How well should you know your supply chains?

Roger OakdenSupply Chains & Supply Networks

Expecting Procurement to know it all.

How much should a business with a brand name know about suppliers along all of its many supply chains?

This is the challenge that Baptist World Aid at has asked of 39 electronic companies. The charity found that none of the enterprises achieved its definition of supply chain knowledge and action for improvement in the basic rights of employees at supplier businesses.

As a logistics professional, you would expect that brand companies are likely to know a lot about their Tier 1 suppliers. However, there is a fundamental question concerning how much a brand company can be expected or wish to know about lower Tier suppliers that the business may never engage with.

Even on the first point, the survey surprisingly identified that only 49 percent of companies, including many of the sectors largest brands, have a detailed knowledge of the labour practices at their Tier 1 suppliers. With the reach of Internet and social media, plus scandals that have already been publicised, you would think that Procurement at brand companies would have employment and work practices at suppliers high on their compliance list – but  it seems that 51 percent of respondents don’t think so.

A small 18 percent of respondents had some idea where the raw materials used in their products came from; it therefore follows that 97 percent of respondents could not demonstrate a knowledge of how workers at material suppliers were hired, treated or paid. But that must be the situation in most companies.

Improving supplier performance

Many companies have Codes of Conduct for their suppliers, which explicitly forbid the use of forced and child labour at Tier 1 suppliers, but only 34 percent of companies had clauses in their Codes which require suppliers to allow collective bargaining by employees at their facilities. In fact, only one brand company could demonstrate the existence of supplier factories where collective bargaining occurs.

The objective of Baptist World Aid is for brand companies to accept some responsibility for the working conditions and payment of a living wage at all suppliers in a brand company’s supply chains. If this were achieved, the charity calculates it would increase the retail price of a mobile ‘phone between $2 and $9, or about 1.5 percent.

The challenge for brand companies is whether they are willing to extend their knowledge of supply chains from the current core supply chain to their extended chains – back to the mine and farm and then use their power in supply chains to improve working conditions. This would be an additional cost of business, with the only direct benefit being a reduction in surprises concerning activities at Tier 2, 3 or 4 suppliers.

As Baptist World Aid and other activist NGOs are not going away, the question for Procurement professionals at brand companies is whether the ideal of visibility throughout your supply chains is attainable and at what cost.  Even if the knowledge gained showed ethical buying decisions, it is doubtful whether companies would release that much information about their suppliers.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...