Today’s consumers no longer take what they are told on trust; they want proof for a company’s claims

What do these corporate scandals have in common? They are instances of companies being seriously damaged–their reputations tarnished; public distrust destroyed; millions or even billions wiped off their balance sheets—not through any obvious mistake or conscious deception on their part, but because they have not managed their supply chains proactively enough.

To protect consumers every new product must comply with a growing and sometimes bewildering array of safety and sustainability assurances. Some are mandatory; others voluntary. Undertaking inspections; collecting and organizing certificates; storing them in readily accessible formats–all this takes time and every day of delay in getting a new product onto the shelves means lost sales and lower sales bonuses.

Now for every product there is a supplier and nearly every supplier has in turn its own subcontractors. And those subcontractors may have their own subcontractors in turn. Each main manufacturer may get inputs from a host of different factories in different countries and its raw materials from an equally wide range of sources. These complex supplier networks are in constant flux, realigning themselves in response to shifts in demand, competitive positions and exchange rates. The retailer may think it has all the appropriate documentation in place but it may miss that a main supplier has recently switched to a new less reliable sub-supplier or is now buying its raw materials from an unsustainable source. If the retailer has put its brand name on the product the risk to its reputation and its directors is much greater. But even where it hasn’t if the product doesn’t live up to expectations the consumer is often more likely to remember where it was purchased rather than who actually made it.

Every year the public relations firm, Edelman, publishes a barometer or survey of public trust in business and government. In their most recent one published last month, people were asked ‘what companies could do to gain their trust’. The number one thing, respondents said was ‘pay expected levels of tax’, but both ‘responsible behaviour’ and ‘increased transparency’ came close behind, scoring ahead of ‘improvements in service, customer care or even driving growth in the economy at large.’

In contrast, at last year’s World Economic Forum in Davos, a survey of chief executives by consulting firm PWC reported CEOs citing overregulation as the biggest perceived risk to their business. What are they talking about? Though perhaps perceived as a nuisance the average cost of compliance as a proportion of a company’s turnover is usually 0.05% or less.

Bit by bit (pun intended) manufacturing is becoming less about the ‘product’ and more about the ‘service’

Today’s consumers no longer take what they are told on trust; they want proof for a company’s claims. This is not an unreasonable demand in a digital age, in what has become known as ‘the industrial internet of things’. Today everything can be tagged, tracked and directed. This means that an increasing portion of the value added to even a physical product is its digital component. Bit by bit (pun intended) manufacturing is becoming less about the ‘product’ and more about the ‘service’. With QR codes (the small square smart-phone-readable bar coded label) the customer can look over the company’s shoulder.

A small UK- based Community Interest Company with Pastures for Life as its brand thinks you have a right to know where your beef comes from and some assurance it wasn’t’ locked in a shed and stuffed with energy and water hungry grains. Using a smartphone to scan the QR code on that hamburger packet in the supermarket you can find out not just what ‘pastures for life’ stands for but all the details about the individual animal you are thinking of eating: the breed, where it was reared, how old it was when it was slaughtered and even (though you may prefer not to know this) its name.

The same technology could in theory tell you everything you want to know about any product you are thinking of buying. It could be used to give you all the details of what it is made of, who made it, and where it was made. Granted tracing back to their origin all the myriad components in your smartphone is an infinitely more complicated task than tagging a steer or a tree. But even if complete transparency for everything we buy is a long way off, we can go a lot further down that road than we have to date. We shouldn’t let the perfect be the enemy of the good. Just the public commitment to increasing transparency may help bolster trust in a company.

The truly enlightened company, however, will not see transparency in the supply chain merely as extra insurance or even as a brand differentiator. With their buying power UK corporations can have a positive influence on business practices and sustainability on a global scale and over a long timeframe, with positive consequences far beyond anything any national government regulatory environment can hope to achieve.

Back in 2009 Unilever, the largest user of palm oil in the consumer goods industry, made a public commitment to obtaining 100% of its palm oil from sustainable sources. With sustainability commitments like this some feel Unilever have made themselves a hostage to fortune. Others though see Unilever as part of a vanguard changing the face of the modern multinational corporation. The time has come for the leaders of individual firms to make up their own minds whether they want to be behind the curve, or out ahead of it, whether they want to drag their heels on global responsibility and transparency or lead the way.

Mapping the supply chain

Modern supply chains can contain thousands or tens of thousands of suppliers, and their dynamic, diverse nature can make it impossible for one actor to conduct effective due diligence across their entirety. How then can consumer facing businesses best exert influence on the various members of their supply chain to encourage robust due diligence practices and buy-in for their responsible sourcing agenda?

Mapping a long and complex supply chain in order to identify any potential human rights issues and risks requires cooperation from suppliers in order to identify subsequent tiers in the chain. This in itself presents a challenge, since suppliers are often reluctant to disclose detailed information about their own supply chains – either for commercial reasons or as an attempt to avoid the necessity of complying with the buyer’s human rights requirements. Developing external buy-in and genuine engagement from suppliers for supply chain mapping requires an emphasis on cooperation, rather than simply compliance. According to a report by the SHIFT PROJECT, conveying the potential commercial benefit to the supplier can help – for instance, conveying the importance of quality, commercial efficiencies, or brand protection may provide the buyer with more leverage, and the supplier with more incentive, than simply contractually obliging suppliers to disclose their supply chains.

Leverage

When a company has identified a human rights risk in its supply chain, what tools does it have at its disposal to maximise its leverage over the supplier(s) in question, in order to address the problem as quickly and effectively as possible?

Sometimes a buyer will have sufficient leverage through its purchasing power alone, in which case embedding robust due diligence practices and human rights requirements early on in purchasing decisions can help to improve supplier conduct and increase transparency. Where the buyer has less purchasing power, for example when the continuation of the relationship is more important to the buyer than it is to the supplier, leverage can be maximised through relationships with other actors, such as governments or NGOs. Companies can also create leverage through collaborative platforms for action. The Fair Labour Association, for example, provides a platform for companies to pursue common labour standards and practices related to supplier assessment. The SHIFT PROJECT report points out that “In various examples, industry collaboration has enabled companies to address systemic issues collectively, where any one company lacked the leverage to address the issue on its own. Some companies related experiences of multi-stakeholder action in which leverage was increased by partnering with civil society organizations, which can bring increased credibility, capacity-building, or public pressure to a particular situation”.

Dialogue and relationship building

Perhaps more important than looking to apply pressure, however, is fostering trust and cooperative relationships over time. Leverage can be slowly increased in a bilateral way as credibility and collaboration are built into the relationship.

Alternatively, companies can increase their leverage through dialogue at the contracting stage. It is common to build expectations regarding human rights standards into contracts with suppliers, but less common that this takes place in a collaborative way that considers the mutual expectations and challenges being faced, and how they can best be addressed. This dialogue as opposed to monologue approach is identified by the SHIFT report as an opportunity to create a shared sense of purpose between buyer and supplier, and if it is embedded in the bidding process allows the buyer to make the most of the moment when their leverage is likely to be at its highest point.

Reputational

Companies that are concerned about protecting their brand against negative publicity need to make sure they have full visibility throughout their supply chain in order to identify and act on any suppliers that may be engaging in illegal or unethical activities. Customers are increasingly looking for assurance that the materials or products they buy have been extracted and produced in an environmentally and socially responsible manner.

Problems in long, complex supply chains can hit businesses in many ways. For instance, many businesses saw their brand reputation damaged in 2013 as a result of the horsemeat scandal, caused by insufficient oversight of supposedly trustworthy suppliers. The Rana Plaza factory collapse in Bangladesh exposed questionable practices tolerated by many high-street fashion retailers, while electronics companies such as Apple and HP have also been forced to deal with allegations of poor conditions at Chinese supplier Foxconn.

Chain of Custody practices and traceability measures are essential. Traceability is the ability to identify and trace the history, distribution, location, and application of products, parts, materials, and services. A traceability system records and follows the trail as products, parts, materials, and services come from suppliers and are processed and ultimately distributed as final products and services. A study conducted by Oxford University’s Said Business School stated that increasing traceability in a firm’s network of suppliers is a key first step towards reducing a firm’s exposure – “In a traceable system, firms are able to identify materials and products, track their locations, and account for any supplier processing that has occurred prior to the item’s arrival at their doors”.

The study notes that, in the past, it was believed that ‘one-up, one-down’ tracking – that is, knowledge of the immediate past owner and immediate future owner – was enough to guarantee sufficient information to track the history of a product. However, in today’s more complex environments, this is often not enough. If just one link in the chain fails, the consequences can be far-reaching, so it will be increasingly important for companies to develop their knowledge of distant parts of their supply chain – so-called “Tier-2” suppliers – that would have in the past gone unnoticed.

Knowing who is part of the supply chain is critical to mitigating risk, and the most proactive customer-facing companies are already implementing policies designed to improve the transparency and accountability of their supply chains. Consumer demand for verified responsibly sourced products has become the new normal, according to a study conducted in 2013 – 87 percent of global consumers are “very likely” to consider a company’s social and environmental commitment before deciding what to buy and where to shop, and 90 percent of global consumers want companies to go beyond the minimum standards required by law to operate responsibly and address social and environmental issues. In fact, the Said Business School study notes that the failure to adopt a robust system for traceability is becoming a source of reputational risk in and of itself – after Walmart denied awareness of a Rana Plaza contractor’s role in its apparel production, activists criticised the company not just for using the contractor, but for its lack of knowledge about its own supply chain.

For any company that relies on a complex global supply chain, the risks that suppliers face on a local level can have a knock-on effect until damage is felt further down the chain, such as in boardrooms thousands of miles away. That could mean reputational damage, such as Apple experienced when it was claimed workers in a Chinese factory, which manufactured some of the company’s products, were working in substandard conditions, or it could mean having to raise prices, as was the case for various international electronics manufacturers after the 2011Thai floods. Around the closing months of 2011, consumers were hit by unusually high prices for computer hard drives. The rising prices were a direct result of devastating floods in Thailand, caused by an unusually severe monsoon season, which in turn was attributed to climate change. Along with the loss of more than 800 lives, the floods cost the country an estimated $45bn and severely affected Thailand’s electronics manufacturing industry. With two of the world’s largest hard-drive manufacturers being heavily reliant on Thai suppliers, costs skyrocketed for global companies that included Hitachi, Dell and HP.

In fact, companies are becoming increasingly exposed to risks across their supply chains by disruption resulting from climate change, as well as reputational damage. Not only are companies increasingly faced with the fact that consumers are increasingly seeking out products that have verified and respectable environmental and ethical credentials – but on top of this, the diverse, unpredictable and potentially catastrophic effects of climate change could well physically threaten their existing supply chains or production base.

Environmental

According to Dexter Calvin from Carbon Disclosure Project, an organisation that motivates governments, cities and companies across the world’s largest economies to measure and disclose their environmental information, there are many reasons why businesses should be looking at the climate credentials and sustainability of their supply chains.

Mr Calvin was speaking to Business Green after CDP released a report showing that some of the world’s largest companies have insufficient awareness of the climate risks in their global supply chains. After working with 75 multinationals representing more than US$2 trillion (£1.4 trillion) in procurement spending, the CDP revealed that 49 per cent of the almost 8,000 key suppliers that had been asked to provide data on their carbon emissions and climate risk strategies failed to do so. Nearly three-quarters of the suppliers that did disclose information said climate changed posed risks to their business operations, revenue or expenditure.

Mr Galvin points out that supply chains generally account for the majority of corporate emissions. “Essentially a lot of big purchasing organisations around the world have effectively outsourced their emissions to their supply chains … We think one of the solutions is to get more and more companies to start measuring, managing and disclosing their carbon emissions”. Visibility of the carbon footprint of a supply chain is becoming more and more important. It was also noted that the high carbon impact of supply chains could represent a big opportunity, as well as a significant risk. Major global businesses like Coca-Cola, Wal-Mart and L’Oreal have committed to collecting data from their suppliers – those that don’t follow suit risk being left behind.

Another concern is that regulation is lurking around the corner. Companies that don’t act swiftly to improve the green credentials, and the measurement of the sustainability of their supply chains, risk getting caught out by incoming regulation. Following the 2015 Paris Agreement many countries are already beginning to take action on carbon emissions. In January, China announced that the list of industries set to be covered by its national carbon market will include petrochemicals, power, construction and steel, and even aviation – a sector also covered in The EU Emissions Trading System, but not currently covered by any comprehensive international emissions regulation. All this means companies that fail to plan ahead for the future of supply chain management may find themselves disadvantaged down the line. Focusing on reputational risk is essential, but environmental risk is becoming increasingly important too.

Due to this increase in its popularity, two consortia are developing industry specifications and standards for wireless power transfer systems. After the merger of the Alliance for Wireless Power and the Power Matters Alliance into the new AirFuel Alliance, the inductive wireless power product industry has been split into two competing technologies – Wireless Power Consortium, owner of the Qi wireless standard, controls the other one.  These two technologies sometimes vary in their compliance requirements, as noted in this article from metlabs.

Meanwhile, the International Electrotechnical Commission (IEC) is independently developing international test standards in two separate WPT Technical Committees (TCs), because of the wide variation in the power demands of various devices and systems ranging from cars to smartphones:

IEC TC 100/Technical Area (TA) 15: Wireless power transfer of multimedia systems and equipment

IEC TC 69: Wireless charging of electric vehicles, including industrial trucks, buses, and scooters

Fiona Horsnell has been working part time as a technical consultant for TRG for the last 18 months. She was formerly head of quality for Mothercare. She’s spent plenty of time in China and and other countries managing product quality, and she’s well known and highly respected across the UK retail sector.

So we are delighted that she has accepted the newly created role of Chief Operations Officer at TRG, and will join us in that capacity from 1st Sep. She will have overall responsibility for ensuring that TRG Operations are efficient, effective and profitable as we move forward into new markets.

UPDATE: In June 2019 Fiona left TRG to become Group Head of Product Quality at Kingfisher plc. We wish her every success in her future role.

According to a report by the Responsible Sourcing Network, the Government of Uzbekistan has for decades been forcing up to a million of own its citizens to work in the yearly cotton harvest. Much of this cotton finds its way into global supply-chains, and the products that are sold by Western retailers (with some big high-street names getting a particular mention).

Another common sector for forced labour is fishing, particularly in South-East Asia. In a year-long investigation, the Associated Press talked to more than 40 current and former slaves in Benjina, Indonesia. The investigators documented the journey of a single large shipment of slave-caught seafood from an Indonesian village, tracking it by satellite to a Thai harbour. Upon its arrival, AP journalists followed trucks that loaded and drove the seafood over four nights to dozens of factories, cold storage plants and the country’s biggest fish market. The tainted seafood was seen to mix with other fish at a number of sites in Thailand, including processing plants. U.S. Customs records show that several of those Thai factories ship to America. Although the factories also sell to Europe and Asia, the AP traced shipments to the U.S., where trade records are public.

It is in recognition of this unsettling fact that new laws have been enacted to try to tackle the problem. In the US, the Dodd-Frank Act (2012) requires companies to determine whether their sub-tier suppliers are sourcing vital minerals like tantalum, tin, gold, or tungsten from war-torn central Africa. The White House has committed to stepping up policing of anti-slavery measures already on the books and to updating federal acquisition regulation (FAR). Here in the UK, last month saw the passage of the Modern Slavery Bill, and the anti-slavery powers came into force today. The focus is on the role of business, with new obligations on companies to report the steps they are taking to tackle human trafficking and slavery in their supply chains. Importantly, these disclosures are to be signed by a company director, creating clear accountability. Speaking about the new legislation as he became the first serving British prime minister to visit Vietnam, David Cameron vowed to stamp out the “abhorrent trade” of human trafficking. Vietnam is one of the most significant source countries for victims of human trafficking in the UK, and the Prime Minister is expected to offer further cooperation between UK and Vietnamese authorities to combat it.

Customers are increasingly looking for assurance that the materials or products they buy have been extracted and produced in an environmentally and socially responsible manner. Consumer demand for verified responsibly sourced products has become the new normal –according to a study conducted in 2013, 87 percent of global consumers are “very likely” to consider a company’s social and environmental commitment before deciding what to buy and where to shop, and 90 percent of global consumers want companies to go beyond the minimum standards required by law to operate responsibly and address social and environmental issues. A survey released recently revealed that the vast majority of consumers would stop buying a product if its manufacture involved modern slavery and would be willing to pay up to 10 percent to ensure products were produced without exploiting workers.

Clearly the risks, both regulatory and reputational, for organisations with long and complex supply chains, are more pronounced than ever. Companies with poor supply chain visibility risk being targeted by NGOs, or spurned by consumers. Chain of Custody practices and traceability measures are essential. Traceability is the ability to identify and trace the history, distribution, location, and application of products, parts, materials, and services. A traceability system records and follows the trail as products, parts, materials, and services come from suppliers and are processed and ultimately distributed as final products and services. With a robust system for supply chain visibility, and supplier performance analysis, inherent product and supply chain risks can be mitigated, and purchasing decisions made more shrewdly.

Romania has the largest area of virgin forests in the EU, and the country has the most important forests in Europe in terms of biodiversity and size, according to Alexander von Bismarck, director of the US branch of the EIA. It is also the country most affected by illegal logging in Europe.

In the video, undercover EIA investigators pose as foreign investors who have acquired the rights to cut a specified amount of timber on land owned by communities in Romania. Speaking to Romanian and Austrian Schweighofer officials, the investigators stated multiple times they intended to cut more than was permitted under contract and they needed assurances from Schweighofer that the company would accept the wood. Despite this, Schweighofer officials confirmed on all occasions that they would buy the wood and even offered a bonus for any additional wood delivered.

In response, Gerald Schweighofer, the owner of the Schweighofer group said in a statement that the company “strongly rejects all accusations that it is supporting or a benefiter of illegal wood trading. Statements of a company employee presented in a recent video material published by EIA have been massively shortened according to the involved employees, presented in a false context and is therefore misleading and providing wrongful information … wood delivery to Holzindustrie Schweighofer has to be sourced from legal harvesting only.” He further stated that the company “strictly refuses to buy and process any wood from national parks and permanent and regular controls by responsible authorities are taken in all company’s mills”.

The EIA allegations are not the first however. In January 2015, a Romanian environmental NGO, claimed to have tracked an illegal timber shipment from Romania’s Retezat Forest National Park to Schweighofer’s plant in Sebes, filming it all the way from the forest up to the factory gates of the company’s sawmill. Authorities confirmed that the shipment was illegal. Again, Schweighofer issued a statement denying all accusations and committing to improving their system of timber traceability.

Deforestation is recognised as one of the major contributors to global warming, and it is clear that there will need to be serious efforts undertaken to combat it if climate change targets are to be met. This will become increasingly important if the predictions of future global timber demand play out. WWF’s modelling from the Living Forest Report shows that global demand is expected to triple by 2050, due to an increase in demand of wood and paper products from economic and population growth, particularly in the emerging markets. Going forward there will be greater need for forests to be managed sustainably and legally.

There are a variety of initiatives aimed at slowing deforestation. For instance, there is the New York Declaration on Forests, signed on the 23rd of September, 2014 – where governments, companies, civil society and indigenous organisations have endorsed “a global timeline to cut natural forest loss in half by 2020, and [will] strive to end it by 2030″, and there is the Consumer Goods Forum, a global alliance of 400 companies with combined sales of three trillion dollars, created to achieve net zero deforestation supply chains by 2020. The regulatory, reputational and commercial risks for companies with timber supply chains are becoming more pronounced, meaning that traceability and certification are more important than ever. Companies that have made commitments regarding deforestation will need to be able to be able to effectively report on their supply chains, and provide solid metrics on their performance against their commitments.

BS 3882:2015 sets out requirements for topsoil composition, with information on sampling, analysis, and guidance about handling and site preparation.

Changes include:

• A safer and cheaper new test for organic matter in soil;
• Revised test parameters to reflect increased use of composted waste;

The updated standard will be useful for anyone involved in landscaping, including gardeners, builders, developers, engineers, architects, utilities, local authorities and environmental consultancies.

It is also interesting to note that the BSi are considering the idea of a labour standard to help organizations manage risks associated with key labour issues and ethical trading. The preliminary meeting took place last month, and we are keen to see where this is taken.

According to the CTSI, 32 RAPEX notifications regarding chemical and flammability hazards relating to children’s fancy dress costumes were issued last year. Worryingly, the annual average of notifications during the last eight years was seven notifications, meaning that 2014 saw a 357% increase in the number of notifications relating to this type of toy, leading to concerns that unsafe, poor quality costumes are entering the European market.

Matilda, eight, was in a witch’s costume when it brushed against a candle at a house in London last year. Winkleman told BBC One’s Watchdog programme: “We couldn’t put her out … her tights had melted into her skin”. Matilda has had several operations, and her surgeon is calling for tougher fire safety laws on fancy dress outfits. Children’s nightwear has to meet strict standards of fire safety (specifically EN 14878:2007), but the requirements for costumes are less stringent – they are treated as toys when it comes to flammability and fire safety, and so fall only under EN 71-2. In the US, on the other hand, the scope of the legislation covering clothing flammability is broader. The Requirements for Clothing Textiles, 16 C.F.R. Part 1610 covers “any costume or article of clothing that people wear”.

This is not an isolated incident – the surgeon concerned referred to a “mini epidemic” of paediatric burn injuries “in certain periods of the year”. Clearly this presents an unacceptable level of risk not only to individuals like Matilda, but also to retailers and distributors – who have to take into account not only the moral implications of which products they choose to sell, but also the associated legal and reputational risks to their business.