10/18/2016

The Importance of Social Compliance in The Supply Chain

weaving with hand

Supply chain transparency can be difficult to accomplish on a global scale. In addition to how items are shipped, shippers should also have visibility to how and where products are made to ensure compliance across the entire supply chain. Recent tragedies such as the Plaza garment factory collapse in Bangladesh, has brought to light the ethical and environmental issues that have occurred at the start of many supply chains1. In response, governments, consumers, and companies are demanding details about the origins and systems that create their products. They worry about the quality, safety, ethics, and environmental impact of the factories and processes used at the core of many global supply chains.

It can be difficult for companies to determine all those involved in the production and manufacturing of their products. Companies work with suppliers, who work with vendors, some of which may continue to outsource to subcontractors for different entities to make a single product. This means that companies can work with thousands of factories at a time and may not even realize it. Many of today’s top brands do not own the manufacturing facilities used to create their inventory, so it can be difficult to set working condition standards. A recent survey showed that 53% of companies do not have a system in place to monitor where their materials came from or did not make an effort to share this information to the public2. Pressure from governments and consumers has companies looking to their global supply chain partners to help establish new systems to improve social compliance.

Consumers Care about Compliance

Providing transparent supply chain details has been a concern for consumers. 66% of consumers are willing to pay more for a good if the company shows dedication to social or environmental change5. In particular, the millennial generation’s buying behavior reflects the demand for social compliance. More than 50% of millennials will buy from companies that support causes they care about. Although millennials may not be a target market, they are considered highly influential with other generations mirroring their purchasing behaviors6. Companies that have been more transparent are performing better than those who do not. According to the Nielsen Global Corporate Sustainability Report, companies that demonstrated commitment to sustainability seen 4% global growth compared to the 1% growth for those who failed to demonstrate the same commitment7.

Government Compliance

Governing bodies haven’t taken social compliance lightly. In fact, more regions are enforcing regulations to force companies to take a more in-depth look at their supply chains and make improvements to responsibly manage their operations. California passed the California Transparency in Supply Chain Act of 2010, which was enacted in 2012. This law requires businesses that sell goods in California with a gross revenue that exceed $100 million worldwide to disclose an annual statement detailing efforts to eliminate social issues like slavery and human trafficking from their direct supply chains3. More recently, the European Union announced that they are planning to enforce manufacturers and importers to report the origins of materials and disclose information about their supplier’s human rights and environmental activities4. Similar circumstances could be enforced throughout other regions as more awareness and systems are put into place to promote higher standards.

Improving Global Supply Chain Practices

Keeping consumer demands and regulations in mind, companies are doing more to communicate their values and provide transparency into their entire supply chain process. However, this is impossible if they don’t have visibility to where their materials come from. Companies can openly communicate with their supply chain providers to help navigate through their supply chain process and collect data on the vendors and suppliers involved.

Global supply chain providers have the technology available to keep track of the entire supply chain process and ensure all stakeholders are mindful of their social compliance standards through documentation requirements. Once that information is acquired, shippers will be able to track, monitor, and improve labor and environmental practices by making responsible sourcing decisions. Having this information allows brands to further communicate their standards to shareholders, employees, and consumers.

Although it may take time for companies to put a system in place to manage social compliance standards, utilizing a global supply chain provider and their software capabilities can help. As companies begin to improve their standards, factories all over the world will shift and improve working conditions for their employees as well as for the environment. In response, informed consumers will opt to buy from companies that communicate and value these initiatives.

Sources

  1. http://www.ethicalconsumer.org/ethicalcampaigns/fashionrevolution.aspx
  2. http://www.ethicalconsumer.org/ethicalcampaigns/fashionrevolution.aspx
  3. http://www.ibtimes.com/california-companies-struggle-combat-human-trafficking-slavery-compliance-2169350
  4. http://www.inboundlogistics.com/cms/article/europe-raises-the-compliance-bar-is-your-supply-chain-prepared/
  5. https://marketingtechblog.com/e-commerce-consumer-behavior/
  6. http://www.forbes.com/sites/micahsolomon/2015/11/14/2016-is-the-year-of-the-millennial-customer-heres-how-to-be-ready/#1cf670a76e72
  7. http://www.nielsen.com/ug/en/press-room/2015/consumer-goods-brands-that-demonstrate-commitment-to-sustainability-outperform.html