Category Archives: CSR

Failure to Monitor a Supply Chain for Risk Can Tarnish Your Brand

In our last post on Playing With Fire: Hidden Risks in Your Supply Chain, we discussed how your supply chain is filled with hidden risks which can bleed your bank account dry and bring your supply chain to a screeching halt if they rise up and rear their ugly head.

But they can do more than bleed the bank account and stop your supply chain in its tracks, they can tarnish your brand and cause permanent damage to your company. A recent study by CIRANO found that while there is an 80% chance of a company losing at least 20% of its value at least once during a five year period as a result of a negative, but well publicized, incident, a major incident that negatively impacts the brand in a significant way can be much worse. Just ask Airbus that had its stock plummet by over 26% in a single day, equivalent to a market capitalization loss of approximately €5.4 Billion, after it announced on the close of trading on June 13, 2006 that issues with the supply and installation of electrical harnesses would lead to a further six-month delay in the delivery of the A380 (and that the impact of the disruption on earnings before interest and tax would be €500M per year for four years).

Or ask BP, which, as a result of the Gulf of Mexico oil spill when the Deepwater Horizon drilling rig exploded on April 20, 2010, saw its stock price fall by 52% in 50 days. Ouch!

But it’s not just supply delays or disasters that cause loss of brand value. It’s reported violations of clean air, water, energy and other environmental acts that get environmentally conscious consumers to boycott your products after environmental activists get up in arms. It’s poor treatment, or even discrimination of, a class of people that can also get a company in trouble. If your supplier is known to regularly subject its employees to unfit working conditions and violate wage acts, that’s a problem. If a CXO regularly goes on record speaking out against minority groups’s rights (include the LGBTQ community or immigrants), that’s a problem. And if there are investigations of corruption, that’s a big problem.

It’s more than just environmental non-compliance risks that you have to watch out for. To find out more, check out Sourcing Innovation’s latest paper on Playing With Fire – 4 Hidden Risks Lurking in Your Supply Chain, sponsored by Ecovadis to find out the major categories of risk you need to watch out for, some major impacts of each type of risk, and just how many zeros they could take off the end of your bank account.

Environmental Sustentation 15: Waste, RoHS, & WEEE

As per our damnation post, waste, dangerous chemicals, and unnecessary disposal is bad and legislation that requires waste to be minimized, dangerous chemicals to be avoided, and perfectly good materials to be reclaimed is good — unless new legislation comes in faster than your supply chain can keep up.

And while the US may not be as advanced as the EU in terms of legislation to this effect, some states, like California, are making a push for a plethora of new legislation and some countries, once expected to be behind the times in such legislation, are now attempting to lead the way (like India and China which are considering much more restrictive environmental legislation akin to European RoHS than one ever thought they would consider).

More legislation is coming, and your product supply chains are going to be hit hard if you are unprepared. Getting a good bill of materials system in place, a better trade document management system, and an online collaborative design solution, as discussed in our damnation post, is a good start, but it’s not enough. In addition to the basics, in order to maintain compliance with the ever increasing amount to environmental legislation in effect, and coming into effect, around the globe, the organization also needs:

1. Drill-down Bill of Materials Capability

A complete bill of materials is a good start, but many items will be components, made of subcomponents, each of which uses a number of sub-subcomponents and raw materials. Complete drill down visibility is needed to ensure 100% compliance with environmental legislation.

2. Regulatory Compliance Monitoring (by product by country)

So that the organization knows at all times the requirements for each product by country as well as any restrictions or bans for each component or raw material by country.

3. CSR Monitoring

This is the best way to get early warning of current issues and future legislation coming down the pipe. You don’t want to know about a new piece of legislation that is going to require a partial (or complete) raw material formulation the day after it is signed into law, which could only give you a few months to get in compliance, but the day it is first drafted and released for public consultation (or, if drafted in private, first brought to a legislative body for review). To stay ahead of the game, you have to get ahead of the pack.

4. Design for Sustainability

All new designs should not only use as few hazardous or restricted substances as possible, but should also use as many renewable, or at least abundant, resources as possible. Sustainability is the name of the game, as environmental sustainability is becoming a key component of business sustainability.

5. Design for Reclamation and Reuse

Metals and rare earth minerals are becoming in increasingly short supply, but, when a product is appropriately designed, becoming increasingly easier to reclaim. Plus, in many complex systems, not all parts wear out at the same rates, and if the system is designed for component-based upgrades, it can be used, and re-used, for a much longer lifespan. (The same way that servers designed for memory, storage, and processor upgrades can be used twice as long as integrated laptops.) Or, components with a significant life-span left, can be easily extracted and re-used in refurbished systems.

This is not necessarily everything that can be done, but it’s a great start, and when you get there, you will be considerably in the lead.

Playing With Fire: Hidden Risks Lurking in Your Supply Chain

Modern supply chains are fraught with risk that can result in volatility and increased operational costs, large and sometimes devastating losses, and long term damage to the corporate reputation. These risks can be organized into four major categories, but non-compliance risks alone, the first category, should be more than enough to scare you.

Of the four major categories of risk, the costs of non-compliance risk is often the easiest to quantify, and the corresponding price tag of regulatory violations alone can be enough to halt a supply chain in its tracks as the bank account is bled dry.

Corresponding costs can range from the $3.0M, $3.19M, and $4.95M fines from the recent settlements by Washakie Renewable Energy, ExxonMobil, and Noble Energy for violations of the energy policy, clean water, and clean air acts, respectively through the 13.2M settlement by Lumber Liquidators for violating the Lacey Act to the $81.6M in fines that Wal-Mart had to pay in 2013 for the mishandling of products that became damaged or were returned and became hazardous waste, of which $60M was a result of violations to the Clean Water Act and $14M was a result of Federal Insecticide, Fungicide and Rodenticide (FIFRA) violations.

But environmental acts aren’t the only acts that can result in large fines. There are also worker’s rights acts, where even simple filing errors can cost over 1M, as Abercrombie & Fitch found out when they were fined $1,047,110 for numerous technology-related deficiencies in the company’s electronic I-9 system.

And while most violations of worker’s rights law or filing requirements are rather small, the violations could increase now that anti human-trafficking and modern slavery laws are popping up that can hold your organization responsible for any violation of these laws anywhere in your supply chain, even if the infraction is caused by the supplier to the supplier of your supplier.

But these fines will still likely dwarf the fines being levied by the US Department of Justice for violations of the FCPA – Foreign Corrupt Practices Act. In 2014, the average fine for a violation was $156.6 Million, and this included a $772 Million penalty to Alstom, the second largest penalty in history.

But this is just one set of risks with an associated cost that can bleed the bank account dry and effectively cripple a global supply chain. If you would like to know what the others are, watch for Sourcing Innovation’s latest paper on Playing With Fire — 4 Hidden Risks Lurking in Your Supply Chain (coming soon), sponsored by Ecovadis.

Societal Sustentation 48: Workers’ Rights

Now, as we discussed in our original damnation post, this shouldn’t be a damnation because worker’s rights are a good thing, and, assuming one is ethical, there’s absolutely nothing wrong with giving workers the respect and rights they deserve. The problem is, as we previously stated, is that, in the corporate world, not everyone is ethical. Not only do we have to deal with the fact that 1% of the population are psychopaths, but the fact that the top four professions that attract psychopaths are the people who run the corporate world, namely:

  • CEOs
  • Lawyers
  • Media / Publicists / PR / Marketers
  • Salespeople

The only other profession absolutely necessary for a company of any size to survive is an accountant to keep the boxes and make sure they are in order when the tax man comes knocking. In a nutshell, your company is evil, and the only real question is how evil on the scale from skim a bit off the top to sell guns to a known guerrilla group that will use them to commit mass genocide.

And if your company is just a little bit evil, then you know for sure that somewhere, lurking in the shadows of your supply chain, is an organization that is likely so evil that it is using child labour, slave labour, and mistreating both in the process. One has to remember that not all countries have good workers’ rights laws, and this is true of developing countries in particular, and anywhere the men with guns and money have more power than the elected officials, it doesn’t always matter what laws are on the books.

All that matters is that, with the introduction of various anti-human trafficking acts around the world, such as the California Transparency in Supply Chains Act and the UK Modern Slavery Act, if your supply chain uses slave labour, your company is on the hook. Thus, as a Procurement professional, you have to be sure your supplier is compliant, and that they make their suppliers compliant.

And forcing your suppliers to sign a paper that they will comply with your fair labour and fair wage policies isn’t enough, especially if they are outsourcing the work or using multiple locations (unbeknownst to you who only sees the primary “show” location which, just like a model home, isn’t the real thing).

First of all, you investigate them through third parties. Contact companies like Ecovadis and Sedex Global that collect and collate third party and NGO data on suppliers to see a history of their sustainability and ethical practices. Make sure there have been recent audits by trustworthy third party organizations that advocate worker’s rights and that those reviews have passed, contacting additional organizations if you need to. Force the supplier to sign a contract stating that they are fully aware of the regulations you must conform to with respect to worker’s rights and that not only will they follow and adhere to all regulations for their workforce, but that they will only work with suppliers who accept the same. Moreover, they accept full legal liability should they fail to do so and are responsible for all costs borne by your organization should workers’ rights violations occur, be it fines from a government organization, legal defense costs, or reimbursement for goods seized. (And make sure the contract is legally binding in their country and that you can enforce it in their court of law.)

Secondly, monitor on an ongoing basis. Maintain a subscription to at least one organization that regularly reviews, and collates ethical data on, the supplier in question and monitor for any indications that not all may be above-board.

Third, include a mandatory provision that the contract may be immediately terminated for breaches of mandatory worker and human rights by them or any supplier in their supply chain. And don’t be afraid to follow through and shift demand to the secondary supplier the minute a breach is confirmed.

It’s probably not enough, but it’s a start.

Environmental Damnation 16: PETA

After our coverage of Environmental Damnation 17, Greenpeace, you probably suspected this damnation was coming. After all, when it comes to activist organizations, two always come to mind, Greenpeace and PETA. And while you might not think that PETA is an environmental & sustainability damnation, because it’s best known for its rather go naked than wear fur campaigns, which is all about not wearing fur as the harvesting of fur is typically the result of animals being killed, and sometimes raised in inhumane circumstances just to be killed, only for fur. As a result, you might think that PETA is only a damnation for fur traders, but that’s far from the truth.

But for those of you who don’t pay too much attention to PETA, or the huge hassles they cause for any organization that the feel is unfairly treating animals, if you take the time to go to PETA‘s site, you’ll see in great big letters at the top of the screen:

Animals are NOT ours to eat, wear, experiment on, use for entertainment, or abuse in any other way.

This means that if your operation or supply chain is any way, shape, or form dependent upon animals, either for food, clothing materials, entertainment, or, and may your favourite deity grant favour on you here if this is the case, sale, you could end up in PETA’s crosshairs and feel the pain.

It’s not just big chains like Kentucky Fried Chicken (which has to deal with the perpetual onslaught from PETA which maintains the Kentucky Fried Cruelty site) and which has enlisted the help of A-list entertainers to join in its crusade) that feel the wrath of PETA. Smaller operations can also feel the pain. For example, just last month PETA decided to go after the wool processing industry, allegedly recently released a video that reveals workers on an Australian sheep farm mistreating sheep. (Source: MagicOnline), and called for a boycott on the industry as a whole (claiming that over the past 16 months it released five exposes that resulted from a review of 37 facilities on three continents where sheep are “mutilated, abused and skinned alive — even for ‘responsibly sourced’ wool on so-called ‘sustainable’ farms”).

Nor is it just obvious targets that buy animal products for food or clothing. For example, right now PETA is also calling for a boycott of Air France because it is the only major airline that continues to ship monkeys to laboratories for experimentation where they were “routinely mutilated, poisoned, deprived of food and water, forcibly immobilized in restraint devices, infected with painful and deadly diseases, and psychologically tormented” after they were forced to “suffer from the long and gruelling transport in the cargo holds of planes and in the backs of trucks”. And since it was reported that 90 percent of drugs tested on animals failed in human trials, PETA claims that primate transportation for experimentation is unnecessarily cruel.

PETA is a damnation to your supply chain because even if you are only ordering the end product, or transporting goods for someone else, you can still find yourself in PETA’s crosshairs and your brand will take damage when they go after you. (So unless your company is one that only sources and sells synthetics for vegans that insures it’s supply chain is 100% animal free, good luck!)

Normally, LOLCat can’t be bothered to comment on our damnations, because it just doesn’t care, but after finding out that Air France transports primates for experimentation, LOLCat has something to say:


LOLCat Says Boycott Air France