Top Risks in Global Supply Chains: Primary-Source Intelligence and Recommendations for Action
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The globalization of supply chains, occurring in many industries these days, has created unforeseen challenges in ensuring the workers and environments by which products are now manufactured are treated ethically and responsibly. For a long time supplier audits used to be just paper- or spreadsheet-based, without much accompanying data analysis, aggregation or trending. That is now beginning to change, leading to new levels of sophistication in extracting intelligence from supply chain data. For this session, we are joined by two organization leading this shift: Intertek, the largest and longest running CSR auditing body conducting over 60,000 such audits each year and author of the Intertek Workplace Conditions Assessment (WCA), the fastest growing CSR audit report with over 15,000 participating factories to date; and Sedex, the world's largest collaborative platform for sharing supply chain data, with over 36,000 participating organizations representing 30 industry sectors and more than 24 million workers in more than 160 countries. The two will combine their latest observations for an analysis of critical supply chain risks around the world that executives should keep top of mind.
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Top Risks in Global Supply Chains: Primary-Source Intelligence and Recommendations for Action
- 1. Top Risks in Global Supply Chains: Primary-Source Intelligence and Recommendations for Action Mark Robertson, Sedex @CSRCommunications Andrew Savini, Intertek
- 2. TOP RISKS IN GLOBAL SUPPLY CHAINS Primary-Source Intelligence and Recommendations for Action
- 3. Who we are What we do Introduction1 History of Sustainability / CSR Supply Chain Auditing How the process works Country Dive; China, Cambodia, and Bangladesh Accuracy of Basic Supplier Information How to look at risk in advanced ways? Where are client priorities heading? What are we talking about?2 Top Global Risks3 Transparency Key4 Keys to Success5
- 4. About Sedex Sedex is the worlds largest provider of systems and support services focused on responsible supply chain management Customer views information for multiple suppliers Supplier enters information on Sedex and shares with multiple customers
- 5. A selection of Sedex members
- 7. Who we are What we do Introduction1 History of Sustainability / CSR Supply Chain Auditing How the process works Country Dive; China, Cambodia, and Bangladesh Accuracy of Basic Supplier Information How to look at risk in advanced ways? Where are client priorities heading? What are we talking about?2 Top Global Risks3 Transparency Key4 Keys to Success5
- 8. The scale of the challenge “At Diageo we talk about 70,000 suppliers and third parties, spread across over 100 countries of the world. When multiplied by the number of sub-suppliers in the supply chains, you get in to hundreds of thousands of people impacted by our global supply chain, so its vital to prioritise the key areas.”
- 9. Where now? 1992 Levi’s & Guess CoC 1995-97 Major Headlines Levis • Factory fined $10 million in back wages by the Dept. of Labor for minimum wage and overtime violations • Develops first Sourcing Guidelines Guess • First Augmented Compliance Program Agreement • Wage Guarantees South El Monte, CA • Slave Labor found in USA Nike • Criticized heavily for inhumane working conditions in Vietnam and Pakistan • Hired UN Ambassador Andrew Young Major Student Movements • Duke University • United Students Against Sweatshops 1997 Standards Proliferate SA8000 • Council on Economic Priorities creates a certification program • Payment of “living wages” • Full disclosure of sourcing locations • NGO participation • authority to challenge certification • factory must agree to unannounced visits by NGOs Where we’ve been
- 10. Last 10 years…
- 11. Next 10 years?
- 12. Rana Plaza Collapse, 2013
- 14. How is CSR data collected in the supply chain? Responsible Sourcing is the process of purchasing goods and services without causing harm to, or exploiting, humans or the natural environment. Social Responsibility Wages & Hours Health & Safety Labor Environment
- 15. What kind of data are buyers collecting on their suppliers? Self-reported (SAQ) data and, where appropriate, audit data can be used to understand a supplier’s CSR performance Supplier CSR performance Self Assessment Questionnaire (SAQ) Audit Data
- 16. Typical CSR Audit Process Opening meeting Site Tour Document review Interview Closing meeting
- 17. Who we are What we do Introduction1 History of Sustainability / CSR Supply Chain Auditing How the process works Country Dive; China, Cambodia, and Bangladesh Accuracy of Basic Supplier Information How to look at risk in advanced ways? Where are client priorities heading? What are we talking about?2 Top Global Risks3 Transparency is Key4 Keys to Success5
- 18. Global Data Country Specific Global Top 10 Non-Compliance Issues Frequency % of all Non- Compliance s Raised % of all Non- Compliance s Raised in China % of all Non- Compliance s Raised in Bangladesh % of all Non- Compliance s Raised in USA FIRE SAFETY 39,581 17.54% 17.93% 25.65% 25.05% HEALTH & SAFETY MANAGEMENT 16,487 7.31% 6.42% 3.20% 6.95% LEVEL OF OVERTIME HOURS WORKED 15,211 6.74% 7.70% 2.88% 15.54% ENVIRONMENT 14,748 6.53% 7.98% 3.25% 0.91% MANAGEMENT SYSTEMS 12,746 5.65% 3.66% 3.46% 12.07% MACHINERY 12,086 5.36% 7.19% 4.69% 2.74% CHEMICALS 11,895 5.27% 6.64% 2.86% 1.65% WORKER HEALTH/FIRST AID/ACCIDENTS 11,757 5.21% 5.46% 3.59% 4.20% BUILDING/SITE MAINTENANCE 9,587 4.25% 4.40% 7.00% 1.83% BENEFITS INCLUDING INSURANCE 9,187 4.07% 5.18% 6.65% 0.37% Overall Performance Trends Data from Sedex Data Monitor 2014
- 19. Overall Performance Trends Data from Intertek Workplace Conditions Assessment Program 2014
- 20. Rating Distribution by Country United States Taiwan Vietnam Thailand India Mexico Brazil China Indonesia Bangladesh Data from Intertek Workplace Conditions Assessment Program 2014
- 21. Rating Distribution by Industry Food Bottling / Packaging Professional Services Toys Textiles Apparel Accessories Hardlines Housewares Electronics Data from Intertek Workplace Conditions Assessment Program 2014
- 22. How many suppliers do not have controls or evaluation procedures for subcontracted work? Question:
- 23. 2 out of 5 factories… Data from Intertek Workplace Conditions Assessment Program 2014
- 24. What do you think the global frequency of fire fighting equipment inadequacy is? Question:
- 25. 1 out of 10 factories… Data from Intertek Workplace Conditions Assessment Program 2014
- 26. Cambodia Overview • February 19th Unions/Brands/Government Meeting • Joint Letter to Government • Workers Rights Consortium Report • Better Factories – Cambodia (Transparency Initiative) • Drop 6% in first 2 months of year; possible shift elsewhere
- 27. Cambodian Labor Unrest: Were there signs from factory audits? Question:
- 28. Data from Intertek Workplace Conditions Assessment Program 2014
- 29. Bangladesh - Overall Data from Sedex Data Monitor 2014
- 30. Bangladesh - Trends Data from Sedex Data Monitor 2014
- 31. Bangladesh - data breakdown Data from Intertek Workplace Conditions Assessment Program 2014
- 32. Bangladesh– Health & Safety Data from Intertek Workplace Conditions Assessment Program 2014
- 33. Common Violations Wooden Electric Switch Box Emergency Exit Locked Uncovered and Loose Electric Wires Flammable Materials Kept in Production Floor Data from Intertek Workplace Conditions Assessment Program 2014
- 34. Common Violations Shared Building Roof Top Not Vacant Aisles Partially Blocked by Unfinished Goods and Yarn Flammable Materials Kept in Production Floor Data from Intertek Workplace Conditions Assessment Program 2014
- 35. Who we are What we do Introduction1 History of Sustainability / CSR Supply Chain Auditing How the process works Country Dive; China, Bangladesh, Accuracy of Basic Supplier Information How to look at risk in advanced ways? Where are client priorities heading? What are we talking about?2 Top Global Risks3 Transparency Key4 Keys to Success5
- 36. Audit Data V Self Reported Data Issue area Number of sites with discrepancies between SAQ and audit results ENVIRONMENT 80 HEALTH & SAFETY 604 LABOUR STANDARDS 268 In a sample of 2,000 audited supplier sites: Data from Sedex Data Monitor 2014
- 37. Supply Chain Risk Exercise
- 38. Let’s say we identify 5 Major Suppliers in 5 Cities in 3 High Risk Countries in this risk assessment
- 39. And lets focus on the hypothetical 3 in China
- 40. You contact Intertek to work on scheduling audits of these 3 suppliers… Intertek Offices reach out =
- 41. And those initial 3 suppliers, after working with Intertek…
- 42. …discover production is actually occurring in 9 locations… …Harbin …Tianjin …Beijing …Wuhan …Chengdu … Suzhou
- 43. This happens often… 40% • … of Intertek Audit requests from global clients have something wrong with the audit request entity…while 70% • …of brands in a recent Intertek survey admitted their organizations would most likely lack the capability to trace back to production. Data from Intertek 2013 & 2014
- 44. The case for multi-tier transparency Key findings: 1. Globally, only a third of companies are actively seeking transparency below tier 1 in their supply chain, at scale. (PwC and MIT study, 2013) 2. The greatest and most critical risks are found deeper down in the supply chain. (Sedex briefing, 2013)
- 45. Critical risks Extract from ‘Sedex Transparency Briefing’ November 2013 http://ow.ly/tOtGX Data from Sedex Data Monitor 2014
- 46. Who we are What we do Introduction1 History of Sustainability / CSR Supply Chain Auditing How the process works Country Dive; China, Bangladesh, Accuracy of Basic Supplier Information How to look at risk in advanced ways? Where are client priorities heading? What are we talking about?2 Top Global Risks3 Transparency Key4 Keys to Success5
- 47. Supply Chain CSR Drivers Compliance • Regulation/legislation • CSR programs and initiatives • Investor pressure • Consumer pressure Traceability • Ability to find stories • Power of the media • New technology
- 48. What does this mean for this conference? • Greater awareness • Consumers, business, NGOs, governments, investors • Transparency is expected • “Bare Minimum” no longer acceptable • Criticism of green wash • Pro-active not re-active • Know where the next Rana plaza could be
- 49. Key takeaways • Supply chain transparency data is vital – you can’t tackle risks if you don’t know your suppliers • Multi-tiered transparency is key – many Supply Chain CSR risks exist further down the supply chain • Audit data vital in confirming standards and identifying issues at high risk suppliers • Collaboration • Think beyond compliance 100% full transparency of your supply chain will not happen over-night
Notes de l'éditeur
- Fri Sept 26 Skyline DE 2:00-3:00
- Achieving multi-tier transparency at scale is not easy. This quote from Diageo, shows the scale of the challenge. What is underlined here is that transparency for transparency sake is not the answer, but rather how you use that information. Transparency is vital to understand where the risks to your business in your supply chain are but also where the opportunities lie, so that you can prioritise your efforts and resources.
- Audit sharing…..
- Audit sharing
- This information is to show how many audits and issues have been raised over time. These are the actual figures and should increase with time as more members join Sedex The chart aims to show the average number of issues raised per audit to indicate whether there has been improvement over time. Ideally, we would hope to see the number of Non-compliances per audit decline over time and the Good Examples increase. Finally, the pie chart is to show how many of the sites in Bangladesh have had at least one published audit.
- It’s interesting to note that none of the supply chain scandals from recent years occurred at the 1st tier suppliers We did a study with BSR last year showing the correlation with tier of the supply chain and the criticality of issues. Ie. The further you go down the bigger the issue. All the issues have been down the supply chain…. The study highlights some of the pitfalls in failing to look beyond first tier suppliers and includes a snapshot of how far some leading companies are looking down their supply chain. There were two key findings. Globally, only a third of companies are actively seeking transparency below tier 1 in their supply chain, at scale. A 2013 study by PwC and MIT found that Supply disruptions “significantly impact business and financial performance” but nearly two thirds of companies pay only “marginal attention” to supply chain risk reduction. And 2. findings from Sedex found that the greatest and most critical sustainability risks are found deeper down the supply chain. So, let’s look in more depth at the data…
- In engaging with suppliers, companies often prioritise those with which they have a higher spend or who pose a higher risk. As tier one suppliers are often the first place to start supply chain management programmes, these companies have had more time to address issues than those further down the supply chain. The sample analysed 10 companies with a combined total of 3,922 supplier relationships and 6,775 audits. Our sample are achieving engagement with 44.5% first tier, 47% second tier and 7.3% of third tier suppliers (0.6 4th and 0.6 5th tiers). The data clearly shows that risks increase further down the supply chain. If you look at Figure 1, which shows the average number of Non-compliances per audit, per tier: the number of NCs rises beyond tier one At tier two, site audits identify an average of 4.85 non-compliances (NCs) per audit – 18% more than the number of NCs identified in tier one (Figure 1). NCs are most significant at tier three, which represents just 7.3% of trading relationships, yet raised 27% more NCs per audit than tier one, on average. Figure 2 shows that the criticality of issues also increases in sub-tiers with tier three showing the highest number of critical, major and minor issues. By taking a multi-tiered approach, the ten companies included in our sample achieve greater engagement with their suppliers and better insight to more effectively understand, monitor and tackle risks head on It also includes recommendations and case studies to help more companies achieve a deeper dive in their management of supply chain risks are also provided – which the panel session will examine following this. Companies that reach past the first tiers improve supply chain management and meet stated business and sustainability objectives. Supplier relationships built on engagement, trust and empowerment are central to managing supply chain risks. So moving forward from last year and looking ahead….. We have go down the supply chain
- Lots! 2 core areas – Compliance and Traceability. Compliance More requirements from governments, (e.g. UK bribery act, Dodd Frank, California Transparency, EU timber) and investors. Examples being DJSI, FTSE FOR Good. One dollar in every 9 under professional management is invested to SRI strategies (Huffington Post) 2/17/14 But not just compliance Transparency The ability for people to see problems has transformed. Videos and images of Ranza plaza where circulating on social media before traditional media outlets let alone to the brands involved. Youtube, twitter, Wiki, Underlying both of this elements is a much deeper social change. No longer is CSR, ethics confined to Fair Trade and the ‘nice to have’. A quick look at Hollywood gives an insight into a deeply embed view of social and environmental responsibility business in society So was 2013 a particularly bad year of problems or was it more that there was more transparency of problems? There is no doubting that issues of Ranza planza where particularly tragic but to understand this field we must first understand this changing dynamic
- Implications…..they are big Simple…. Not much to do then
- Collaboration (industry, country) You cant do this alone. Reaching scale with change will drive efficiencies. Looking soley at the business case you cant effectively manage risk within reasonable budgets without collaborating. Best example of this is trying to ask a 4th tier supplier to make a change when you represent 1% of their sales…. Don’t re-invent the wheel You are not the first company to do this and the challenges you have are certainly not unique. This somewhat terriying urge to re-invent the wheel costs some companies so much time and money its quite staggering… Integrate into procurement You can have all of the CSR policies you like but unless its embedded into procurment nothing on real scale will occur Develop your suppliers You cant do this on your own. Sectors like retail have learned that working together with suppliers (rathan than just burdening them with audits and questionnaires) is the best way of driving best practice