Sedex guidance on COVID-19

Supporting your suppliers through purchasing practices

Purchasing is where businesses have the most ability to improve or worsen impact on suppliers and workers. Companies may be tempted to avoid paying suppliers to protect cashflow but pushing the impact of COVID-19 down the supply chain and expecting costs to be absorbed by those who are more vulnerable will result in suppliers struggling to keep afloat or going out of business. This means that workers will lose jobs, many without wages or severance pay and struggling to find new employment, which will become increasingly scarce for many. Most workers in low wage countries do not have savings or access to social security or government support. Many will have families to support. It is hard to overestimate the impact such actions will have on human life and people’s livelihoods.

On the other side of the crisis, surviving companies have and will start to begin recovery and will see a different set of challenges. Companies and whole sectors will start working to return to “normal” as soon as possible. The push for more products and services, faster will be strong among businesses needing to recover. But in the wake of mass unemployment, broken contracts and company closures, workers will desperately need jobs. In such markets, the risk of poor recruitment practices, labour exploitation and extreme working hours will increase substantially.

The “new normal” must be very different from what we know in order to build resilient, responsible supply chains.

Acting responsibly during the crisis, will help ensure your supply chain is able to recover and reduce business impact on suppliers and their workers. Better Buying™[1]  recommends companies focus on 2 areas:

  • Short term crisis management and securing cash flow for your suppliers
  • Building new ways of working with your supply chain and enable longer term recovery from the crisis.

Communication is critical to achieving this – both within your company and between your company and your suppliers.

  • Within your company, ensure the person responsible for social compliance, sustainability and human rights works closely with other departments and, ideally, sits within the COVID-19 cross-functional task force. Everyone is learning how to deal with COVID-19 and establishing the role they play in mitigating the worst extremes of the crisis. It is important to talk with other departments within your company and come to responsible solutions together.
  • Buying teams will need to implement new ways of working if they are to ensure their actions do not result in business closure and to agree what is and isn’t acceptable to ask of suppliers at this time.

As Better Buying state in their COVID-19 Guidance for brands and retailers, it is important to:

  • Collaborate with suppliers and treat them as partners. Consider that regional differences require buyers to understand and react to the needs of different countries, industries and businesses and agree arrangements that are mutually supportive where possible. Effectively supporting suppliers through the crisis as detailed above, is one of the most effective ways of ensuring that your supply chain, and therefore your business, can recover quickly from the crisis.
  • Understand:
    • the challenges faced by your suppliers
    • whether they can pay workers during the crisis

Supporting suppliers to overcome these challenges includes being flexible, honouring existing commitments and operating in a way that considers how their businesses will get through the crisis, as well as your own. This means:

  • Show leadership to ethical sourcing by making public commitments to workers and suppliers.
  • Meeting your contractual obligations and commit to orders already placed. This is particularly important for suppliers who are in or are likely to be in a worse financial situation than your business.
  • Not cancelling orders, especially for work that has been completed or is in progress.
  • Extending delivery dates and accepting delays that result from COVID-19. For example, suppliers may face shortages of labour or raw materials and transportation delays may significantly impact delivery. Be flexible – business cannot operate as usual in this crisis and putting pressure on them to do so may result in business closure or exploitation of workers.
  • Some suppliers may need immediate or early payment in order to survive – enable this where possible.
  • Work closely with suppliers to plan future orders and recovery
  • Once your company has weathered the worst of the crisis, where possible, pay up front or on delivery of goods and services
  • If you must terminate relationships with suppliers as a very last resort, follow responsible exit protocols that align to contracting and international standards.

There are examples of companies doing this. For example, H&M announced that it would take delivery of already produced garments, as well as goods in production, and that they would not negotiate on agreed prices. [2] Morrisons stated that they paid small suppliers immediately to help keep them afloat[3], while Unilever is offering early payment to its most vulnerable small and medium-sized suppliers to help them with financial liquidity.[4]

Better Buying have provided an overview of good and poor practices:

Sedex recommends all its members to carefully consider how they can best collaborate and take responsibility for their supply chain.

For further information on purchasing practices, please see:

 

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[1] Better Buying is an NGO supported by C&A Foundation and Humanity United. It enables suppliers to communicate with their buyers about purchasing practices that are working well and those that need improvement, without risking their business relationship. Created in collaboration with suppliers, Better Buying’s buyer rating system examines key buyer purchasing practices that affect a supplier’s ability to adhere to the terms of any contract and operate efficiently while providing a safe work environment and maximizing profitability. The organisation tracks and releases performance scores and analyses about purchasing practices, using data submitted anonymously by suppliers on its online platform. https://betterbuying.org/

[2] https://www.textiletoday.com.bd/hm-assures-suppliers-of-taking-ready-goods/

[3] https://www.bbc.co.uk/news/business-51870146

[4] https://www.business-humanrights.org/en/moral-bankruptcy-during-times-of-crisis-hm-just-thought-twice-before-triggering-force-majeure-clauses-with-suppliers-and-here%E2%80%99s-why-you-should-too?mc_cid=01562071d8&mc_eid=4b32733022