Beroe recently interacted with procurement sustainability and supplier compliance advisor Christel Costagli to understand the importance of a Procurement Organization’s Supplier Compliance program.
Multinationals have complex supply chains with products and services sourced from all over the world, sometimes from tens of thousands of suppliers. This complexity and extent of sourcing arrangements increase the likelihood and negative impact of supplier risks. To manage these risks, companies have typically developed sourcing policies that define the minimum standards suppliers are expected to comply with in order to qualify as an approved supplier. The standards often include social, ethical and environmental principles. The responsible sourcing principles are generally supplemented by other requirements, such as supplier financial health, information security and privacy management, to build supply chain resilience.
There is high degree of commonality among large fast-moving consumer goods’ (FMCG) responsible sourcing policies and minimum supplier standards. This is because most companies are signatories of the same international conventions and must abide with similar regulatory requirements such as fighting against modern slavery and corruption.
Commonalities also exist in the methodologies used to evaluate suppliers’ practices and seek assurance that they align with the company’s policy and values.
Many companies struggle when they evaluate supplier qualifications at the time of the invitation to tender. This is because of conflicting timelines and mixed messages to the suppliers. On one hand, supplier compliance is presented as a prerequisite to contract and supply; on the other hand, compliance evaluation can be a lengthy process that may run past the tendering period. It makes better sense to establish, well ahead of the tendering period, a panel of qualified suppliers and maintain this panel through ongoing re-evaluation.
Another pain point is the qualification fatigue for suppliers. Although multinationals have policies and requirements that are fairly similar, they tend to pursue supplier compliance assessment individually. This results in duplication of qualification efforts and costs for the suppliers. Supplier audit is a typical example of a duplicate requirement. To alleviate this pain point, industry forums such as Aim Progress seek to promote responsible sourcing by enabling mutual recognition of audits conducted by other brand manufacturer members.
Supplier noncompliance can affect a company’s brand in many ways. There is a global trend of businesses being held accountable, at least by nongovernmental organizations and consumers, for the human rights impacts of their entire supply chain. This poses real challenges for businesses, whose reputations are now reliant upon the conduct of multitier suppliers, over which they have traditionally had little control. For instance, with the Rana Plaza disaster, the world turned its attention to European and American clothing brands and retailers, and the gross rights violations occurring within Bangladeshi sweatshops and factories that manufacture for them.
In addition to reputational risks, there are legal and regulatory risks associated with supplier noncompliance. For instance, companies are exposed to the risks of bribery and corruption in their supply chains, which can trigger severe consequences. Businesses should have in place systems to manage compliance with antibribery laws, such as the UK Bribery Act or the U.S. Foreign Corrupt Practices Act, as a defence. Fines imposed on companies that are convicted can reach hundreds of millions of U.S. dollars.
To manage supplier compliance effectively, there is an obvious need to be able to access all supplier information in one place. Companies often face the challenge of having supplier data split among multiple systems and departments. A siloed supplier qualification system results in little visibility regarding who the suppliers actually are and how they perform globally. Technology is a key enabler for mastering and connecting supplier data.
New legislation is being introduced regularly to place demands upon organisations to be more transparent about issues in their supply chain and about what they are doing to address them. For instance, the UK Modern Slavery Act and the California Transparency in Supply Chain Act require companies to disclose their efforts to eradicate slavery and human trafficking from their direct supply chain. Moreover, the French Due diligence of corporations and main contractors regulation requires businesses to publish and implement a surveillance plan to prevent serious violations of human rights, fundamental freedoms, and the health and safety of people and the environment.
To abide with these requirements, companies must equip themselves with the ability to consolidate supplier information and standings, and report progress. A common supplier qualification repository within multinational companies can certainly help them comply with these requirements.
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