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With the recent outbreak of the COVID-19 pandemic, many companies have been caught off-guard by the severe lack of resilience in their supply chain. It seems that many businesses are still incredibly reliant on a single source or region, and just one earthquake or disease has the potential to decimate an entire business.
Given this predicament, supply chain leaders are now encouraging manufacturers to diversify their risk by spreading out production, sourcing from all over the world. They are also being encouraged to ‘reshore’ manufacturing where possible and generally review the way they conduct business.
Although companies are redesigning their supply chains to be more localised in terms of geographic location, this is only one part of the solution. The COVID-19 crisis also highlighted the need for transparency and ethics in global supply chains. Moving forward, ethical supply chains will be essential as companies create new models for production and distribution.
In this blog we'll take a look at the economic, social and environmental impact of global supply chains and the steps businesses can take to make their supply chains fit-for-the-future post pandemic.
The COVID-19 crisis showed just how interdependent modern supply chains truly are. Customers need their suppliers, and suppliers need their customers — with no one company able to survive a true global crisis on its own. By sharing the burden during this time of crisis, all companies involved have an opportunity to come out stronger than before.
During the pandemic, organisations worldwide recognised that in times of crisis, they needed to be more than just customers and suppliers — they needed to be partners. Many businesses took the initiative to support their suppliers, even if it meant putting aside cashflow considerations for a time.
The fashion industry has been under fire over the past year for failing to pay workers in a timely manner. The fast fashion industry in the U.S. and Europe came under scrutiny recently because of the recent disaster in Bangladesh. It was an accident at a garment factory in Bangladesh that led to over a million workers losing their jobs after major clothing brands cancelled their orders, suspending £2.4 billion worth of garments.
While difficult choices have to be made, putting all the risk on suppliers can affect not only your corporate reputation but also the supply chain — and ultimately your customers.
The 2013 Rana Plaza disaster in Bangladesh garnered attention for the immense human toll it took: over 1,000 workers died after a poorly maintained building collapsed. In the aftermath, the garment industry became aware of its responsibility to ensure that workers are safe outside of work hours; at the same time, consumers began to worry about whether or not their clothing was ethically sourced. Now, with the recent COVID-19 crisis, those issues have come to light again.
Every business is an integral part of the communities and economies it operates in, and the livelihoods of so many people depend on them. As economic conditions continue to improve, businesses will be watched closely to ensure they uphold ethical standards and pay a living wage. Companies that treat employees right will lead the way out of the recession.
Locating your business in areas where standards are high and risks are low can really help you control your supply chain and source ethically. However, this is not a panacea for ethical issues. Strict due diligence is still required.
A localised supply chain doesn't remove risk; it merely shifts it to other places. If an importer has a deal with a supplier, they can still be hit with delays or unexpected costs. A localised supply chain still relies on the global supply chain where there are risks that aren't localised—it just means that the buyer will have more control and visibility over their particular part of the global supply chain.
Boohoo's share price lost half its value overnight after allegations emerged that one of its suppliers was paying workers as little as £3.50 an hour. The BBC reported that it appeared that the supplier was also failing to observe Coronavirus restrictions, which were introduced after a worker died from the virus in February. Boohoo had already been under fire for paying low wages to staff at its warehouse in Acton, London.
The issue of modern slavery is an international problem — it's estimated that there are more than 100,000 people living in modern slavery in the UK, with similar figures in Germany, France, Italy and Spain. In the past few years, several news stories have illustrated the prevalence of modern slavery in the European Union.
The widespread prevalence of modern slavery in Italy’s tinned tomato industry is just one well documented example of the human rights abuses that appear in nearly every industry, including retail, technology, agriculture, and tourism.
No matter what, supply chains are going to be global in the post-COVID world. We will still import from many countries where labour is cheaper and materials are plentiful. We can’t bring everything back, and even if we could, we shouldn’t.
Many businesses take time to ensure that their business operates on a foundation of good ethics, but core values and mission statements do not truly mean anything unless they're backed up by actions. Ethical practices are no longer enough to foster customer loyalty; people expect brands to go above and beyond with respect to sustainability and consumer protection.
Patagonia has always had a strong stance on ethical practices in the workplace. They switched to organically grown cotton for all of their products in 1994, after learning that most commercially produced cotton is grown with a poisonous pesticide called Roundup. Furthermore, by taking proactive measures, they have built an ever-present mindset of sustainability into their supply chain — as well as woven it into what they do and how they do it.
Patagonia's almost legendary status as a socially responsible company has helped it build a strong following of eco-friendly customers. The brand's unwavering commitment to ethical sourcing and sustainable manufacturing ensures that its customers can trust it when shopping — which, in turn, strengthens its brand and brings more business.
Ethical production practices and supply chains aren't a fad — they're a foundation of doing business in the twenty-first century. Consumers want to know that their favourite brands are treating their workers with respect and using non-toxic materials in every step of production, from start to finish. Company announcements can come across as confusing or misleading — but when those businesses commit to ethical production standards, it creates an instant trust between the brand and its customers.
We live in a global age where electronic components are shipped from around the world to be put together into complete products. It's easy to forget that your smartphone has a side-story in its travels: How does a component get from a factory to being assembled into an electronic device? Bagged salads might include lettuce from California, tomatoes from Mexico, and onions from Brazil — but how do those foods get there?
Even the best companies can be involved in unethical practices when they don't have a handle on their supplier relationships. Even though the company as a whole may be rigorous about ensuring and following ethical business practices, if one of its suppliers is doing something unethical, that can compromise the company's reputation as well.
Transparency or visibility is the process of being familiar with every step and practice in your product’s supply chain and a crucial component of ethical supply chains. It is essential for a brand to determine where its products came from, as well as how they were produced and transported. A transparent supply chain makes it easier for brands to avoid unethical practices, such as child labour or environmentally damaging farming methods.
A supply chain is a complex, interactive system with each component affecting the others. It's made up of both people and processes. People in the chain include suppliers, manufacturers, distribution centers, retailers and customers. Each group must work together to move products along the chain efficiently and make sure that raw materials are transformed into finished products that can be delivered to warehouses, retail stores and customers. All touchpoints need to be factored into your ethical supply chain planning.
A good place to kick off your ethical supply chain journey is to adopt the triple bottom line: people, planet, and profit. By looking at these three factors while making purchasing decisions, businesses can better ensure that their supply chains are ethical. Supplier qualification questionnaires help businesses gauge suppliers' social and environmental performance, while other assessment tools can be used to track a supplier's score over time.
Mapping out your supply chain is the first step in putting together a well-rounded risk management strategy. This process will help you identify key areas for action, while also pointing out potential choke points in your supply chain — areas where there is an over-reliance on a certain geography or single supplier.
Cynics might say that supply chains are the concern of the various companies that comprise them, but it's more than that. Ensuring a product's supply chain is ethical isn't just about placating activist consumers and politicians — it's also about improving your brand image. Companies need to take inventory of their supply chains and actively shape them so that they align with their core values.
Becoming a socially-conscious business is one of the best ways for companies to achieve long-term growth — by reinforcing their commitment to principles, customers will feel more comfortable doing business with you. By supporting your local community, you contribute to meaningful relationships and sustainable growth.
There are numerous benefits for companies implementing supply chain practices that promote and sustain progressive social goals but here we'll take a look at three;
In 2007, thousands of pet cats and dogs in the U.S. died after being fed food that contained melamine, a chemical that was intentionally added to the food in order to falsely increase its protein count. Later that year, another incident occurred when babies who consumed milk with melamine suffered from kidney damage or developed kidney stones; six babies died as a result of their illness. Both incidents make it clear how important an ethical supply chain really is.
To create an ethical supply chain, it's important to have a deep understanding of the origins and production of components and ingredients. Specifically, how they were made and the living conditions for those who made them.
The more transparent your supply chain is, the less likely you are to see a huge crisis. One of the many benefits of knowing this information is that it reduces the chances of something like melamine contamination. Transparency in a company's supply chain will make it easier to identify any potential issues and better equipped to handle them should they arise.
When companies think of an ethical supply chain, they usually think of the additional costs. However, the transparency and visibility of an ethical supply chain can actually help to cut costs while increasing quality. In a transparent supply chain, managers at each stage of the manufacturing process know where products are coming from and where they are going at any given time.
Attention to ethical manufacturing practices and a commitment to transparency drive efficiency down the supply chain has allowed many companies to work more efficiently. Kaizen — the practice of continuous improvement — was born in Japan and used heavily by Toyota. It was supposed that some efficiencies could be found by looking at how each individual component was produced. Toyota applied this theory to supply chain management and created the foundation for a new way of thinking about logistics.
Logistics technology has allowed companies to be more agile and precise in how products are made and delivered to consumers. As a result, businesses have been able to reduce costs associated with over- or under-production, while cutting the time spent on inventory management.
Attention to ethical manufacturing practices and a commitment to transparency drive efficiency down the supply chain has allowed many companies to work more efficiently. Kaizen — the practice of continuous improvement — was born in Japan and used heavily by Toyota. It was supposed that some efficiencies could be found by looking at how each individual component was produced. Toyota applied this theory to supply chain management and created the foundation for a new way of thinking about logistics.
Logistics technology has allowed companies to be more agile and precise in how products are made and delivered to consumers. As a result, businesses have been able to reduce costs associated with over- or under-production, while cutting the time spent on inventory management.
One of the main benefits of a sustainable supply chain is the company's ability to build a circular business model — one that reuses and recycles material from used packaging, surplus materials from manufacturing, and, in some cases, the product itself. This kind of business model allows businesses to create products that are truly sustainable and meet their social responsibility goals.
Once a company has mapped its supply chain and established the sources of its starting materials and finished products, it can begin to examine new methods for sustainable sourcing. Reducing product packaging, creating sustainable packaging from recycled materials, and reusing old packaging are just a few ways that companies can look to create less waste and help reduce their environmental footprint.
Sustainability and ethics are the cornerstones of a great supply chain, and public demand has made them critical to brand reputation.
The pandemic has shown just how fragile global supply chains are. The desire to buy at the lowest prices led to over-dependency on suppliers. As a result, managing the economic, social and environmental impact of global supply chains has become a strategic priority.
Creation of an ethical supply chain can help manage risks and mitigate issues. As the economy begins to get back on its feet, there is a new emphasis on sustainability. Businesses are starting to rethink what their supply chain should look like. Society, planet, and profit must find a workable balance.
The danger of not acting is clear: a supply chain is only as strong as its weakest link. If businesses act ethically, they will increase their resilience to change, reduce risk and increase profits.
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