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Social compliance: reducing supply chain risk

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Recent tragedies have put supply chain management in the spotlight for the consumer products industry.

Companies expose themselves to greater social compliance risk as they expand into emerging markets in search of lower costs.

Prevailing approaches to social compliance monitoring often include outsourcing the monitoring function to third parties. This approach is not keeping pace with expansion into emerging markets, evidenced by recent tragedies where suppliers have received “clean audits” from outsourced vendors.

Social compliance is an escalating risk and monitoring should not be seen as simply a check-the-box process, but instead as a meaningful internal process to mitigate risks and drive business value.

Companies can take several steps to more effectively drive social compliance into their businesses:

Map the supply chain
Understanding where suppliers are located will help identify social and environmental risks. The supplier map should be evaluated to determine if the company’s Code of Conduct accurately reflects the standards needed in all countries where a supplier is located.

Integrate social compliance into the procurement process
While costs, quality and availability tend to drive procurement decisions, social and environmental considerations should not be forgotten. It is essential to train procurement managers, who work daily with suppliers, how to screen for these risks and flag suppliers that are not adhering to the Code of Conduct.

Systemize collaboration between social compliance and internal audit
Risks associated with poor labor conditions, inadequate resource supply or geopolitical challenges are more easily detectable and managed when the social compliance team is working with internal audit. Including social compliance in the periodic risk assessment process will maintain consistent sharing of information between these key functions to help ensure potential issues are identified, assessed and monitored.

An effective supply chain is core to a successful business, and a socially compliant supply chain is essential for reducing “license to operate” risk. It is important for companies to adopt an appropriate strategy today to prevent any supply chain-related crises tomorrow.