Mandatory vendor compliance programs are becoming less unusual these days, encouraged by an increasing number of companies looking to improve both their supply chains and supply-chain transparency.
One company that is requiring suppliers to show environmental sustainability and financial integrity, in addition to ensuring workers’ safety, health, and wages, is U.S.-based omni-channel retail company DICK’s Sporting Goods, which operates in more than 700 locations across the United States. In a recent Compliance Week Webinar, sponsored by global trade software provider Amber Road, Chris Bereznay, DICK’s director of global ethics and compliance, shared how to go about building a responsible sourcing program for suppliers and factories with an eye toward long-term success.
A successful responsible sourcing program is not just about conducting audits and taking corrective action. “What you really need is a holistic strategy that addresses risk at various levels,” Bereznay said.
A key part of a holistic strategy is to assist vendors in practicing self-governance. “In a perfect world, you’d have this cascading level of responsibility,” Bereznay said, in which all of an organization’s vendors would audit their own factories. It’s an approach that’s starting to gain momentum. “We are definitely moving forward in this direction, because we believe it’s the only sustainable way to move things forward,” he said.
At the factory level, you must “trust but verify,” Bereznay continued. Factory-level assessments are a part of managing these risks.
“If you really want to focus your resources where they’re needed the most, where you can have the most impact ... segmentation definitely has to be a part of your strategy.”
Chris Bereznay, Director, Global Ethics and Compliance, DICK’s Sporting Goods
Other ways to improve responsible sourcing at the factory level, he said, include:
Accepting shared audits from other reputable brands or companies: “A lot of factories go through audit fatigue,” he noted.
Conducting training in capacity-building: “It’s really important to help these folks understand how to solve these issues. Can you help them get to the root cause to better understand what’s driving an issue?”
Asking your factories to take more ownership over the process: “Every factory we meet with now, we have discussions around what they’re doing to manage their own compliance matters. Do they have a Code of Conduct? Do they have a certified or designated compliance manager? Do they have an effective grievance system in place or worker management committee?
Building a holistic social responsible program means everyone—from senior leadership down to the business units, and vendors down to the factories—has an active role to play. In addition to the compliance department, other key players may include production and sourcing partners; merchandising groups, if you’re a retail company; supply chain logistics; and legal and internal audit, who can be great partners in helping to vet and validate the program, Bereznay said.
When building your social responsibility program, or looking to improve it, be sure to include either the audit committee of the board of directors or an executive compliance committee, who can review the program. In other words, “gain support for your plan, in advance,” Bereznay said. That will go a long way toward building momentum for the program and getting senior-level buy-in, which is another important component of an effective responsible sourcing program.
Above all, don’t lose sight of why responsible sourcing is necessary in the first place and the impact it has on brand value. If the company is struggling to manage its responsible sourcing program, because it’s not efficient or effective, “those numbers can be astronomical,” Bereznay stressed.
RESPONSIBLE SOURCING PRINCIPLES
Below is a list of the Fair Labor Association's ten Principles of Fair Labor and Responsible Sourcing.
Workplace Standards: Company affiliate establishes and commits to clear standards.
Responsibility and Head Office/Regional Training: Company affiliate identifies and trains specific staff responsible for implementing workplace standards, and provides training to all head office and regional staff.
Supplier Training: Company affiliate obtains commitment and trains relevant supplier management on workplace standards and tracks effectiveness of supplier workforce training.
Functioning Grievance Mechanisms: Company affiliate ensures workers have access to functioning grievance mechanisms, which include multiple reporting channels of which at least one is confidential.
Monitoring: Company affiliate conducts workplace standards compliance monitoring.
Collection and Management of Compliance Information: Company affiliate collects, manages, and analyzes workplace standards compliance information.
Timely and Preventative Remediation: Company affiliate works with suppliers to remediate in a timely way and preventative manner.
Responsible Purchasing Practices: Company affiliate aligns planning and purchasing practices with commitment to workplace standards.
Consultation with Civil Society: Company affiliate identifies, researches, and engages with relevant labor non-governmental organizations, trade unions, and other civil society institutions.
Verification Requirements: Company affiliate meets FLA verification and program requirements.
Source: Fair Labor Association
Non-governmental organization (NGO) collaboration
It’s also important to partner with NGOs, so that they too become the eyes and ears of your vendors and factories. “It’s really important to not be afraid of these groups; some folks shy away from engaging with the NGO community,” Bereznay said. “Personally, I’ve found them to be extremely helpful.”
By building and nurturing relationships with NGOs, these groups will reach out to you directly when they discover an issue in a factory or with a vendor that you’re using. The benefit in that is that you can “get ahead of an issue before it gathers too much momentum,” Bereznay said. “It’s also nice to find out about those issues before they make the headlines.”
Which NGO to reach out to as it relates to a responsible sourcing program depends on the industry. In the retail industry, for example, the Fair Labor Association, whose mission is to promote adherence to international and national labor laws, has published ten “Principles of Fair Labor and Responsible Sourcing,” which serves as a helpful framework. Other NGOs in the retail industry include the International Labour Organization (ILO) and the Better Work program, a partnership between ILO and the International Finance corporation to improve labor standards in global supply chains.
Doing more with less
During the Webinar, Bereznay also shared how to do more with less as it relates to a social responsible program. “If you really want to focus your resources where they’re needed the most, where you can have the most impact … segmentation definitely has to be a part of your strategy,” he said.
With segmentation, the idea is to focus your time and energy on your top strategic suppliers, which means you first need to identify who those suppliers are. It doesn’t make sense to spend time and energy showing vendors how to self-govern, unless they’re a top strategic supplier to the company—for example, a vendor that the company has invested millions in, and you know they’re going to be around for a few years.
In the middle are those suppliers that may need some oversight and auditing, maybe once a year. The lowest tier of suppliers is the fillers. For this tier, it may not make sense to audit under a certain threshold, because you simply don’t have enough influence over them. “I’ve had factories that I’ve gone into that have said, ‘No, I’m not going to fix that. You’re not a big enough part of my business,’” Bereznay said.
Leveraging technology is another way to do more with less by eliminating redundant processes and unnecessary administrative work. For example, technology solutions like those offered by Amber Road can push alerts to suppliers, alerting them when it’s time to update their corrective action plans. “Make them responsible for their own compliance checks and balances,” said Chery Layne, customer success director at Amber Road.
Technology solutions can also alert third-party auditors when their audits are due. For example, Amber Road solution digitally integrates the information it receives from third-party auditing firms or internal auditors, and that information is then shared in real-time with all parties who have access to it.
“We wouldn’t be able to manage this whole process with the team that we do without a solid technology process,” Bereznay said. DICK’s uses technology to generate management reporting that allows for “one version of the truth.”
The system is used to schedule and assign both internal and external audits, for example. The company’s factories can also log in and update the system with their responses to corrective actions, so that DICK’s can track and manage all corrective action plans from beginning to completion.
Management reports then get communicated to the executive compliance committee and audit committee throughout the year, Bereznay explained. “That data also helps to feed our scorecard system, which is combined with quality, delivery, and other key components to managing production,” he said.
Technology can also help trace products back to their origin, which is important given that factories with poor or illegal working conditions is a high compliance risk in the retail industry. “A lot of times, manufacturers or brands are just unaware,” Bereznay said. If DICK’s were to discover that one of its imported products was being produced in a factory that used forced labor, for example, “we would have to put resources toward identifying where and when that product was being produced, attempt to isolate it, and then potentially remove it from the marketplace,” he said.
The need has never been greater to implement a holistic responsible sourcing program. Industries and individual companies that move toward that goal will not only achieve greater transparency and traceability throughout their supply chains, but also build stakeholder trust and, consequently, brand value and long-term growth.