Procurement Transparency: The challenge of Aligning Supply Chain to Values

In November, Apple stopped operations with one of its largest manufacturers in China. The iconic tech giant halted its supply from Pegatron following a discovery that thousands of student interns were being overworked. The result was disruption to Apple’s supply chain during a key trading period and a degree of reputational damage. This highlights the challenges inherent within supply chains and – with environmental and social governance (ESG) increasingly in focus – it is a timely reminder for all companies that might otherwise be content to underpin their operations with opaque supply networks.

Large global companies typically have some of the most complex supply chains and discoveries like this prove that even the best need to be continually vigilant. According to Apple, Pegatron went to “extraordinary lengths” to evade its oversight mechanisms. In this case, Apple was able to get ahead of the problem and imposed sanctions, but it underscores a problem. Clearly most businesses do not have the oversight capabilities of Apple, meaning their abilities to detect infringements will be inferior. If the Apples of this world can be hood-winked, albeit momentarily, the reality for many companies will be that of suppliers gaming systems to their advantage. That cannot however be an excuse for businesses to wave a white flag and step aside from responsibilities.

Consumers are demanding more of businesses and business must demand more of themselves. Public attitudes are having a large impact on consumer-facing companies. Today, big businesses have a growing responsibility to improve their monitoring, reporting and adherence to ESG standards. These ethical concerns are filtering into the business supply chain and, in turn, Procurement – on the frontline of purchasing goods and services – will be vital in driving ethical change.

An ethical ambition cannot be fulfilled however until the business understands the precise source of all its materials. Putting a framework in place to gain this overview is now essential, for which the solution lies partly in technology but not completely. Blockchain was heralded as having the potential to unlock supply chain transparency, however, the technology and lack of universal adoption means this is still some way off having commercial application. Businesses must therefore strive to get the basics right until such a utopia exists.

Specifically, companies should introduce effective mechanisms to identify, capture and track data on their supply chain. By pulling together data on their supply chain from different sources, they can identify any knowledge gaps and, therefore, where potential risks may lie. Once this initial mapping has taken place, the immediate gaps should be investigated and suppliers segmented into risk categories, giving firms a holistic, evolving snapshot of all potential ethical infringements.

Ultimately, the onus falls on businesses to source responsibly. It is more important than ever for businesses to have a full understanding of their supply chain, and this must be done sooner rather than later. The timing is fitting: most companies are rethinking their supply chains in the wake of the pandemic and, with ethical considerations becoming increasingly important, it presents a real opportunity for businesses to learn from Apple’s recent episode and review their procurement processes.

Authored by James Bousher, Director – Operations Performance at Ayming