Supply Chain Visibility – Driving Ethical Standards
In February 2022, the EU Commission presented its proposals for supply chain law to drive obligated standards across EU based companies’ worldwide supply chains. While most observers and Industry practitioners welcome the adoption of clear product standards for supply chain operations and outputs this proposal goes much further. Controversially, this legislation seeks to drive the social and environmental standards associated with supply chain operations.
Many companies have already been taking a long, hard look at such standards; driven by the growth of Environmental, Social and Governance oversight at Board and investor level. However, arguably few organisations find themselves in a position where they have a holistic strategy to deal with such issues and even fewer have the operational breadth, oversight and management to proactively execute such a strategy.
While the desired outputs of ESG focus and legislative compliance are laudable, the implementation can be both complex and expensive, particularly where existing line management are expected to deliver change alongside their existing roles. This can negatively impact the bottom line, sow seeds of divisiveness across business functions and ultimately still fail to achieve an outcome that should bring with it enhanced productivity, increased customer loyalty and raise social standards in the value chain.
What then are the key issues associated with enhancing visibility in the supply chain in order to drive up ethical standards and compliance? They can be grouped into two broad categories – external and internal to the organisation.
External issues can at first appear overwhelmingly obstructive; human rights legislation and environmental requirements are already significantly broad in scope and liberal in application. The idea of a medium or even large company guaranteeing the right to education or freedom of expression for farm workers in a country with a less than democratic political system is enough to cause concern with even the most enlightened of Boards and CEOs. Add to this the potential that legislation could bring with it unlimited levels of liability and many begin to question the wisdom of such legislation.
Internally, very few companies have the visibility across their supply chains that they need in order to comply with even their current ESG aspirations. Data is siloed in discrete systems (often acquired through M&A) or sits with 3rd party suppliers who are either reticent or technically incapable of sharing the required information. Most internal IT departments are busy firefighting daily issues and have neither the time nor the intellectual bandwidth to step back and look at what is very swiftly coming over the next hill.
As ever, it is highly likely that political ideals will not be matched by either commensurate operational clarity or significant practical support to develop the systems and processes required to meet the legislation. Indeed the legislation is likely to be live by summer 2023 – leaving very little time to prepare.
But, in the absence of detailed standards and guidance, what can be done now that will offset the potential impact of legislation and consumer pressure in the near term?
It appears to us that the legislative direction of travel is in step with what consumers are now really beginning to look for; the market wants to know that products are ethically sourced, have the lowest environmental impact possible and are sustainably sourced.
The vast size of the challenge can appear daunting, but utilising a framework to define the strategy and then focus operational delivery can significantly reduce risk and enhance early benefits. Let us assume that we must work with, not against the external factors; businesses must take into account the main driving factors in delivering the information they need to enhance visibility and demonstrate compliance.
Companies must now start to review their supplier bases from a national perspective downwards. Do suppliers operate in a national framework where standards are recorded and driven in accordance with international human rights requirements? Is there a minimum wage provision? What are the national welfare standards – are they acceptable ethically to the Board? At the supplier level are there industry bodies which certify the required standards or will the Company need to certify independently?
As the product/constituents move through the supply chain what are the additional infrastructure standards? How is raw material/produce transported? How are manufacturing centres powered and ultimately what is the remaining carbon footprint of the final stage of product transport to the retailer? These are not exhaustive areas for review and different industries will have different emphasis, but this analysis must be completed in order to identify the data capture requirements for the internal processes.
Turning to Internal factors, there will be both process and technology requirements. It is unlikely that any industry already has the full suite of both required to capture end to end visibility of supply chain operations, but some will be more advanced than others. The key issue here is to minimise cost and disruption, reducing the cultural barriers to adoption of a new way of working. Companies must resist the ‘big bang’ approach of removing existing multiple systems – it simply does not support the incremental nature of the shift in legislative and ESG compliance. Far better to implement a digital backbone that enables incremental growth and this is where Distributed Ledger Technology can be a game changer. Better known as Blockchain, such technology enables companies to bring together their siloed internal data while also capturing external 3rd party data in a zero trust environment. If all that sounds like technobabble – the simple version is a network able to securely capture the data needed to provide complete visibility across the supply chain. The real beauty of Blockchain being its secure, immutable nature which makes the demonstration of legislative compliance fully auditable and tamper proof. By using Blockchain, companies can prove their commitment to ESG and legislation, with the added benefit of being able to apply consumer loyalty and brand confidence programs based on real data.
Here at The Vision Chain we have decades of experience in the application of technology and process change to some of the most demanding environments in business and government. Our proven Concept, Assessment, Demonstration, Manufacture, Implementation and Delivery (CADMID) methodology breaks down even the most complex problems and issues into achievable low risk steps to transform your business.