Research

Transparency is the new Sustainability

By Robert Handfield, Feb 23, 2016

The focus on corporate sustainability often calls for companies to increase transparency in all aspects of an organization’s operations, and much more so in the supply chain. Apparel and electronics companies that source all of their products from factories in emerging countries are especially targeted for allegedly hiring contractors that push the boundaries of human rights labor laws.

In a sense, “sustainability” is a word that became very fashionable about 15 years ago, and which everyone is now promoting as another facet of “the new normal.” In fact, sustainability is about nothing more than “doing the right thing” – and most people would know what that means. If a 12 year-old tells you “that [something] isn’t right,” then this is a good measure for whether it’s acceptable to consumers. Try running the statement “we are using suppliers that we audit to ensure they are sustainable, but we can’t help it if they pollute or don’t pay a fair wage” by a 12 year old. The response is likely to be something like “But that’s still wrong. Everybody knows that.” And in a sense, returning to values focused on “what is naturally the right thing to do” is a good indicator for sustainable behavior.

But what happens when you can’t see what is going on in factories? Does that alleviate your responsibility, using the rationale that “we don’t know what goes on in their factories because it isn’t our business, and we tell them not to do it?” This rationale doesn’t stand up any more.

Sustainability is less about multi-tier audits – it is more about knowing who you are buying from, and the implications of your behavior when you choose to purchase a product or service from someone. We need to know who and what we are buying. A great example is that when you walk into a Whole Foods, you go to the meat counter and you see a picture of the farmer who raised the cow that became your steak. Or you go to the produce counter and you see a picture of the farmer who grew the tomatoes. This is something that any consumer will “get” and which will resonate with them. So why can’t you also see the factory where your shirt was sewn, and be able to check and see what it looks like, what they pay their workers, and the working conditions of that factory? It is not only possible, but is happening today.

I recently spoke with a Chief Procurement Officer, who recalled his experiences in driving green manufacturing practices and labor conditions in the semiconductor industry. “Years ago the electronics industry aligned on an Electronic Industry Code of Conduct. We would do a heat map around auditing suppliers, essentially a ‘check the box exercise,’ and then declare that ‘we are sustainable!’ So now we’ve gotten a bit better – we have people who do self-assessments in the supply base, and we still put out a heat map, we do a little more due diligence – and so we think we are okay.” In the opinion of this executive – “this is the minimal acceptable approach.” But let’s not pretend that we can’t do better.

So what about if we base our sustainability on a label like “Fair Trade?” Isn’t that visibility using a proven standard? With the introduction of labels, the fair trade movement has created a de facto standard for consumers to recognize that a product is “sustainable.” But, as Andrew Pederson points out in a Supply Chain Management Review article we co-authored last year, the process used to certify producers in order to get such a label is often flawed. That’s not just Pederson’s opinion. It was validated by a recent study conducted by the Fair Trade, Employment and Poverty Reduction Project (FTEPR) team based at SOAS at the University of London. Their study identified three major points of concern: First, wage employment in areas producing agricultural export commodities is widespread. Second, people who depend on access to wage employment in export commodity production are typically extremely poor. Third, there is limited evidence that fair trade has made a positive difference to the wages and working conditions of those employed in the production of the commodities produced for Fairtrade certified export in the areas studied. In fact, the researchers find that those employed in areas where there are Fairtrade producer organizations are significantly worse paid and treated than those employed for wages in the production of the same commodities in areas without any Fairtrade certified institutions. In response to these findings, the Fairtrade organization has provided a detailed rebuttal, noting that the results are generalized and not adequately covering an appropriate sample.

Which brings us back to the original question. Being sustainable isn’t enough. We have to be transparent to be clear about what is going on in our supply chains. This may mean acknowledging that there are problems in our supply chain, because a global supply chain will always be full of problems. Is there crime in the city of Pittsburgh? Yes, of course, just like any major metropolitan area. Is there any city that doesn’t have crime? Highly unlikely! Does that mean we should try to hide the fact that there is crime in cities? Of course not! But if we actually have data that tracks the location and types of crime, and make the community aware of it, we can get all of the eyes and ears of people out there in the community more aware of what is going on, and they can become part of the solution!”

So let’s start with the assumption that there will be crime, and there will be non-compliance to our sustainable standards in our supply chain. But if we develop a capability to identify crime (non-compliance to sustainable standards), deal with it, move quickly to respond to crime when it happens, conduct post-mortems to identify the source of crime and get ahead of it – then my city will always be tougher on crime and there will be less of it. Any my supply chain will be more sustainable.

This post originally appeared in Robert Handfield’s Supply Chain View from the Field.

About the author

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Rob Handfield is the Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University, and Director of the Supply Chain Resource Cooperative. He also serves as an Adjunct Professor with the Supply Chain Management Research Group at the Manchester Business School.

The SCRC is the first major industry-university partnership to integrate student projects into the MBA classroom in an integrative fashion, and has had 15 major Fortune 500 companies participating as industry partners since 1999. Prior to this role, Handfield was an Associate Professor and Research Associate with the Global Procurement and Supply Chain Benchmarking Initiative at Michigan State University from 1992-1999, working closely with Professor Robert Monczka.

Handfield is the Consulting Editor of the Journal of Operations Management, one of the leading supply chain management journals in the field, and is the author of several books on supply chain management, the most recent being Biopharmaceutical Supply Chains, Supply Market Intelligence, Supply Chain Re-Design and Introduction to Supply Chain Management (Prentice Hall, 1999, 25,000 copies sold, and translated into Chinese, Japanese, and Korean). He has co-authored textbooks for MBA and undergraduate classes including Purchasing and Supply Chain Management 5th revision (with Robert Monczka) and Operations and Supply Chain Management 2nd revision (with Cecil Bozarth).

Handfield received the Emerald Citation of Excellence award in August 2011, for an article cited as one of the top 50 articles from the 300 top management publications worldwide that have had a proven impact since they were published. In 2009, he was nominated as an Honorary Fellow of Contract & Commercial Management (FCCM) by the International Association of Commercial and Contract Management. This honour is bestowed on individuals who have made exceptional contributions in the field of contracting and commercial management. Handfield is regularly quoted and has published op ed pieces, and is quoted in blogs and global news media such as the Wall Street Journal, Financial Times, the San Francisco Chronicle, Spend Matters, Microsoft Live, Ariba Live, Inc., CIO, CFO, the Supply Chain Management Review, and other media.


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