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In this guest post, Procurement Leaders invites Asia Pulp and Paper's Ian Lifshitz to discuss why supplier audits can tend to fall short and where improvements can prove a huge game-changer.
The thought of auditing your company's supply chain can be daunting and overwhelming. Several questions come to mind: How much will it cost to audit our supply chain? We don't have an infrastructure in place to implement this audit, so where do we begin? Will auditing the supply chain reveal issues that will prove costly and damaging? Is it best to leave as is until an issue manifests?
If the last question sounds familiar then it's definitely time to re-evaluate your approach. Although investment and infrastructure are needed to audit suppliers, the fact is that delaying the process of auditing your supply chain to ensure that your business is compliant with environmental and social standards can prove to be more costly than proactive engagement. Worse, it may have a long-term negative effect on your customer base and brand. The good news for procurement officers is that there is a “second-mover” advantage for supply chain audits today.
On the whole, European companies were the “first-movers” in leading many sustainability supply chain audits. This push resulted in building the infrastructure needed to have sustainability metrics throughout the supply chain. Many companies in the U.S. are just now waking up to the reality that your business's customers and the consumers are demanding transparency, and that sustainability isn't just a buzz-word, but a concept that's here to stay.
Thanks for efforts in Europe, the infrastructure is now in place for downstream audits around the globe – and there is a real second-mover advantage – as the cost of these audits has come down considerably. The time is right to make a positive impact – be it socially or environmentally – and it's never been more cost-effective for companies to ensure their supply chain meets the requirements of customers, regulators, NGOs and international governmental bodies like the United Nations.
As a representative of a company that has worked to implement a sustainable supply chain, here are three important points that should be taken into consideration when taking that next step:
1. Misconception: Initiating a supply chain audit is prohibitively expensive and time consuming
When CPOs request a compliance and risk management audit, they invariably are hit with this question: “How much will this cost?” Part of the reason why CPOs and others are reluctant to engage in auditing their global supply chain is because of the misconception that it will cost too much and be far too time consuming. While some investment is needed to initiate the process, the investment is worthwhile in the long run considering the massive damage that could result if environmental or other harmful infractions are present within the supply chain.
The good news is that there is an existing infrastructure in place to help reduce costs and time resources. For instance, when APP decided to initiate a comprehensive audit of its supply chain it engaged a third party, The Forest Trust (TFT), to help carry out this review. It is important to recognize that this type of work requires commitment and patience; however, ultimately, the initial investment will yield profound benefits that will help the company's long-term interests and objectives.
2. The costs of inaction are far greater and potentially damaging
There are a multitude of examples demonstrating that the costs of inaction have wide-reaching and lasting financial and reputational consequences. For instance, a great example of a company that proactively sought to clean up its supply chain and avoid reputational fallout is Chipotle's Food with Integrity program. Chipotle engaged FoodLogiQ, a third party organization, to help implement a traceability program designed to provide production information “at every step along the supply chain - applying proven best practices developed by various industry segments.” The company is enjoying better relationships with its customers, which helps to improve its brand reputation and better establish and maintain effective risks and controls within its supply chain.
Working within the pulp and paper industry in the Indonesian rainforest, APP is not immune to supply chain issues. But, by acting decisively, listening and engaging with stakeholders, APP moved to end natural forest clearance and began the implementation of a comprehensive policy known as the Forest Conversation Policy (FCP) in February 2013, which, among many other activities, establishes regular audits of our global supply chain in collaboration with key experts and partners.
Companies are now able to leverage the various constituencies (e.g., NGO partners, audit tools, private consultancies) that first-mover companies traditionally could not rely upon. Because these elements are now in place, proactive second-movers can take advantage of best practice audit processes and bolster the efficiency and competitiveness of their global supply chains. For instance, for companies launching large-scale CSR initiatives, engaging third parties allows you to reinforce CSR claims and can also help detect any risks in your supply chain, or breaches from suppliers that you may not have realized existed.
A number of global brands have recently declared significant zero deforestation policies throughout their supply chains, ranging from Proctor & Gamble and Unilever, to Cargill and Mars. They correctly understood the financial, reputational, and environmental benefits of proactively launching these sustainability initiatives, which promote greater internal and external transparency into their supply chains.
While auditing your global supply chain may seem to be a costly, time consuming and seemingly insurmountable process, an existing infrastructure of widely available tools and resources affords companies the opportunity to do this efficiently and effectively. Ultimately, the benefits of acting now and making the necessary investment will pay long-term dividends for the future reputation and performance of your company.
Ian Lifshitz is North American director of sustainability & stakeholder relations at Asia Pulp and Paper Group (APP).