What’s at stake when an organization’s supply chain lacks transparency? Just about everything, if you ask David Meyer, a senior consultant with BSI EHS Services and Solutions. Companies that don’t make an effort to develop value-added transparency and proactive collaboration throughout their supply chains are putting their businesses on the line.
For Meyer, bringing sustainability to supply chains means setting a higher bar for responsible sourcing and supplier codes of conduct. He will be sharing how to do this at the 2017 Environmental Leader Conference in June. We recently caught up with him to get his insights on driving supply chain transparency.
Why is it important for organizations to work with their suppliers throughout the supply chain?
I’ve been in the supply chain space looking at that with respect to environmental health and safety for about 10 years. One of the key events was Walmart had a big push related to packaging around 2005. It launched this initiative within the packaging industry to come up with better, more improved ways to lightweight their materials, to use more recycled materials.
Hewlett-Packard, around the same time, started capacity building through supplier forums and Focused Improvement Supplier Initiative (FISI) programs in China and Central Europe. Other companies like GE and Hermann Miller were starting to evaluate the materials that go into products to reduce the environmental footprint, work with organizations that valued corporate social responsibility, and invest in issues around labor.
Companies are recognizing that one of the key areas where it poses a great risk to organizations in terms of their business sustainability is in the supplier space. So they’ve reached out to their Tier 1 and Tier 2 suppliers, and are working with them to assure them they’re in alignment.
What happens when companies don’t apply sustainability principles to their supply chains?
Imagine you’re a major manufacturer, and you are beholden to one particular type of supplier. Yet at their manufacturing facilities they lack health, safety, or environmental controls. That in turn leads to some type of incident that causes disruption, and they’re unable to provide those key inputs in materials to their customer. That creates a brittle supply chain that could affect a customer’s products, and be quite costly to organizations.
By the same token, companies that do not match their customer-supplier expectations stand to lose major contracts. We’ve seen that on many occasions as large global companies audit and visit these facilities.
What tools companies can use to make sure their suppliers are sustainable and responsible?
Some query and survey companies, and compare them against other players within their industries — and to the Global Reporting Initiative, the Sustainability Accounting Standards Board, and other indices.
Many companies do supplier audits. Doing onsite audits is one method. Sending out questionnaires, that’s good, but a lot of companies have supplier fatigue. I’ve got one customer that gets inquiries almost on a daily basis.
Training, that’s another tool. The approach that HP and General Electric took many years ago: Holding summits with their key suppliers to walk them through their expectations and help them develop infrastructure to meet those needs.
What does a supplier audit usually involve?
When a supplier allows you into their site to evaluate their practices, you’re usually doing that against some sort of standard — it can be your own standards, supplier codes of conduct, or they could be specific standards set up or established by different types of industries. You’re observing on the ground and evaluating if they’re in compliance with their obligations.
How can companies encourage innovation within their supply chains?
If you’re a Tier 3 or 4 supplier, a small mom-and-pop-shop manufacturing one or two things, and you’re starting to hear from your suppliers who are supplying somebody else that there are all these requirements, that’s a real challenge. Companies like Hewlett-Packard were very collaborative. They help to reinvest in doing equipment upgrades or other things that could help these companies be able to succeed and stay on as viable suppliers.
This whole supply chain process has created an environment where companies are trying to become more innovative, looking for more advanced materials that have less of an environmental burden in their manufacturing, and can be done in a way that’s less wasteful, and less resource-intensive. If it can benefit smaller companies and allow them to be competitive, then everybody wins.
Is the Frank-Dodd Act applicable in your industry?
It absolutely is. Right now, we’re not sure what’s going to happen with Frank-Dodd and the SEC rules on conflict minerals, but it is definitely something that has re-entered the discussion, and a lot of companies we’ve actually been working with that do have conflict mineral reporting requirements have been dramatically affected by the new SEC rules. There’s still a steep learning curve on conflict minerals.
How have the companies been affected by the rules?
The rules now require that companies that use minerals like tantalum, tin, and other precious minerals in the manufacturing of mainly electronic goods need to declare whether or not the materials came from mines or smelting operations in conflict areas, mainly the Congo.
A lot of companies find it very challenging to accurately document where a lot of their raw materials come from. And it can be expensive. My understanding is that the majority of companies are not reporting accurately. Now with the new Trump administration talking about rolling back Dodd-Frank, there is the possibility that they might seek repeal of the conflict minerals rules. It takes a couple of years to undo a rule so it’s going to be interesting to monitor that.
What do you think about the Dodd-Frank Act as it relates to your industry?
I think it has value. Companies that are doing the manufacturing of these products want to do the right thing. If I were the CEO at one of those companies and I heard that my raw materials were coming from a mine where people were being forced into labor, and the money was being diverted to support guerrilla operations in a country, I’d be concerned about being associated with that.
What approach do you recommend companies take?
Any companies doing resource extractive work, whether it’s mining water or minerals, have a duty, a “social license to operate” as I call it, to collaborate transparently with the community in which you’re operating. It doesn’t matter whether you’re in Portland, Oregon or deep in the Congo, you have a responsibility to that local community to do the right thing and not exploit resources — not just the materials, but the people as well.
I have a very high moral quotient when it comes to that, and I’ve actually worked in the resource extraction industries. That’s where supply chain issues come into play. You want to manage your entire value chain from upstream to the end-of-life of your product. Without that, companies truly aren’t being sustainable.
David Meyer will be speaking at the Environmental Leader Conference in Denver June 5-7, 2017. His track, Inserting Sustainability Into the Supply Chain Design Process, starts at 2:10 pm on June 6.