What is Happening Beyond the First Tier of Your Supply Chain?

November 15, 2013

Carmel Giblin, CEO, Sedex Group

Carmel Giblin, CEO, Sedex Group

In many respects, 2013 has been a big year for responsible sourcing. In April, the tragic Rana Plaza factory collapse in Bangladesh served as a stark reminder of the devastating impacts on human life—and negative consequences for company reputations—that can result from unaddressed supply chain risks. As a result, calls are growing for a more responsible, sophisticated approach to global supply chain management—one that dives deeper.

Modern supply chains are complex, composed of continuously evolving, multitiered networks that comprise many thousands of factories around the world. Globalization and shifting patterns of trade quickly create new risk hotspots, making it difficult for companies to deliver on commitments to improving standards at scale.

Despite this complexity, most companies take a top-down approach to mapping and understanding risk, assessing first-tier suppliers’ performance based on public data. This is a logical first step, as it is often where businesses feel they have the greatest influence. However, this approach can create blind spots, as the majority of environmental, social, and governance (ESG) risks reside deeper down the supply chain, where knowledge and capacity to address those risks can be limited.   

To help companies look beyond the first tier, Sedex and BSR launched “Going Deep: The Case for Multitier Transparency” at the BSR Conference 2013. Based on findings from independent audits, our report shows that risks increase further down the supply chain. At tier two, audits identify 18 percent more issues than at tier one. The criticality of issues also increases further down the supply chain, with tier-three suppliers showing the highest number of critical issues, on average.

Achieving multitier transparency is challenging, but from pharmaceutical companies to food producers, consumer brands to fashion retailers, leading businesses are using data from deeper in the supply chain to tackle critical safety issues and improve worker conditions at production sites globally.  

Companies that monitor and understand supply chain data are better placed to assess and mitigate risks. They can also identify positive trends, replicate good practices, and build a web of supply chain partners and sustainability champions so they can quickly identify supplier sustainability needs.

With the rising global demands for food, energy, living space, and water, and the growing demand for business action on climate change, it’s clear that sustainability issues will become more critical to companies and their suppliers. A growing number of companies and investors are recognizing the power of supply chains and are collaborating to drive transparency down the supply chain and tackle sustainability issues at scale. We encourage other companies to follow their lead.

Carmel Giblin was a panelist on the BSR Conference 2013 session, “BSR Debate: Can We Create Sustainable, Equitable Supply Chains?

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