme to address social,
employment, business, health and safety and
environmental issues throughout the diamond
pipeline. De Beers’ clients and their signi?cant
contractors, who range from diamond cutters
and polishers to jewellery manufacturers to
retailers, must comply with the requirements
of these Principles. Where an infringement
against the requirements is raised, the client
or contractor is required to submit Correc-
tive Action Plans (CAPs) to address the issue.
Evidence is submitted online or the third party
auditor will re-visit the site to ensure that
CAPs have been successfully and continuously
Protecting
Workers Who
Participate in
the Monitoring
Process
? Workers who par-
ticipate in the monitoring
process should be pro-
tected from retaliation.
? Workers should be as-
sured that they can speak
freely and information
that they provide will not
be attributed to them as
individuals.
? Workers should be
provided means to com-
municate in their native
language, when possible.
38 Supply Chain Sustainability
implemented. The CAP process enforces con-
tinuous improvement and provides a structure
for ensuring sustainable solutions, and are
implemented to address the issue areas.
De Beers can be consulted during the CAP
process and provides advice, best practices
and information drawing on past experience
to help solve the problems more ef?ciently. In
addition, a manufacturer committee has been
created by the manufacturers themselves to
discuss and collaborate on industry-wide and
location-speci?c issues to ?nd sustainable
solutions to common issues.
Nestlé India, a food and beverage company,
established a dedicated supplier development
department in 2005 to achieve cost savings
by relying less on imports to overcome quality
and food safety issues, and to create a wider,
more ?exible supply base. The company
invests in working with suppliers through
training programmes and by providing techni-
cal assistance to suppliers to close safety and
quality gaps and improve suppliers’ manage-
ment systems and products. As a result of
these supplier development efforts, Nestle In-
dia has secured local sources of 12 previously
imported raw materials, avoided 10 single
supplier situations, developed more than 70
new Indian suppliers able to meet Nestlé’s
speci?cations and saved $US5 Million. By the
end of 2009, this initiative has also been rep-
licated in Bangladesh, Brazil, Indonesia, Iran,
Malaysia, Russia and South Africa.
Remediation efforts are most successful
in combination with efforts to build
suppliers’ management capabilities.
Capability building includes a variety of
efforts, from training for supplier personnel
to establishing worker hotlines and
resource networks. For example, through
a combination of practical workshops,
training and in-factory consultations, the
International Labour Organization’s (ILO)
Factory Improvement Programme (FIP)
helps factories increase competitiveness,
improve working conditions, and strengthen
collaboration and communications between
managers and workers.
Examples: HP completed a pilot worker
training project with two suppliers and us-
ing the support of a local worker-training
NGO to ensure that the EICC Code of
Conduct reaches workers as well as man-
agement at supplier factories. The training
reached more than 4,000 workers, helping
them understand their labour rights and
giving them a channel for communicating
concerns about their working environment.
The training covered:
? Raising labour rights awareness
? Establishing worker hotlines and teaching
employees to manage them
? Resolving labour issues with tailored instruc-
tion for worker representative committees
? Counseling skills and techniques for organiz-
ing communications programmes
The pilot was praised by NGOs for showing
how workers’ feedback helps senior managers
understand the demands and grievances of the
workers. HP has adapted the pilot project for
other factories and will continue to implement
similar programmes in 2010.
BSR’s China Training Initiative (CTI)
has delivered practical learning to manag-
ers from factories employing more than 1
million workers and has developed tools to
enhance managers’ abilities and their com-
mitment to improve working conditions. CTI
acts as a resource for buyers and manufac-
turers, bridging buyers’ expectations and
suppliers’ needs with the skills, tools and
resources to address corporate responsibil-
ity and sustainability challenges and meet
buyers’ expectations.
Providing tools
that suppliers
can access and
use independently
Creating or
supporting a
learning network
of suppliers
Integrating learning and
capability building into
auditing process
Providing supplier or
worker trainings
on major areas of
non-compliance
SUPPLIER
CAPABILITY
BUILDING
OPPORTUNITIES IN
SUPPLIER CAPABILITY BUILDING
39
“A sustainable supply
chain benefts our
business by mitigating
risks associated with
producing and delivering
our products and services
to our customers. It also
creates opportunities to
develop closer ties with
suppliers in the long-term
interest of the company.”
– Erik Engstrom, Chief Executive Offcer, Reed Elsevier
40 Supply Chain Sustainability
Example: Levi Strauss & Co. has devel-
oped several trainings to help implement
their Terms of Engagement (TOE). This
includes a detailed TOE Guidebook as a ref-
erence for factories, auditors, and external
stakeholders with an interest in factory
working conditions.
Engaging with Sub-Tier Suppliers
As described above, companies sometimes fnd
that they have signifcant risk in the suppliers
who are one or more links away in the supply
chain. For example, food and agricultural
companies have faced signifcant challenges
recently with child labour on farms which they
rarely buy from directly. The electronics indus-
try is struggling with mining in confict zones
for the minerals that go into their products.
Engaging with sub-tier suppliers has ad-
ditional complications beyond those described
above, including lack of transparency in the
supply chain and lack of company leverage.
To overcome these obstacles, companies are
pursuing a number of strategies including:
• Participation in industry collaborations.
By collaborating with other companies,
you can pool your leverage to increase your
voice to sub-tier suppliers. You can also
share the costs and resources required to
engage with these suppliers
• Engagement in public policy. Many com-
panies also overcome their lack of leverage
by seeking legal and regulatory redress of
sustainability issues.
• Supply chain optimization. Individual
companies can also take steps to shorten
their supply chains by grouping smaller
suppliers into cooperatives and reducing
middlemen. This can also increase the rev-
enue that small suppliers earn.
Example: Nestle’s stated vision for the
cocoa supply chain is to help cocoa farmers
run profitable farms, respect the environ-
ment, have a good quality of life and for their
children to benefit from an education and see
cocoa farming as a respectable profession.
However, in many cases, Nestle is more than
five layers of the supply chain away from
farmers. To address challenges with child la-
bour on cocoa farms, Nestle has joined with
other companies, the World Cocoa Founda-
tion, and the International Cocoa Initiative
to establish an industry-supported certifica-
tion programme involving the governments
of Cote d’Ivoire and Ghana. In addition to
setting and monitoring against standards for
child labour on cocoa farms, the programme
is providing training to improve farming prac-
tices, shortening the supply chain to make
sure that more of the value of the cocoa
reaches the farmers and supporting commu-
nity development.
Companies should encourage their
suppliers to begin their own sustain-
ability journey. One way is to encour-
age them to join and participate
actively in the Global Compact and
Local Networks around the world.
Joining the Global Compact is a sign
that the supplier is taking sustainabil-
ity issues seriously.
Example: Since 2005, Schneider
Electric, a French electric compo-
nents and equipment company, has
asked its suppliers and subcontrac-
tors to join the Global Compact.
Support of the Global Compact is one
of the criteria for becoming one of
Schneider Electric’s main suppliers.
Schneider Electric has established
a goal to source 60 per cent of the
company’s purchases from suppli-
ers who support the Global Compact
by the end of 2010. By the end of
2009, 33 per cent of the company’s
purchases were made with suppliers
who had signed the Global Compact,
and 1,153 of Schneider Electric’s
suppliers had signed the Global
Compact. The company’s purchas-
ing teams have been trained on the
Global Compact Principles to better
engage with suppliers on these
issues. Moreover, it closely moni-
tors which suppliers are in danger
of being delisted from the Global
Compact for failure to Communicate
on Progress.
Encouraging Suppliers to Join the Global Compact
ON THE HORIZON:
41
Encouraging Suppliers to Join the Global Compact
The ultimate goal of engaging with suppliers should be
supplier ownership of sustainability, which occurs when
suppliers integrate into their mission, strategy and deci-
sion-making the value, impact and return on investment of
responsible labour and environmental conditions.
While monitoring and remediation are essential for under-
standing risks and challenges in your company’s supply
chain, there are limits to what monitoring can achieve.
Monitoring is not the most effective tool for identifying the
root causes of issues, for establishing forward-looking ex-
pectations for improvement or for putting shared attention
on emerging issues, which are often sources of competitive
advantage and other business value.
Companies and suppliers both have equal roles in enabling
supplier ownership.
Speci?cally, companies should:
? Share relevant business information with suppliers
? Build long-term relationships
? Create incentives for sustainability
? Expect improvements to sustainability
management systems
? Encourage and reward transparency
? Be sensitive to how their own business practices may
impact suppliers ability to meet sustainability expectations
Similarly, suppliers should:
? Demonstrate personal executive commitment
? Incorporate sustainability into strategic planning and
valuation
? Demonstrate continuous improvement
? Proactively communicate CSR challenges and progress
to companies
Leading companies in supply chain sustainability are trying
to build supplier ownership through the development of
sustainability management systems. Some companies have
begun incorporating evaluation of sustainability manage-
ment systems into their audit protocols to raise awareness;
others are providing training and consulting for suppliers
on sustainability management system design. And some
companies have instituted improvement ladders which
emphasize a continuous improvement approach to sustain-
ability management systems development with increasing
incentives and reduced auditing.
Examples: Mahindra and Mahindra Limited works with
selected suppliers to improve their management capabili-
ties in a number of areas. The company’s Farm Equipment
Sector established the Mahindra Yellow Belt (MYB) Business
Partners’ Training Programme to help build suppliers’ capa-
bilities to address quality problems. The training programme
includes two days of training, a test to verify that the learning
objectives have been met and a follow up project to apply
the learning that is selected by the supplier and approved by
Mahindra.
Alcatel-Lucent, a French telecommunications company,
developed an assessment approach that could be broadly
used and would provide a critical analysis of the performance
of a supplier’s CSR management systems. The intent was
to go beyond traditional auditing methods and to develop a
more positive approach. In 2008 the company partnered with
EcoVadis to develop a web based collaborative platform to
enable a deeper assessment of suppliers’ CSR management
systems while focusing internal resources on more strategic
supplier development activities. The assessments are based
on international instruments, including the UN Global Com-
pact, the Global Reporting Initiative Indicators, and draft ISO
26000 guidelines and cover 21 CSR indicators customized
for 150 product categories. The supplier scorecard combines
several inputs, including (i) self reported information from
suppliers, (ii) document audits and (iii) a “360° watch” cover-
ing multiple stakeholders. 300 supplier assessments were
conducted in 2009, and more than half resulted additional
actions such as improvement plans or on-site audits. The
assessments generated fruitful discussions with suppliers on
the way sustainability was to be considered and the proposed
Moving from Monitoring to Transparency of
Sustainability Management Systems and Performance
ON THE HORIZON:
42 Supply Chain Sustainability
43
Supply chain sustainability strategies need
to be integrated and closely coordinated with
business strategies that affect supply chains.
Internal Alignment
One of the most persistent challenges to
supply chain sustainability is an unresolved
tension in many companies between supply
management professionals’ commercial objec-
tives and their sustainability objectives and
commitment to the Global Compact. This ten-
sion is manifested in different objectives for
sustainability and supply management staff.
A lack of internal alignment can have
negative impacts on suppliers’ supply chain
sustainability performance. For example, last
minute quantity changes can create signifcant
time pressures that erode working conditions
if suppliers are forced to increase worker over-
time schedules to meet compressed timetables.
Successful implementation of supply chain
sustainability programmes requires three
levels of internal responsibility as illustrated
in the fgure below.
Governance and Oversight:
Executive Leadership
and the Board of Directors
Executive and Board commitment, over-
sight and support are crucial in setting the
correct tone and direction for supply chain
sustainability. Executives should clearly
articulate the company’s vision and ap-
proach to supply chain sustainability with
concrete milestones and metrics. Written
and oral communication from executives
will help align business managers’ and
supply management professionals’ priori-
ties with these milestones and emphasize
the importance of sustainability as a way of
doing business. Executives and the Board
of Directors should also regularly review
progress against supply chain sustainability
goals. This senior level oversight will help
to hold people throughout the company
accountable. Executives should also provide
regular internal updates around the com-
pany’s sustainability priorities, successes
and challenges.
6. Determining Roles & Responsibilities
THE ELEMENTS OF INTERNAL
RESPONSIBILITY FOR SUPPLY CHAIN SUSTAINABILITY
Supply Management Professionals:
Implementation
Business Managers:
Cross-Functional Coordination
Executive Leadership:
Commitment, Oversight and Support
44 Supply Chain Sustainability
Executives should also support
supply management professionals’
communications with suppliers as
appropriate. Executives at suppliers will
appreciate the peer-to-peer interaction,
and the involvement of your company’s
senior leaders will help to demonstrate
the seriousness with which supply chain
sustainability is undertaken at your
company. As discussed in Chapter 3,
executives can help communicate about
the code of conduct. They can also participate
in supplier meetings as an incentive for strong
performance (see Chapter 5).
Business and implementation support
• SER Business Unit Liasons
(assigned by Supply Chain Board)
• Procurement Council
• Supplier Relationship Managers
Audit team members from:
• Global Procurement Services
• Environmental, Health and
Safety
Supplier Companies
HP Executive Council
(Includes CEO and heads of each HP business unit)
Supply Chain Board
(Supply Chain Sr. VPs from each HP business unit)
Supply Chain SER programme
(Sponsored by Suppy Chain Board)
Procurement Council
(Procurement leaders from
each HP business unit)
Supplier Relationship
Managers
Stakeholder
Advisory Council
Example: HP’s Supply Chain Social and Environmental Responsibility (SER) governance system
clari?es reporting and responsibility across relevant HP businesses and functions. All HP busi-
nesses sponsor and support the Supply Chain SER Programme through the Supply Chain Board,
which meets monthly and reports directly to the HP Executive Council.
45
“Nestlé believes that it is only by creating
value for society and shareholders at
the same time that we can have long
term business success. We call this Cre-
ating Shared Value. After analysing our
value chain we have determined that
the areas of greatest potential for joint
value optimization with society are wa-
ter, rural development and nutrition. By
working closely with our supply base of
540,000 farmers, we can help them be
more productive and emerge from pover-
ty. In return we receive a higher quality
end product which benefts the consum-
er and ultimately our business. We com-
mend this approach to other companies
and hope this new guide
will help spread best practice.”
– Peter Brabeck–Letmathe, Chairman of the Board, Nestlé SA
46 Supply Chain Sustainability
SUPPLY
MANAGEMENT
SUPPLY
MANAGEMENT
Cross-functional Coordination
among Business Managers
Competing requirements from different func-
tions internally can negatively impact supply
chain sustainability. To support sustainability
objectives and enable suppliers to meet ex-
pectations, alignment between a wide variety
of functions is required. In addition to supply
management professionals, product design,
business development, logistics, marketing
and sales can all impact supply chain sustain-
ability. Companies should consider how to
bring together cross-functional representa-
tives, as illustrated in the fgure below, to
get a clear picture of impacts and where they
arise in company decision making.
It is important that individual roles and re-
sponsibilities within the business are specifed
so that individuals can assume responsibility
for implementing and meeting the vision
and milestones set out by executives. These
objectives should be backed by incentives and
consequences.
Sustainable supply chain personnel should
also provide input to strategic planning pro-
cesses in functions throughout the company.
To build sustainability into decision making
processes, sustainability expertise should be
embedded in, or available to, every team with
an impact on the supply chain.
Example: Grupo Los Grobo, an agribusiness
company with operations throughout South
America, has established a supply chain commit-
tee led by the company’s CEO and coordinated
by the manager of supplies & outsourcing. Other
participants include designated representatives
of each of the areas of the company that have a
strategic relationship with suppliers (outsourcing
for commodity production services, logistics, ag-
ricultural inputs, etc). This committee is respon-
Logistics
Disconnected Structure Disconnected Structure
DESIGN
DEVELOPMENT
PRODUCTION
LOGISTICS
MARKETING
SALES
DESIGN
DEVELOPMENT
PRODUCTION
LOGISTICS
MARKETING
SALES
Sustainability
S
u
s
t
a
i
n
a
b
i
l
i
t
y
DISCONNECTED STRUCTURE INTEGRATED STRUCTURE
INTEGRATING SUSTAINABILITY ACROSS FUNCTIONS
5
5
From Business for Social Responsibility.
47
sible for establishing and setting objectives and
goals through the design of a strategic plan. Ob-
jectives are checked and, if necessary, set every
year. The results are analyzed, and a new strate-
gic plan is formulated. One of the latest tools to
be incorporated in strategic planning is the use
of the ONUDI “supplier development platform”.
This committee interacts with more than 5,000
small and medium sized supply companies.
Implementation by Supply
Management Professionals
Depending on the structure of your company,
the group of individuals with the most direct
contact with suppliers, referred to throughout
this guide as supply management professionals,
will have the most responsibility for communi-
cating sustainability expectations to suppliers
and holding suppliers accountable for meeting
your company’s expectations.
Supply management professionals have
three primary levers for moving the needle
on supply chain sustainability:
1. Selecting of new suppliers with relatively
high sustainability capabilities and practices
2. Engaging with existing suppliers to set and
raise expectations and ensure continuous
improvement in performance
3. Integrating sustainability considerations in
sourcing decisions such as consolidating
purchases and winding down product or
service lines
SELECTING SUPPLIERS
During the due diligence process of selecting
suppliers, companies can include social and
environmental management and performance
criteria alongside commercial criteria. This will
allow supply management professionals to
look at the full picture when evaluating sup-
pliers, and in some cases, avoid working with
suppliers that bring more sustainability risk to
the company. A standard practice is to review
responses to a supplier self-assessment ques-
tionnaire (described more fully in Chapter 5),
which asks for basic information about policies
and practices, and can be used in a risk assess-
ment to prioritize suppliers for follow up.
ENGAGING WITH EXISTING SUPPLIERS ON
CONTINUOUS IMPROVEMENT
Existing suppliers will also need to comply
with your company’s sustainability expecta-
tions. Depending on the current state of sus-
tainability management systems at any given
supplier, it may require investments in people
and systems that will take time to translate
into improved performance. Supply manage-
ment professionals should take a continuous
improvement approach to sustainability with
existing suppliers based on:
• Mutual transparency. Companies should
expect that suppliers will openly and
honestly share information related to their
sustainability performance. In return, com-
panies should provide clear expectations
and guidance as well as advanced notice of
changing policies or practices to suppliers.
• Realistic timelines. Companies should care-
fully consider what their minimum require-
ments are, e.g. legal compliance, and what
is a realistic timeline for improvements that
go beyond the minimum requirements.
• Continuous improvement. Companies can
work with suppliers toward management
excellence for sustainability and should
defne excellence in this context. Companies
can also help suppliers develop management
capacity by providing access to resources.
• Partnership. Companies should commit to
enabling open lines of communication with
suppliers between decision makers of both
parties. Customers can work in partnership
with suppliers to clearly defne roles and
responsibilities and to create and achieve
mutually agreeable goals.
Example: Timberland, an American foot-
wear company, has changed the way it works
with suppliers from a compliance-based
approach to a more collaborative approach
focused on workers. Instead of leaving a list
of violations for factory owners to resolve
and then checking back to verify improve-
ments, the company now works more closely
with factory management and their workers
to understand the root cause of workplace
issues in factories. The new approach puts
the workers themselves at the centre of the
process. Workers and their representatives
are now invited to opening and closing meet-
ings of supplier assessments and workers are
interviewed in groups as part of the assess-
ment process. In addition, worker code of
conduct committees are established, trained
and continuously involved in upholding the
code of conduct.
Relevance of
Sustainability to
Supply Management
Professionals
“Supply management
decisions have
a direct impact on
business results and
sustainability. There-
fore, supply manage-
ment professionals
have a responsibility to
raise the issue of the
development of a sus-
tainability programme
within the organization
with relevant stake-
holders, including the
establishment of a
sustainability strategy
and various enterprise
initiatives embedded
throughout the sup-
ply chain and a formal
written policy between
the organization and its
supplier companies.”
— Institute for Supply
Management
48 Supply Chain Sustainability
INTEGRATING SUSTAINABILITY
CONSIDERATIONS
Companies can take many steps to support
supply management professionals in inte-
grating sustainability and overcoming the
perceived tension between sustainability and
business drivers. Many companies begin by
providing advice on sustainability issues such
as human rights and environmental impacts
in a way that makes clear links to other busi-
ness factors, such as risk, quality, cost, etc.
Companies are also experimenting with
supplier scorecards which present informa-
tion about suppliers’ sustainability perfor-
mance alongside their business performance
to support integrated decision making. Lead-
ing companies are also placing sustainability
personnel within procurement to prevent
mixed messages to suppliers.
Examples: At Starbucks, buyers are trained
on supply chain sustainability issues and
how to address them, and have access to all
supplier sustainability assessment reports
performed for Starbucks. All communication
with suppliers comes from buyers. Star-
bucks’s Ethical Sourcing team, the company’s
sustainable supply chain experts, interacts
regularly with buyers regarding supplier as-
sessments and remediation matters. Training,
information access and communications are
all coordinated to equip buyers with the tools
to incorporate supplier sustainability into
their purchasing decisions.
Volkswagen Group established a “Sustain-
ability in Supplier Relations” programme
with four key elements: standard require-
ments, early detection of risks, integration
into procurement procedures and monitor-
ing and supplier development. Through the
programme, all procurement staff have been
briefed and sensitized to supplier shortcom-
ings as well as potential for improvement. In
addition, suppliers are offered coaching and
direct assistance to meet the requirements.
Suppliers can contact an email address or
fill out a self-assessment questionnaire and
an “Ad-hoc-Expert-Team,” consisting of the
environmental protection, human resources,
health and safety and purchasing as well as
quality assurance departments, will provide
assistance. Information is also made avail-
able to suppliers as a standard step in the
procurement process.
Optimizing the Supplier Base
Supply chain optimization is a funda-
mental business management tool
used to meet a number of objectives,
including elimination of waste, duplica-
tion and inef?ciency in procurement
and logistics processes. An uncharted
frontier for sustainable procurement
is for sustainability considerations to
become part of the decision making
process so that after going through a
consolidation initiative a company’s
supplier base performs better on social
and environmental issues.
ON THE HORIZON:
49
“At Restaurantes Toks, we
have the commitment
not only to deliver
products and services that
fulfll and exceeds our
customer’s expectations,
but to contribute in
the development of a
sustainable supply chain
for the beneft of our
business, our society
and our planet. Sharing
success is a must in the
process of assuring
long term sustainability
and growth.”
– Federico Bernaldo de Quiros, CEO, Restaurantes Toks
50 Supply Chain Sustainability
51
Industry collaboration and multi-stakeholder
partnerships are important tools for advanc-
ing your company’s supply chain sustain-
ability objectives, particularly for issues that
are too challenging and complex to tackle
alone. In addition, collaboration can increase
the impact and overall effciency of your
company’s supply chain sustainability efforts
by extending your reach, pooling resources,
reducing duplication and avoiding confict-
ing messages.
The Context for
Industry Collaboration
Many leading companies have come to see col-
laboration as an important element of address-
ing the root causes of sustainability issues. In
addition, collaborative efforts represent a way
for smaller companies with fewer resources to
take action and contribute to further supply
chain sustainability. Two primary types of
industry collaboration have emerged:
1. Best Practice Sharing. These industry col-
laborations, which can be focused in one
industry or across sectors, focus on sharing
knowledge about approaches and tools that
companies have found to be successful in
their individual supply chain sustainability
programmes. These groups often also create
tools together that refect the direction of
their programmes, although typically par-
ticipants to this type of collaboration are
not required to use the tools or to meet any
other standards for participation.
2. Joint Standards and Implementation.
These collaborations are typically focused
within one sector and aim to create con-
sistency among companies’ expectations
and supply chain sustainability pro-
grammes. As described briefy in Chapter
5, compliance based approaches to sup-
plier monitoring are frequently char-
acterized by inconsistency, duplication
and ineffciency among companies. For
suppliers that work with multiple custom-
ers that each have their own code, and ap-
proach for monitoring and remediation,
unaligned supply chain sustainability pro-
grammes can create a signifcant burden
and divert resources from compliance and
continuous improvement efforts.
For this reason, many groups have come
together to create shared codes of conduct,
which participating companies may or may
not be required to adopt, and they work
to engage suppliers on the shared code
together through joint assessments and au-
diting. Many of these groups also conduct
joint capability building for suppliers.
Example: Through the Sustainable Water
Group, a partnership of companies commit-
ted to managing water use and wastewater
discharge in global textile supply chains, Gap
Inc. has established a Clean Water Pro-
gramme to monitor denim laundries’ waste-
water discharge and require them to meet
the Sustainable Water Quality Guidelines.
This project allowed Gap to encourage peers
in the industry to adopt similar wastewater
procedures into their supply chains.
7. Industry Collaboration &
Multi-Stakeholder Partnerships
52 Supply Chain Sustainability
Opportunities and
Risks of Industry Collaboration
Industry collaboration can create signifcant
effciencies for suppliers and companies, but
it also comes with some risks. You should con-
sider both as you determine whether and on
what elements of your programme you want
to collaborate with other companies.
OPPORTUNITIES
In addition to the benefts that industry col-
laboration can create for suppliers discussed
above, the opportunities for companies are
signifcant:
• Leverage with Suppliers. Partnering with
peers on supply chain sustainability can
boost your company’s leverage with direct
as well as sub-tier suppliers. By collabo-
rating with peers, your expectations and
engagement approaches are not only more
aligned, but your voice to direct and sub-
tier suppliers will be much louder.
• Credibility with stakeholders. Participat-
ing in industry collaborations can dem-
onstrate your company’s awareness of the
challenges in supply chain sustainability
and help boost your credibility with exter-
nal stakeholders. Industry collaborations
can also provide an opportunity to discuss
controversial topics with external stake-
holders that your company may not be
comfortable addressing one on one.
• Resource sharing. The processes out-
lined in this Guide all require resource
investment, and particularly for smaller
companies or companies with recent com-
mitments, the time and money necessary
to implement a strong supply chain sus-
tainability programme can be signifcant
barriers. Industry collaboration can help
companies pool their resources and share
the expenses of establishing expectations
and engaging with suppliers.
RISKS
There are also some risks to industry collabo-
ration that you should consider:
• Internal commitment. Industry collabora-
tion can be challenging for some compa-
nies and could threaten your ability to
get internal commitment to supply chain
sustainability, particularly if potential
partners in industry collaboration are seen
as competitors or at markedly different
stages of supply chain sustainability. To
ensure buy-in, you should get a clear un-
derstanding of which companies you will
be partnering with and what their expecta-
tions are.
• Resource draining. While industry col-
laborations have the potential to create
cost and time effciencies for participants,
they also require investment, and may
not always deliver results. For example,
initiating shared action with partners
and agreeing to common expectations
and engagement processes can be quite
time intensive, and these efforts may take
signifcant amounts of time to mature and
create substantial impact.
• Unwillingness to change course. For col-
laborative efforts that are more established,
there is a possibility that other participants
in the collaboration will be unwilling to
change approaches to get alignment with
your company.
Example: De Beers, a diamond mining com-
pany based in Luxembourg, works with other
companies in the industry to address a range
of historical challenges including conflict
diamonds, a lack of commercial transparency
and poor working conditions in factories in
major cutting and polishing centres like Surat
in India.
Although the Kimberley Process Certifica-
tion Scheme and the World Diamond Council
System of Warranties were launched in 2003
to address the issue of conflict diamonds, no
single standard existed to verify full ethical
practices throughout the diamond pipeline
addressing social, employment, business,
health and safety, and environmental issues.
De Beers saw an opportunity to lever-
age its leadership position in the diamond
pipeline to establish a benchmark for best
practice not only within the diamond mining
sector, but also through the cutting, polish-
ing, and jewelry manufacturing pipeline. To
this end, De Beers launched the Best Practice
Principles (BPP) Assurance Programme in
2005 and made compliance to the standard
a contractual condition of supply to De Beers
customers and a requirement for all entities
within the De Beers Group.
53
PARTIAL LIST OF INDUSTRY COLLABORATIONS
AIM-Progress
AIM-PROGRESS is a forum of consumer goods companies assembled to enable and promote responsible sourcing practices
and sustainable production systems. It is a global initiative supported and sponsored by Association des Industries de
Marque (AIM) in Europe and the Grocery Manufacturers Association (GMA) in North America. Its key objectives include
development of a forum to exchange views regarding responsible sourcing practices and of common evaluation methods to
decrease duplicative auditing.
Apparel, Mills and Sundries Working Group
A working group of apparel and retail companies and their suppliers that collaborate to address sustainability issues up-
stream at the mills and sundries supplier level. The group is focused on implementation of its joint code of conduct through
supplier evaluations and trainings.
Business Social Compliance Initiative (BSCI)
The BSCI is a platform for retail, brand, importing and trading companies dedicated to the improvement of working condi-
tions in their supply chain worldwide. The organization has created a code of conduct and implement the BSCI Code through
a combination of external monitoring and collaborative capacity building activities.
Beyond Monitoring Working Group
BSR’s Beyond Monitoring Working Group is a collaboration of leading companies from many industries who embrace a vision
of supply chain sustainability that is driven by internal alignment, supplier ownership, worker empowerment, and public
policy engagement. Together these companies explore next generation supply chain sustainability approaches to improve
their individual companies’ programmes and to drive the ?eld forward.
Electronics Industry Citizenship Coalition (EICC)
The EICC promotes an industry code of conduct and shared implementation resources for global electronics supply chains
to improve working and environmental conditions. The EICC conducts joint audits, provides tools to audit compliance with
the code, offers resources for training for procurement and suppliers, and helps companies report progress. EICC member-
ship is available to electronic manufacturers, software ?rms, ICT ?rms, and manufacturing service providers, including
contracted ?rms that design, manufacture, or provide electronic goods, and as such covers the vast majority of the electron-
ics supply chain.
Ethical Trading Initiative
ETI is an alliance of companies, trade union organizations, and NGOs that are committed to working together to identify and
promote good practice in labour code implementation, including monitoring and verifying compliance with code provisions.
The Global e-Sustainability Initiative (GeSI)
GeSI brings together leading Information and Communication Technology (ICT) companies – including telecommunication
service providers and manufacturers as well as industry associations – and NGOs committed achieving sustainability objec-
tives through innovative technology.
Global Social Compliance Programme (GSCP)
The GSCP is a business-driven programme for companies whose vision is to harmonize existing efforts in order to deliver a
shared, global and sustainable approach for the continuous improvement of working and environmental conditions across
categories and sectors in the global supply chain. The GSCP offers a global platform to promote knowledge exchange and
best practices in order to build comparability and transparency between existing systems.
Fair Labour Association
FLA is a collaborative effort of its members to improve working conditions in factories around the world. Participating
companies commit to the FLA code, and the group has created a practical monitoring, remediation and veri?cation process
to achieve those standards.
ICTI-Care
ICTI CARE is the toy industry’s ethical manufacturing programme aimed at ensuring safe and humane workplace envi-
ronments for toy factory workers worldwide. To achieve these goals, the group provides education, training, and a uni?ed
monitoring programme for toy factories.
Social Accountability International (SAI)
SAI is a multistakeholder, multinational, multi-industry organization of business, labour and NGOs whose mission it to ad-
vance the human rights of workers around the world. It carries this out through training, capacity building, and the SA8000
workplace standard which is based on ILO and UN conventions.
54 Supply Chain Sustainability
Multi-Stakeholder Partnerships
In addition to collaborating with industry
peers, many companies are recognizing the
value of working with a broader range of
stakeholders. Chapter 2 described a range of
stakeholder groups that could provide input
on your company’s supply chain sustain-
ability strategy, including national and local
governments, workers’ and employers’ orga-
nizations, nongovernmental organizations,
advocacy and activist organizations, academic
and issue experts and community groups.
In recent years, more and more stakehold-
er groups have demonstrated willingness to
partner with companies. Many of these stake-
holders groups are knowledgeable about sus-
tainability issues andcan be useful partners,
beyond just sharingperspective and advice,
by working closely to address supply chain
challenges. They can assist with understand-
ing the context for sustainability challenges,
help with designing effective responses, and
acting as local implementing partners. In
addition, they can bring resources and legiti-
macy to supply chain sustainability efforts.
Business can also work with local
authorities to support local efforts and
improve capacity to address the root causes
for sustainability challenges that business
experience in supply chains.
Examples: Many companies have created
cost efficiencies by undertaking efforts to
reduce accidents and illnesses and improve
the overall health of workers in their supply
chains. Levi Strauss & Co., a U.S.-based
apparel company, has implemented a number
of worker rights and responsibilities and
health education training programmes at
suppliers’ factories, working in partnership
with civil society organizations, to improve
worker well-being, ensure worker rights
are respected and achieve savings through
increased productivity and reduced absentee-
ism. The company places an emphasis on
building the capabilities of these civil society
organizations to provide expanded services to
workers and factories.
Better Work is a unique partnership be-
tween the International Labour Organization
and the International Finance Corporation
dedicated to reducing poverty and providing a
fair framework for globalization in developing
countries through a comprehensive process
for assessment, remediation and in-factory
training tools. Companies have access to a
streamlined and more cost effective process
to get information about supplier compliance
and to track efforts to fix problems. Better
Work Buyers’ Forums are held at the inter-
national and in-country level. These forums
provide buyers with an opportunity to provide
feedback into Better Work expansion plans
and tools, and to engage in constructive
dialogue with relevant stakeholders including
national governments, unions, and manufac-
turer associations. There are active in-coun-
try forums in Cambodia, Jordan and Vietnam,
with explorations in Indonesia, Morocco,
Nicaragua, Haiti and Lesotho.
55
56 Supply Chain Sustainability
GLOBAL COMPACT LOCAL NETWORKS
More than 80 Global Compact Local Networks provide on-the-ground support for Global
Compact signatories around the world. Networks undertake a variety of activities to do
so, including identifying local priorities relating to responsible business practices, raising
awareness about local sustainability challenges and opportunities, organizing learning and
dialogue events, mobilizing collective action efforts and facilitating partnerships between
companies and local stakeholders to contribute to broader sustainable development objec-
tives. Networks also provide assistance to companies in preparing their annual Communi-
cation on Progress reports.
To advance supply chain sustainability, companies can work through Local Networks in
geographies where they have signi?cant numbers of suppliers. Companies can for instance
encourage suppliers to join the Global Compact and participate actively in Local Network
events to improve their own sustainability performance. Companies can also support Local
Networks by sharing knowledge and expertise, and providing ?nancial support to Local
Network activities.
Many Local Networks have engaged in activities to advance supply chain sustainability,
including:
The Global Compact Network Spain has worked extensively on the implementation
of the ten principles in the supply chain. The Network organized a learning forum where
companies from different sectors could exchange good supply chain practices. It also
published the guide “The Responsible Management of the Supply Chain”, focusing on risk
management and building long term relations with suppliers to improve responsible busi-
ness practices.
www.pactomundial.org/recursos/doc/Publicaciones/ASEPAM/23526_3133132009182520.pdf
The Global Compact Network Japan has convened a Working Group on Supply Chain
Management in which more than a dozen Japanese companies from different sectors
participate. The Network has analyzed the ethical sourcing-related issues of Japanese
companies and highlighted good practices. Among these issues are how companies can
more effectively engage with suppliers and realize the win-win-win potential of sustainable
supply chain management – for buyers, suppliers and societies.
57
“At Telenor, we aim to make corporate
responsibility an integral part of the way
we do business – and we realize that
our impact on society also extends to our
suppliers and business partners. Manag-
ing our supply chain towards responsible
business conduct is therefore something
we do not compromise within Telenor.
We shall not only demonstrate excellent
working conditions and environmental
management within all our own com-
panies, we also require that all our sup-
pliers meet the standards set down in
our Supplier Conduct Principles. We will
work towards our goals by driving con-
tinuous improvement through system-
atic engagement with our suppliers.”
– Jon Fredrik Baksaas, President & CEO of Telenor
58 Supply Chain Sustainability
59
While it is important to establish clear roles
for key functions throughout the company,
it is equally important to set comprehensive
performance goals. Explicit objectives for sup-
ply chain sustainability will provide individu-
als’ with direction in their tasks and will also
help your company evaluate the impact and
success of your programme.
The Process of Goal Setting
Goal setting should be a collaborative process
that involves leadership from each of the func-
tions that will have responsibility for meeting
established objectives. It’s also important to
ensure sustainable supply chain objectives
are aligned with business needs. Review your
company’s business strategy and objectives
and identify places where the supply chain
objectives you have defned support the com-
pany’s overall business objectives. Each supply
chain objective should support at least one
business objective, and your company’s execu-
tive leadership should endorse the goals.
Performance against goals will need to be
tracked year after year as part of a measureable
business objective. While this seems obvious,
it requires companies to go through the often
challenging process of defning what the de-
sired and realistic goals are and how and when
that goal should be met. Defning and tracking
progress towards goals demonstrates the value
of the work that is done to meet the goal.
Although goals are usually designed at
a high-level for the entire business, these
objectives need to be translated into action-
able targets for managers across all functions
in an integrated and coherent manner. Only
in this way can they be rolled out through-
out the company. For example, a goal on the
number of suppliers that attend sustainabili-
ty trainings can be translated into a target for
individual supply management professionals
within each sourcing group that manages
supplier relationships. Similarly, more micro-
level targets that can be rolled up provide a
picture of overall performance against goals.
Goals for Impact
Based on your company’s vision for supply
chain sustainability, objectives for business
impact should be fairly straightforward.
These can include meeting customer and
other stakeholder expectations, reducing
costs and expanding into new markets. It’s
also important to establish objectives for
the societal and environmental impacts of
your company’s supply chain sustainability
efforts. While some stakeholders are inter-
ested in understanding the processes through
which companies meet their supply chain
sustainability commitments, many are more
concerned with the value created. Suppliers
also seek to understand the value created for
their businesses through meeting responsible
sourcing requirements. Companies may in
some cases consider setting objectives related
to suppliers’ establishing their own sustain-
ability management systems, effects on the
environment such as greenhouse gas emis-
sions and waste and effects on workers and
communities. These may include workplace
injury and illness rates, total wages paid,
training and skills developed, and impact on
communities and local development such as
number of jobs created, income generated,
and infrastructure developed.
Example: Restaurantes Toks operates 84
restaurants in 20 cities throughout Mexico,
providing more than 6,500 jobs and serving
more than 21 million consumers each year.
In an effort to integrate poor rural communi-
ties into its supply chain, the company has
initiated a project working with a strawberry
marmalade production group formed and
managed by 13 women in Santa Rosa de Lima
in Central Mexico. In 2005, the per capita
income in Santa Rosa de Lima was less than
$US 60 per month, and the town’s popula-
tion was disproportionately female due to
high rates of illegal immigration by men to
the United States. Restaurantes Toks has
incorporated strawberry marmalade supplied
by the Santa Rosa de Lima Enterprise into its
menus, successfully integrating the commu-
nity into the company’s supply chain. Before
beginning to sell to Restaurantes Toks, the
Santa Rosa de Lima Enterprise provided
an income of $US 1,000 to all the families
in the community. The Santa Rosa de Lima
Enterprise now sells more than $US 461,000
8. Establishing Goals & Tracking and
Communicating Performance
60 Supply Chain Sustainability
worth of strawberry marmalade to Restau-
rantes Toks each year, radically increasing
the community’s per capita income. Further-
more, Restaurantes Toks is working with the
company to increase production capacities to
enable it to enter additional markets.
Due to the demonstrable impact of this
model on protecting and promoting human
and economic rights, Restaurantes Toks has
duplicated the approach with 10 other com-
munity food and handicraft production groups.
Example: Starting in 2000, Natura, a Brazil-
ian cosmetics company, began to implement
a strategy of using raw materials extracted
from Brazilian native vegetation as a plat-
form for its products. This strategy support-
ed the company’s goal to create and nourish
a business model that builds on existing
social networks and contributes to sustain-
able livelihoods derived from sustainable
extraction of non-timber forest products. The
company established relationships with three
poor communities, and they were contracted
in 2003 to produce priprioca, an ingredient
that provides fragrance to Natura’s cosmet-
ics. In order to ensure that the Brazilian flora
inputs were extracted according to rigorous
social and environmental standards, Natura
developed the Active Ingredient Certifica-
tion Programme. The certification process
had three phases: identification of areas
for potential suppliers, devising a certifica-
tion strategy and certification inspections.
Some 15 ingredients were certified through
this programme by 2006. In addition to
certification of the extractive products, the
programme also encouraged the formaliza-
tion of associations and cooperatives in the
supplier communities, enabling access to
commercial opportunities.
5
Goals for Supplier Performance
As discussed in Chapter 5, there are many
mechanisms you can use to track perfor-
mance of individual suppliers and encourage
supplier ownership. However, it is important
that companies set objectives for overall sup-
plier performance, which can be revised at
later dates with supplier input.
Goals for suppliers should be formulated
with inputs from management across func-
tions, especially procurement, to ensure
broad commitment and realistic goals. They
should establish objectives for overall supplier
performance against the expectations set by
your company. For example, companies often
set goals for the number of suppliers complet-
ing corrective action plans after they’ve been
audited (see Chapter 5). Companies should
also set goals for performance in specifc areas
such as human rights, labour, environment,
ethics and supplier management systems.
Goals for Internal Performance
As described in the preceding chapter, one of
the most persistent obstacles that companies
face in meeting their impact objectives and sup-
porting suppliers to meet supplier performance
objectives is the unresolved tension between
supply management professionals’ commercial
objectives and their desire to ensure fair work-
ing conditions and environmentally friendly
practices. To support increased attention from
supply management professionals on sustain-
ability issues, companies should consult with
leaders from supply management and other
functions to set objectives for internal imple-
mentation of supply chain sustainability.
Goals for internal performance should
provide guidance on expectations for how
sustainability will be integrated into supply
management decisions. For example, some
companies establish goals related to placing a
specifc percentage of their spend (or volume)
with the highest performing suppliers, while
others emphasize setting goals that make
sustainability a key factor alongside other
commercial and technical criteria, to be used
in making decisions about supply. Another
goal would be the percentage of supply man-
agement professionals receiving training in
sustainability issues.
Example: In 2009, Montepaschi Group, a
leading ?nancial institution in Italy, launched
its Sustainable Supply Chain programme as
a key component of its overall CSR strategy.
One of the group’s key objectives is to embed
the policy principles within its standard sourc-
ing processes. Speci?c objectives include:
Preference to suppliers who demonstrate
5
Natura’s Ekos: Perfume Essences Produce Sustainable Development in Brazil, Growing Inclusive Markets Case Study.
61
better management of environmental, social
and economical impacts within their produc-
tion and supply processes
? Using sustainability indicators as a key selec-
tion and evaluation factors for procurement of
goods and services
? Avoiding suppliers whose practices are not in
line with human rights, labour, environmental
or general regulations
? Adoption of fair and open communication
with suppliers
? Regular monitoring of supplier performance
in the context of the group policy and report-
ing of status and actions to stakeholders
Measurement
Processes and Practices
In order to evaluate performance against your
company’s supply chain sustainability goals,
you will need to collect and track perfor-
mance data over time. Much of this data, and
the processes and practices around it, will also
be critical to the implementation of aspects of
your company’s supply chain sustainability
programme already covered in this guide.
WHAT DATA TO COLLECT
Companies will need to collect data on both
supplier and supply management profession-
als’ performance. Metrics need to be designed
to allow for straightforward evaluation of
the company’s progress on its goals. Much
of this data will likely overlap with the data
that supply management professionals will
collect as part of evaluating suppliers, and
that other functions, such as Environment,
Health, and Safety, may also capture. You
should begin by analyzing the breadth and
quality of all existing metrics and data. As a
next step, you will probably need to spend
some time standardizing metrics so that if
different parts of the company are collecting
information on the same topics it is captured
in a unifed way.
HOW TO COLLECT DATA
Data collection can be challenging given the
vast number of suppliers that your company
may be evaluating and the number of sources
that data can originate from. In addition,
there are many examples of suppliers that
keep double books, coach workers to respond
falsely to worker interviews during audits,
bribe inspectors and fnd other ways to mask
the real situation in their company. This
SUPPLIER DATABASES
Fair Factories Clearinghouse (FCC): launched by U.S. footwear and
apparel ?rm Reebok International Ltd., the National Retail Federation,
Retail Council of Canada and World Monitors to create an online global
database to share factory audit and compliance data. The FCC, a non-
pro?t organization, offers members an online audit management sys-
tem and sharing platform to enable cost effective, well-informed ethical
business transactions and improved workplaces around the globe.
Suppliers Ethical Data Exchange (Sedex): Several U.K. food ?rms,
including Marks & Spencer plc, Safeway plc and Tesco plc, have teamed
up with the U.K. ethical trading consulting ?rm Impactt Ltd. to create
an online database for companies to consolidate and share their supply
chain audit information. The Web-based database catalogs audit informa-
tion such as working hours, compensation, labour conditions, freedom of
association and child labour.
Ecovadis: EcoVadis is operating an online collaborative platform allow-
ing companies to access to CSR ratings of suppliers covering 21 indica-
tors and 150 spend categories. 25 “Global 500” companies are using Eco-
Vadis to assess and develop the CSR management systems of thousands
of suppliers across 80 countries.
makes methods of ensuring the integrity of
data critically important to decision making.
In addition, transparency of supplier
information across functional and organi-
zational boundaries is often limited, and
companies often struggle with a lack of
effective communication and understand-
ing between companies and their suppliers
on the information they need to exchange.
Many companies are exploring information
technology platforms that will enable com-
prehensive data collection and management.
Cross-functional business managers can be
helpful in aligning internal systems and pro-
cesses. Collaboration with suppliers may also
be useful since they will be inputting data
and may be more inclined to engage with
your programme if they feel that they’ve had
a hand in shaping it.
There are a number of data sharing plat-
forms that can help collect and manage sup-
plier information about sustainability perfor-
mance. These include Sedex, EcoVadis, e-Tasc
and Fair Factories Clearinghouse. There are
also many information technology companies
that provide this type of resource as well.
62 Supply Chain Sustainability
HOW TO USE DATA
Finally, you need to plan for how data will
be used. As data is collected over time, your
company’s executive leadership should
receive regular updates on progress. Supply
management professionals in particular will
use much of the data on supplier performance
in decision making as described in Chapter 3.
Examples: Johnson Controls Inc., an Ameri-
can instrumentation company, established a
supplier sustainability rating system to assess
and rank suppliers based on whether they are
meeting the expectations expressed in the com-
pany’s ethics policy. Suppliers use a web-based
self-assessment to communicate the status of
their environmental, human rights, social and
governance programmes. The questionnaire,
which is completely electronic and resides on a
public web site so that all suppliers have easy
access to it, contains questions related to human
rights, working conditions, employee safety and
energy management. Because energy ef?ciency
and greenhouse gas emissions management
is a critical part of Johnson Controls’ business,
the questionnaire asks if the supplier is publicly
reporting its greenhouse gas emissions, and
speci?cally asks if the supplier is reporting to
the Carbon Disclosure Project. Once a supplier
completes the questionnaire, the respective pro-
curement managers are provided the results and
they determine the ranking of the suppliers, and
as appropriate, work with the supplier to ensure
they are fully compliant with expectations.
Example: Timberland, an American footwear
company, has created a “Green Index” envi-
ronmental rating system that measures and
communicates critical aspects of environmental
performance in a simple format to inform both
product design and consumer choices. The Green
Index rating system drives alignment of product
design and development with Timberland’s
corporate environmental strategy. The company
aims to reduce impacts in three broad areas:
climate, chemical use and resource consumption.
By providing clear environmental measures in
these areas, product creation teams can choose
processes that require less harmful chemicals
and increase the use of less carbon-intensive ma-
terials, as well as recycled, organic, and renew-
able materials. Applying the Green Index rating
and label across Timberland’s entire footwear
line (100 per cent of line to be rated by end 2011)
Global Reporting
Initiative (GRI)
GRI is the world’s most
widely used sustainabil-
ity reporting framework.
The GRI sets out prin-
ciples and indicators that
organizations can use to
measure and report their
economic, environmental
and social performance.
GRI is also the rec-
ommended reporting
language for Global
Compact companies
to communicate with
stakeholders on their
progress in implement-
ing the Global Compact
principles.
The GRI has formed a
multi-stakeholder Work-
ing Group to develop
recommendations on
how to enhance the GRI
Sustainability Reporting
Guidelines to improve
the quality of disclosure
on performance with
respect to supply chains.
For further information
see www.globalreporting.
org/CurrentPriorities/
SupplyChain.
is part of the way the company sets targets to im-
prove the environmental performance of products.
Communicating Progress
And Reporting
Public reporting can be a tool to stimulate
and enhance sustainability and transparency
in the supply chain. It also demonstrates the
management of environmental and social im-
pacts and the assurance of good governance
in the supply chain to both internal and
external stakeholders.
Global Compact signatories are required
to publicly communicate with stakehold-
ers on an annual basis on their progress in
implementing the ten principles. This annual
communication, or Communication on
Progress (COP) is an important demonstration
of the company’s commitment to the Global
Compact and its principles.
Beyond the COP, sustainability reporting is
the most common way for companies to com-
municate progress with stakeholders. While
the practice is evolving to include stand-alone
reports, online reporting, and integrated sus-
tainability and fnancial reports, the objectives
are to measure and disclose organizational
performance towards the goal of sustainable
development. Sustainability reporting is a
logical last step after having implemented a
supply chain sustainability approach and, as
the process requires companies to consider
their progress against goals and to be trans-
parent to internal and external stakeholders,
will help to improve it continuously.
Reports can be used for the following pur-
poses, among others:
• Source of best practices that can inspire
others and provide a benchmark for analy-
sis of sustainability performance.
• Self-evaluation and continuous improve-
ment in the process of implementing the
principles, including in the supply chain.
• Benchmarking and assessing sustainability
performance with respect to laws, norms,
codes, performance standards, and volun-
tary initiatives;
• Demonstrating how the organization infu-
ences and is infuenced by expectations
about sustainable development; and
• Comparing performance within an organi-
zation and between different organizations
over time.
63
64 Supply Chain Sustainability
Acknowledgements
A wide range of stakeholders were consulted throughout the
development of this guide, including Global Compact signatories, Global
Compact Local Network focal points, UN Agencies, issues experts, civil
society and members of BSR’s Beyond Monitoring Working Group. We
wish to thank the following individuals for taking the time to review and
comment on the draft versions of this guide:
Mr. Thomas Berkmark, CEO, Bergmark Sustainability AB (former
Sustainability Director, IKEA); Mr. K. Dilipraj. CSR Manager, BYD Company
Limited; Mr. Ricky Ho, Director & General Manager, CTPS; Mr. Pierre-
Francois Thaler, Executive Director, Ecovadis; Ethical Trading Initiative
Norway; Ms. Tábata Villares and Ms. Julia Zuanella Fernandes, Focal
Points, Ethos Institute and Global Compact Network Brazil; Global
Compact Japan Network Members; Dr. Lin Lah Tan, Network Focal Point,
Global Compact Network Malaysia; Ms. Valentine Papeians de Morchoven,
Analyst and Responsible of Human Rights and Labour Standards, Global
Compact Network Spain; Ms. Iuliia Petryshyn, Assistant, Global Compact
Of?ce; Mr. Sune Skadegaard Thoresen, Partner / Director, Global CSR;
Mr. Bastian Buck, Technical Development Coordinator, Global Reporting
Initiative (GRI); Ms. Eija Salo, Director, HRD, Global HR & Administration,
LITEONMOBILE / PERLOS; Mr. Mark Snyderman, Senior Knowledge
Leader, LRN and member of the UN Global Compact Working Group on
the 10th Principle; Ms. Lene Wendland, Adviser on Business and Human
Rights, Of?ce of the High Commissioner of Human Rights (OHCHR); Ms.
Mariam Ram, Managing Director, TNQ Books and Journals Pvt. Ltd.; Ms.
Susan Côté-Freeman, Programme Manager, Private Sector Programmes,
Transparency International; Mr. Casper Sonesson, Deputy Director,
Private Sector Division, United Nations Development Programme (UNDP);
Ms. Garette Clark, Programme Of?cer, United Nations Environment
Programme (UNEP); Ms. Natasha Weisert, Industrial Development Of?cer,
United Nations Industrial Development Organization (UNIDO);
Ms. Deborah Gallagher, Executive Director, Duke Environmental
Leadership Programme, Nicholas School of the Environment, Duke
University.
65
PHOTO CREDITS:
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Andi Wijaya, UNEP
Page 24 © World Bank/Ray Witlin
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Page 32 © istockphoto
Page 42 © UN Photo/Eskinder Debebe
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Mark Edwards
HUMAN RIGHTS
Businesses should support and respect the protection of
internationally proclaimed human rights; and
make sure that they are not complicit in human rights abuses.
LABOUR
Businesses should uphold the freedom of association and the
effective recognition of the right to collective bargaining;
the elimination of all forms of forced and compulsory labour;
the effective abolition of child labour; and
the elimination of discrimination in respect of employment
and occupation.
ENVIRONMENT
Businesses should support a precautionary approach to
environmental challenges;
undertake initiatives to promote greater environmental
responsibility; and
encourage the development and diffusion of
environmentally friendly technologies.
ANTI-CORRUPTION
Businesses should work against corruption in all its forms,
including extortion and bribery.
Principle 1
Principle 2
Principle 3
Principle 4
Principle 5
Principle 6
Principle 7
Principle 8
Principle 9
Principle 10
The Ten Principles of the
United Nations Global Compact
Published by the UN Global Compact Of?ce
Contact: [email protected]
June 2010 | 1.5M
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