Huwebes, Nobyembre 4, 2010

The "Eco-Services" Supply Chain originally written by Jolito Ortizo Padilla

Most businesses underestimate their potential exposure to risks in their supply chain and lack the effective strategies needed to mitigate them. Although the larger multinationals have contingencies to deal with issues such as energy security , it seems that more attention is focused on the immediate cost savings from an increasingly complex value chain.

Simply forcing corporate demands for lower prices, better quality and improved social and environmental performance upon suppliers is not sustainable. Globalization and the proliferation of small and medium sized enterprises that struggle to survive and are often either unable or unwilling to kowtow to multinational corporate strategies -has made it harder to identify all the players in a supply chain.

In 1998 one UK retailer launched an intiative to map out its supply chain. It assumed there were 2,000 suppliers but , four years later , it had identified nearly 22,000 businesses. Granted, many of these "suppliers" were the result of unauthorized or even illegal subcontracting from the approved first tier, but they still posed a significant reputational risk to the brand.

A published photograph of a child worker stitching a label onto a garment will damage the brand, but never the offending factory. Though the work had been illegally subcontracted without the brand's knowledge is almost irrelevant -pressure groups would not consider this to be an extenuating circumstances, just further proof of brand carelessness.

Although some progress has been made over the last decade , the International Labor Organization recently estimated that 100 million children around the world sre still involved in child labor. But this is only one of a series of potential human rights abuses that maybe lurking in any supply chain. Forced or trafficked labor , long hours, low pay, unsafe and even dangerous working environment and no union representation are situations routinely uncovered throughout the world- and that applies equally to the developed and developing economies.

In addition a growing number of raw materials are becoming associated with conflicts, smuggling and corruption-issues that are generally excluded from the range of ethical codes of conduct and social auditing initiatives.

Away from employment issues, the sustainability agenda is creating further pressures.Sustainable procurement criteria , evolving legislation such as the restriction of hazardous substances directive and the information requirements for eco-labelling are driving further pressures down supply chains.

So far eco labelling schemes for fair trade , sustainable timber or organic food have been largely voluntary. US retail giant Walmart went public with a five year environmental labelling program for its 100,000 suppliers and each individual product line. Suppliers will have to develop and provide accurate and defensible estimates of environmental impacts such as greenhouse gas emissions, water consumption and air pollution based upon a standardized index.

But eco-labelling is not the same as other product labelling. Factors such as product energy efficiency or nutritional value can be analyzed in laboratories with scientific certainty, while the footprints of dynamic supply chains are less easy to quantify or compare. Detailed research into the full lifecycle impact of selected products will improve knowledge and, hopefully help to identify actions to reduce carbon footprints.

Nonetheless, environmental labelling has an immediate cost implication for brands and especially those suppliers who will have to implement the data measurement and assurance systems needed to generate the footprint of each product line.

Initially, it is likely to be the suppliers who will bear these costs. Some brands will offer assistance , but most may simply make compliance a condition of contract. In the long term, the costs will passed on to the consumer. There is also a danger that eco-labelling will divert attention and funds away from the actions the suppliers should be taking to improve processes and lower their ecological footprints.

With the likely increasing focus on the water intensity of goods and the probable introduction of pricing for dependence upon "eco-services" , supply chains will only be further drawn into environmental agenda. The ambitious Walmart scheme is perhaps only indicative of the fact that corporate giants are awakening to the real risks in their supply chain. Nevertheless, the extra administrative burden being imposed down the supply chain will need careful scrutiny.

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