The supplier program is quickly becoming a core competency of any manufacturing or distribution company that participates in a global supply chain. It is therefore important to extend the current strategic sourcing efforts made by most companies, using the combined expertise of your sourcing staff and specialists in ethics and standards, to go beyond just price, quality, and performance concerns, and include in supplier selection and monitoring efforts other important social and environmental criteria.
A company needs to take several key steps in developing and implementing its supplier program. First, given the cost and effort involved in these endeavors, because most companies have an extensive supplier base, often stretching around the world, it is important to rank and prioritize suppliers according to their importance to the company, their relative potential risk, and the ease or difficulty of replacing them. As the OECD notes, It is not economically or logistically feasible for all enterprises to monitor and audit all their suppliers. [1 ] In short, companies need to use their energy wisely, focusing their efforts where they will be used most cost effectively.
As a second step, a company needs to provide its supplier community with well-accepted, unambiguous codes of labor and environmental practices and to help them adhere to those codes. As we have seen, even when these codes of conduct do exist, they are often ignored by suppliers, and too often there is little effort made to enforce them by buyers , leaving the buying company vulnerable to accusations of hypocrisy or indifference.
Companies need to make it as easy as possible for their important suppliers to meet these standards. They also need to provide suppliers with incentives to monitor themselves , and to make it clear to suppliers that adherence is in their own self-interest. In keeping with the continued trend toward outsourcing, it makes sense to encourage suppliers ” especially in developing economies ” to take responsibility for their own improvements in these areas.
There are ways to make it easy on suppliers to adopt higher standards. First, accepting the concept of harmonization, a company needs to work closely enough with the supplier to understand what other codes they are working toward or being certified for, and collaborate in adapting or accepting those. Reducing the administrative burden of multiple surveys ” suppliers today complain of receiving sometimes hundreds of extensive survey questionnaires from each of their buyers, as well as NGOs, activists, and the government ” greatly increases the likelihood that the suppliers will understand the requirements of the code and will make efforts to adjust their labor and environmental policies accordingly .
Second, it means that, whenever possible, a company should itself adopt a universally recognized standard ” such as the ILO Codes of Labor Conduct, SA 8000 or ISO 14001 performance standards ” so that there is consistency and efficiency in the certification and monitoring process.
After all, most suppliers in developing economies will be trading with many major companies, and gaining certification on one universally recognized standard is easier and more cost effective for all parties.
Finally, however close a company s relationship with a supplier, it is important that a company separate the two functions of monitoring and auditing. The buying company can and should monitor the progress of its suppliers, but in order to develop an indisputably fair and independent approach to verification, companies will need to enlist independent, thirdparty auditors to verify compliance.
[1 ] Office for Economic Cooperation and Development (OECD). See Web site at www.oecd.org.