Managing Supply Chains Responsibly

For many companies, the supply chain is their greatest challenge, requiring new systems of communication and evaluation. While demanding more from suppliers in the form of higher quality at lower prices and just-in-time delivery, companies are finding their brand inextricably linked to the behavior and practices of their suppliers. Consequently, product brands have often been the target of negative media and watchdog reports on abuses within company supply chains in recent years.

The chemical industry, along with others, has been seriously affected by negative publicity surrounding the operating practices of suppliers, especially with regard to worker safety, labor rights, and the environment. Companies that source from developing countries have been particularly hard hit by labor and environmental activism, low ratings in various corporate rankings and public opinion surveys, consumer activism directed at their products and manufacturing processes, shareholder activism on labor, human rights, and ecological issues, and the antiglobalization movement generally.

Managing supply chains responsibly is complex. Working collaboratively with suppliers, while increasingly more the norm, can require lengthy negotiation and dialog to understand differences and improve relationships and trust. It also takes a functioning relationship and effort of company managers to align the supply chain with the company's values and the full participation of its operations and procurement decision-makers.

Chemical companies own some of the most valuable brands in the world and face a barrage of negative publicity when an accident occurs at their own plants or those of their suppliers. In only a one-month period, June 20-July 20, 2000, 14 significant accidents were reported globally (see AcuSafeā„¢ website). These ranged from a fire at a Canadian acid transformation plant, forcing the evacuation of 3000 nearby residents, to a gasoline pipeline explosion in Nigeria that killed 200 villagers. Whenever accidents like these occur, public interest focuses on the safety conditions at the raw materials producers - the closest link in the supply chain to the brand owner - and the potential harmful effects on surrounding communities. In turn, businesses make even greater demands for improvements in the management and operating practices of their suppliers.

At BASF, suppliers and business partners are expected to observe the International Labour Organization's "Declaration on Fundamental Principles and Rights to Work." The Declaration calls on governments, companies, and worker organizations to uphold employees' right to organize and bargain collectively and to eliminate child labor, forced labor, and discrimination in the workplace. BASF suppliers found to violate these labor standards can be terminated "without notice if necessary" (BASF, 2001).

In negotiating to purchase raw materials, BASF uses a safety matrix to evaluate the dangers posed by their physical and chemical properties. Suppliers are also subject to environmental and safety audits by BASF employees to minimize pollution and to assure their use of safety standards are in accordance with Responsible Care. The company's environmental criteria are supplemented with "minimum social standards" that suppliers are expected to meet, including the prohibition of child labor and the use of forced or bonded workers.

Since the 1990s, many companies have produced social and environmental codes of conduct for their suppliers as a solution to managing their supply chain and averting what otherwise could become a catastrophe. Many companies have also dramatically reduced the number of suppliers to have greater influence over their practices. However, assurance of compliance with sourcing codes remains patchy.

Choices need to be made about the best way of evaluating a supplier's practices. Raw materials and new technologies, for example, may demand tough economic choices between a lower-cost, higher-polluting energy producer or one with cleaner-burning plants. The blanket assumption that every company has the same business model, understands your terminology, or has the means to adhere to what are often multiple standards imposed by their customers no longer applies.

What seem like basic issues of environmental or social standards control are often challenging when applied to global supply chains. For example, companies need to appreciate the nuances of differing local cultures and norms, along with knowing which environmental standards or regulatory requirements a supplier can realistically apply and successfully practice. In addition to knowing where the knowledge gaps exist, companies and suppliers need to negotiate how to close them and where the resources will come from to make the necessary changes.

Furthermore, the cost of adopting a company's code of practice is not always warmly welcomed by most suppliers, while their customer boasts of draining every last cent of value out of the supply chain. It has been proven that the adoption of environmental management systems (EMSs) almost always leads to cost savings. Yet what if a supplier does not have the resources to install one or the knowledge to use it effectively? In addition to taking a leap of faith that savings might exist, suppliers are expected to be patient, because of the time lag between installing systems and getting the expected returns.

Verification of supplier compliance with a company's code of conduct is particularly important to international supply chains. And who will pay for introducing new methods of verification is again a big issue to suppliers.

In addition to using their own internal assessment processes, companies employ external local auditors as well, not only to add credibility to their monitoring process, but also because local auditors have on-the-ground knowledge and languages. Local auditors can uncover important issues much faster than overseas auditors and will do so with a better understanding of how to diplomatically and permanently resolve them. Similarly, because of the evident cultural differences, companies have to be careful not to impose Western values on other cultures. Some companies have gone even further to include local activists in the verification process. By engaging activists, companies can focus the concerns of these groups, while mitigating the reputation threats associated with their criticisms.

Meeting product quality and environmental specifications as well as employing safe and fair working conditions are for some companies the end purpose of supplier auditing so that consumer concerns over product integrity and threats to health and workers' rights and the wider environment are allayed. Having reliable data makes sales and customer relations stronger and gives employees real pride in the company for which they work.

Ashland Distribution Company, a division of Ashland, Inc., offers customers a one-source "closed-loop" process to not only supply chemicals, but also to manage hazardous and nonhazardous wastes. It offers a range of processing and treatment options and compliance assurance throughout North America (Low and Kalafut, 2002).

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