Understanding the multiple levels and global reach of a supply chain is a major challenge for procurement.
If the function fails to ensure transparency, however, it increases the threat of unscrupulous labour and safety practices being used within the supply chain.
In April 2017, UK-based not-for-profit Fashion Revolution released its Fashion Transparency Index and found that supply chains of apparel organisations were “still not transparent enough”; no company measured by the Index scored more than 50% in its transparency score. The publication of the report coincided with the four-year anniversary of the Rana Plaza factory collapse, in which more than 1,000 factory workers making clothing for Western retailers died.
Following the disaster, many retailers said they were unaware their clothes were being produced in the Bangladesh factory and that production of these garments had been outsourced by suppliers without their prior knowledge.
The issue of transparency was brought back into the spotlight in 2016, after 11.5 million documents belonging to Panamanian law firm and corporate services provider Mossack Fonseca were leaked to journalists. The Panama Papers, as they were dubbed, contained previously private financial and attorney-client information relating to more than 200,000 offshore entities.
The scandal uncovered a hidden world of shell companies, some of which were used to conceal the true owners of organisations.
In response to the leak, the European Commission proposed registers listing the real owners of companies. The scheme would require businesses with revenues in excess of €750m with operations within the European Union to report on their activities and tax-related information.
It is hoped that registers such as this would strip away anonymity, promote greater transparency and help procurement to obtain clarity as to the identity of the businesses with which they work.
While legislation can help, there is obviously more that the function can do to improve transparency.
Technology may provide the solution, while bringing supply chains closer to home would also help. Some companies, however, are using collaboration as a means of gaining clarity.
Apparel organisations linked to the Rana Plaza disaster have been working together and with trade organisations and campaign groups on initiatives designed to ensure regular audits and inspections are conducted in factories.
A combination of approaches will help increase that transparency and ultimately reduce the threat posed by such risks.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.