Responsible supplier relations and supply chain management

Relations of a responsible company with its suppliers on the one hand implies to considering the suppliers’ interests and needs, and treating them responsibly, and, on the other hand, refers to the promotion of introducing social, environmental and good governance principles in its supply chains.

A supply chain is a network between a company and its suppliers to produce and deliver goods or services to the consumer. In other words, it is the entire circle of organizations and people involved in the processes of raw material extraction, production, packaging,transportation, storage, distribution and sales. Based on the company’s activity, its supply chains will have different size and configurations.

Suppliers areone of the most important stakeholder groups for the companies, so treating them responsibly and considering their interests and needs is as crucialas in case of any other stakeholders – employees, consumers, etc. Responsible relations with the suppliers is one of the significantissues in any company’s social responsibility context.

Responsible relations with the suppliers imply to the following:

Dialogue with the suppliers, identification of and responding to their needs, assessment of their satisfaction level
Revision of suppliers’ complaints andoffering them mechanisms to handle thecomplaints
Transparent and unbiased procedures and criteria of supplierselection, ensuring fair competition and equality in the selection process
Fair payment policies suiting the suppliers’ needs (fair and competitive prices, timely payment, stable contracts, reasonable delivery times, etc.)
Cooperation with local suppliers and their inclusion into the supply chain. Whenever possible, it is especially important to cooperate with small suppliers and social enterprises
Empowering small suppliers, developing their skills, and raising their awareness (by means of seminars, trainings, mentoring, etc.) to help them better respond to the company’s needs and become in general more effective, sustainable and competitive.

By responsible relations with the suppliers, the company can have important impact on the wellbeing, financial sustainability, and development of the suppliers, as well as of the general public.

Responsible supply chain management

When dealing with suppliers, it is also especially important to promote adoption of social, environmental and ethical standards in their activities, in otherwordsto promote social responsibility in its supply chain.

In the modern world, the company’s responsibility is not limited to its own activity only. Holistic understanding of CSR means that the company’s area of responsibility expands at the expense of its supply chains.

A big portion of companies’ impacts are attributed to supply chains. For example, about 60% of the carbon footprint of a manufacturing company is in the supply chain, while for retailers this is as high as 80%. The supply-chain exposure to human rights and social issues is equally high. Majority of large companies outsource their production and operational processes. However, as mentioned, outsourcingof business operations does not mean outsourcing of responsibilities or risks.

There is a growing pressure on the companies from investors and shareholders, consumers, employees, the media, and civil society groups to identify and manage social and environmental impacts at different tiers of their supply chains and openly report about them.

Leading companies also understand that they have important role to play throughout the lifecycle of their products and services.

Responsible Supply Chain Management (RSCM) which means integrating environmental, social (including human and labor rights), and good governance factors along a company’s supply chainis increasingly recognized as a key component of company’s Corporate Social Responsibility strategies and policies. At the same time, many international standards, guidelines and principles have been developed with a supply chain in their focus.

Supply chain sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices throughout the lifecycles of goods and services. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. Through supply chain sustainability, companies protect the long-term viability of their business and secure a social license to operate. (Supply Chain Sustainability A Practical Guide for Continuous Improvement – BSR & UNGC -What is Supply Chain Sustainability?)

Companies apply various methods and approaches to improve social and environmental impacts in their supply chains and promote the adoption of ethical business principles and good corporate governance standards. These measures include:

Identifying the social and environmental impacts of products and services throughout the entire supply chain
Revealing the high-risk suppliers and focusing primarily on areas of the supply chain where there is a greatest risk of corruption, unethical behavior or adverse impact on people and environment
Monitoring and audits of suppliers’ practices to assure compliance with social, environmental and governance standards
Implementing robust traceability mechanisms that guarantee visibility throughout the supply chain
Integrating ethical, social, environmental criteria in purchasing, distribution and contracting policies and practices
Providing support to suppliers (especially SMEs) including awareness raising on issues of social responsibility and additional assistance (for example, trainings, mentorship, technical assistance, capacity building or other resources) to create ongoing improvements in suppliers' CSR performance
Reporting on the social and environmental performance of the supply chains, also promoting transparency within suppliers

The companies’tacticschange and develop over the time course: moving from managing risk in the supply chain and focusingheavily on auditing towards collaborative efforts to engage suppliers in a partnership to find joint solutions.

Developing a long-term collaborative relation with suppliers is considered to be the most effective way to achieve sustained improvement. It enables suppliers to embed social, environmental and governance objectives into their business operations and strategy, according to their own capacity and needs.