The collapse of the Rana Plaza building, the natural disasters in Japan and Thailand and the spate of worker suicides at Foxconn have highlighted the vulnerability of the international supply chain. They also have served as a reminder that the plights of suppliers – no matter how far-flung – are inextricably linked to the fortunes of the companies that do business with them.
The Rana Plaza catastrophe – in which more than 1,100 workers perished – is a good example. The backlash from consumers, human-rights advocates and other stakeholders quickly traveled up the supply chain to the retail giants that contracted with the garment manufacturers involved in the deadly accident.
The bottom line, according to risk-management expert Clayton Shoup, is that it's not enough anymore for companies to manage EHS within their own four walls. With consumers and investors increasingly focused on corporate social responsibility, firms must take steps to ensure that their suppliers are operating safely and treating their workers humanely – or risk a broadside blow to their reputations.
The good news, perhaps, is that the changing dynamics of procurement and supply chain management are creating more opportunities for companies to exert their influence on EHS practices, Shoup asserted during a presentation at the 2013 America's Safest Companies Conference in Atlanta.
"Traditionally, the supply chain was kind of a 'what, when, how' approach," said Shoup, who is the business director of risk engineering for Zurich North America. Whereas the interaction between companies and suppliers once was limited to "'I have some specs for the part I need, I need this many parts on this date and here's what I'm willing to spend,' now there's a much more integrated and complicated approach, because the supply chain is global and can involve a wide range of stakeholders."
As the relationship with suppliers becomes more integrated, the procurement considerations have expanded from specs, quantity, delivery times and cost to include capabilities, quality, safety and environmental stewardship.
"There's our opportunity to ask our suppliers to make some commitment related to safety practices," Shoup said.
Code of Conduct
One of the most common strategies is to develop a supplier code of conduct that outlines a firm's expectations regarding worker safety and health, human rights, environmental impact and other issues.
According to Shoup, supplier codes of conduct usually contain:
- An introduction that outlines the intent of the document.
- A section that notes the types of standards that are being prescribed, which generally focus on labor (for example, wage and hour issues, discrimination and safety and health); business ethics (for example, bribery, corruption and protection of intellectual property); and environmental protection.
- A discussion about what a firm needs to do to become a supplier for the company.
- A section that lists the minimum standards that the supplier must follow to enter into an initial business agreement with the company.
- An outline of the desired standards that the supplier must meet and maintain to continue the business relationship beyond the initial trial period.
- A discussion of evaluation, follow-up and corrective-action measures such as audits, inspections and self-assessments.
- A list of applicable reference standards such as OHSAS 18001 and ISO 14001.
Another common route is to have the supplier sign a declaration of compliance.
"A declaration of compliance outlines the specific standards that the supplier is expected to follow," Shoup explained. "It also lays out expectations for what happens when the standards are not met - thing like communication of noncompliance, follow-up and development of corrective-action plans."
Standards typically referenced in a declaration of compliance include local EHS, labor and ethical regulations; ANSI Z10-2012; ISO PC 283; and OHSAS 18001.
Another way to manage the safety of suppliers is by setting up a process for self-assessments, which are periodic reviews to ensure that a supplier is complying with agreed-upon safety standards and practices.
Based on OHSAS 18001 and ANSI Z10-2012, Shoup suggested these possible self-assessment criteria:
- Management commitment and policy - Senior-leadership involvement, commitment and responsibility.
- Safety organization - Clearly outlined responsibility and accountability; consultation and communication up and down the chain of command; a competent safety staff and proper training; thorough documentation of safety activities; and adequate finances and resources to create a safe workplace.
- Planning and implementing - Hazard identification and risk assessment; planning and objective setting; prevention and control measures; emergency preparedness and response; contractor safety; and safety-driven procurement.
- Evaluation - Having appropriate performance metrics based on the policies and objectives of the EHS program; and establishing clear procedures for incident investigations and corrective actions.
- Management review process - An overview of the effectiveness of the overall program.
In conjunction with self-assessments or as standalone measures, some companies also ensure supplier safety through inspections, audits and monitoring, which "may involve both onsite or remote review and intelligence," Shoup explained.
Companies can use the self-assessment criteria listed above to conduct onsite audits, he noted. The "intelligence" element can come from outside sources such as media reports, third-party services and discussions with nongovernmental organizations, Shoup explained.
"Usually what we're looking for is a verification of compliance with the standards that have been specified, whether it's a code of conduct or other specifications," Shoup said.
Shoup also emphasized the importance of providing safety training and education to suppliers, whether in the form of online platforms, technical support or workshops and seminars.
Ideally, implementing one or more of the aforementioned best practices should lead to stronger relationships with suppliers, Shoup concluded. As part of that dynamic, companies can reward and recognize suppliers for EHS excellence by giving them more business, sharing improvement costs or establishing less stringent audit requirements.
"Collaboration is our ultimate goal, and for this collaboration to occur not only with the first-tier supplier but also the second-tier, third-tier and fourth-tier [supplier]," Shoup said.