Steps for building a responsible sourcing strategy
Responsible sourcing is a crucial element of a company’s human rights due diligence efforts and focuses on working with suppliers. Here we outline the key steps of a responsible sourcing strategy, providing an overview for developing a programme.
Companies have an impact on workers and the environment through their supply chain operations. Impacts can be both positive and negative.
Responsible sourcing involves understanding these impacts and taking the necessary steps to stop or prevent any negative impact. If a business cannot stop or prevent these from occurring, then they should take steps to ensure the remediation of any actual impact that has occurred.
There are several steps that Sedex recommends a business takes to source responsibly. If you are new to responsible sourcing, it may be helpful to begin with the first few steps and then continue to work through the remainder as your programme develops and you learn more about your supply chain.
We recommend involving all relevant business departments in this process. Procurement, risk management, communications, human resources and legal should work together to develop a responsible approach to sourcing, as well as any other teams whose activities may have an impact on human rights and the environment.
You can read more about responsible sourcing here.
1. Define your company’s commitment to respect human rights in your supply chain and develop a policy
The first step of a responsible sourcing strategy is to commit to sourcing responsibly. This commitment should be fostered by senior leadership and recognised throughout your organisation and should focus on mitigating the company’s impact on people and planet.
Many companies base their corporate policy on the United Nations Guiding Principles for Business and Human Rights (UNGPs) as these are the basis for most legal and corporate activity in this space. You may also want to engage with external stakeholders, such as your customers and investors, to inform your commitment and policies.
Some companies set their policies after they have first identified how their business impacts workers and the environment in their supply chain. This will help make the policy more specific to relevant risks. However, if you are unable to do this yet, we recommend starting with a commitment and updating the policy as you understand more about your supply chain.
2. Build internal business awareness and support for this commitment
It is important to integrate your commitment to responsible sourcing and human rights into the way your company operates. To do this, involve staff as much as possible and ensure there is business commitment from the very top.
For example, you could involve different teams in developing the policy, and provide training on it to make sure staff understand the policy and how they can implement it in their day to day jobs. Regular communication to share progress and explain why the company wants to source responsibly will build understanding and support across your business.
Incentivising staff through their objectives and evaluating performance on responsible sourcing in key teams will help ensure your policy is implemented successfully.
3. Communicate your standards to your suppliers
You should set a policy or a Code of Conduct for your suppliers, which you ask all suppliers and partner businesses to sign up to. This should set out your requirements for your business and supply chain.
These requirements can be based on existing guidance such as the ETI Base Code (which the SMETA audit methodology is based on), the UN Declaration of Human Rights and the International Labour Organization (ILO) conventions. You can then include agreement to the Code when signing up any new suppliers.
This process often happens alongside supply chain mapping. As your company compiles its supplier list and you start understanding who you source from, you can ask existing suppliers to agree to the Code of Conduct.
Suppliers may need help to implement your standards successfully, so consider how you can support them to fully understand and implement your company’s standards at their sites.
4. Map your business supply chain
To ensure that your suppliers understand and respect your Code of Conduct, you first need to know who your suppliers are and where they are located – to start mapping your supply chain. This can be challenging if your company is not used to keeping track of supplier partners or you have a rapidly changing supply base.
- Involve all relevant departments (e.g. procurement and logistics) to collect data about your suppliers and align data collection with existing initiatives as much as possible.
- Define your scope and where to focus first. For example, you could start with suppliers of goods and services that are sold to customers, or also include goods and services not for resale (such as the cleaners of your office and stores).
- You may want to focus on your own sites or the suppliers you have direct relationships with first, before moving on to their suppliers and so on.
- Using a platform such as Sedex to help you collect and store relevant information on your suppliers will help you track them and build information about their operations and workers.
Supply chain mapping is an ongoing process and should be done alongside risk assessment and mitigation activities.
5. Adopt a risk management approach
When assessing impacts in your supply chain, many companies take a risk management approach. This is when you assess the likelihood of adverse impacts on people, the environment and society resulting from your company’s own operations and those of your business partners, including your supply chain.
To do this you can first assess country and sector risks (for your own or suppliers’ operations), then dive deeper into the impacts at specific sites as you collect more information. There are several ways to gather this:
- You can conduct desk research, using risk assessment tools like Sedex’s, alongside investigating risk areas in key countries that you operate in
- You can speak to organisations active in worker and environmental welfare, such as NGOs or worker organisations
- You could speak to workers in your supply chain and seek direct feedback from them.
Given your company may have many potential impacts in their supply chain – which is common in many sectors – you will need to prioritise risks by severity and likelihood.
Sedex supports businesses with this process by helping them to create global maps of their suppliers and understanding the inherent risks within their supply chains.
Becoming part of a wider community network and bringing your suppliers onto the Sedex platform will enable you to see labour, health and safety, business ethics and environmental risks straight away at a country and sectoral level (once suppliers have uploaded some basic details). Suppliers can then complete a self-assessment questionnaire (SAQ) which will help you gain a more in-depth picture. You can also conduct audits to understand impacts at site level.
Sedex’s Radar tool combines information on inherent risks within countries and sectors with site-specific information to produce combined risk ratings for each site in your supplier map. This helps a company prioritise where to take action, depending on the most common or most severe risks in their supply chain.
6. Assess supplier impacts on human rights and the environment
Once you understand where your risks lie, the next step is to identify human rights and environmental impacts at site level. There are many tools to help you do this.
Audits are a particularly important tool in this process (learn more about Sedex’s SMETA audit methodology here). Other tools include worker voice technologies and human rights impact assessments. Using different assessment tools together gives companies the robust information they need to take effective action and address issues identified.
You may also want to implement grievance mechanisms across your supply chain. This enables workers at supplier sites or members of local communites to contact your company directly with any concerns they may have about human rights or environmental impacts resulting from commercial operations.
For more information on the principles for establishing effective mechanisms see the UNGPs guidance here.
7. Take effective action: Prevent, mitigate and remediate impacts
A core aim of responsible sourcing and risk management work is to prevent, mitigate and remediate any negative impacts within a supply chain. Simply assessing whether or not you have risks in your supply chain is not sufficient – taking action to improve is a crucial part of any responsible sourcing programme.
Preventing risks includes offering training to help suppliers meet your Code of Conduct, focusing on the most severe risks they face and how to manage them. Getting to know your suppliers and having open, honest discussions with them will help you work together to develop solutions.
For example, if child labour or health and safety dangers are key risks for some of your suppliers, we recommend taking the time to understand the challenges your suppliers face in these areas. Supporting suppliers to build understanding and skills to manage these issues can help lower the risk of them occurring in your supply chain.
Mitigating and remediating impacts to people or planet is about addressing those that have already occurred. For example, you might support suppliers to address issues identified at audit, or your assessment may detect a child working at a supplier site. Or you may discover that a worker has paid fees to a labour broker to secure a job and is now in debt bondage (a form of forced labour).
In these cases, companies must work with suppliers and others, such as local experts, to remediate the situation in the best interests of those affected.
8. Review your business practices to ensure they support your responsible sourcing aims
A key part of ensuring suppliers meet your Code of Conduct lies in your company providing the trading environment for this to happen. Reviewing and improving your company’s purchasing practices can significantly help your company reduce supply chain risk.
For your suppliers to meet wage requirements, for example, the price you pay for their products must cover decent wages. Equally, ensuring your buyers don’t change order requirements at the last minute without a corresponding timeline extension will reduce the likelihood of excessive overtime or subcontracting within your supply chain.
9. Monitor and report on the impact of your company and its supply chain
Monitoring involves setting and measuring progress on Key Performance Indicators (KPIs) for your business and supply chain, that align with your responsible sourcing aims. You will want to monitor your own company’s performance as well as your suppliers’.
Collecting, analysing and reporting on supply chain performance can involve vast amounts of information. Sedex’s data platform helps by providing reports and analytics tools that provide a comprehensive picture of supply chain performance, integrating workforce information, suppliers’ self–assessed performance and audit findings as well as overall country and sectoral risks.
Many companies are legally obliged to report publicly on issues such as modern slavery to their investors, while others may opt to do so as part of their relationship with organisations such as Ethical Trading Initiative or Oxfam. For this type of reporting it is important that companies can show how they are following the UNGPs and provide accurate data as evidence.
Even if data is not shared publicly, having a good understanding of company and supply chain performance, identifying challenges and where improvements are needed, is an essential part of any successful responsible sourcing programme. Analysing this data will also help you to understand how effective your programme is.
How can Sedex help?
Sedex’s tools and services are designed to help your business with a complete responsible sourcing programme.
- Mapping a supply chain. The Sedex database helps a business gather information on their suppliers, including where they are located, the activities occurring at different sites and the people they employ. We offer Self-Assessment Questionnaires (SAQs) for capturing data about suppliers’ and businesses’ own sites.
- Analysis and reporting with our data platform. Sedex Advance holds all this data in one place to build an interactive map with reporting capabilities. Companies can report on social compliance, human rights and sustainability performance. Supplier companies can share data with multiple customers to avoid duplication of effort.
- Risk assessment – our Radar tool combines inherent sector and country risks with site-specific information to help businesses understand and analyse the risks within their supply chain.
- Auditing to dig deeper into sites and suppliers. Our renowned SMETA methodology for social audits includes a corrective action plan to help companies remediate issues that are identified during audit.
- Reporting and analytics tools – Sedex helps companies to report and analyse data from assessments with a series of interactive dashboards. This enables companies to easily report on social compliance, human rights and sustainability performance within their supply chains to internal and external audiences.
Contact us to learn more about how we can support your company.