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Supply chain due diligence: why one system doesn’t fit all?

While supply chain due diligence regulations are strengthening, after France, the EU and Germany are developing their own, Covid crisis has proven that this is not just a simple PR exercise for companies. On the contrary, it should be a real tool to reinforce the resilience of the supply-chain by actually understanding and managing the risks. Let’s take some time to explore a few fundamentals to make a supply chain due diligence plan successful and useful.

Breaking down organisation silos

We met numerous organisations which consider ensuring ethical practices along the supply chain is the job of solely one department, if not one person.

Having a sustainability or CSR department is useful and important, but it is meant to be a support function and not directly involved in the operations. You might thus agree there is little hope that these people, as passionate as they are, could handle a proper supervision of a grueling chain of dozens if not hundreds of direct or indirect suppliers. This, especially considering they merely know the latest though excel tables and cordial email exchanges. Thus, the development of an efficient due diligence program requires the involvement of people directly in touch with suppliers (buyers first and foremost - as the ones who have chosen and developed relationships with them, but also quality/ compliance,... depending on your company's organisation and governance). Of course, it supposes these departments, purchasing, quality, sustainability, etc. work in good intelligence towards common goals. It is thus down to the top management to make it happen by fostering a transversal resilience strategy, involving all teams.

Choosing quality over quantity

Despite business as usual practices, we believe you cannot address all suppliers at once in a qualitative way. Prioritising is of utmost importance when trying to set up an efficient monitoring system. If standardised auditing schemes are convenient, notably for generating data, they also have loopholes. Be it suppliers which are not mature to understand all the concepts and simply hire consultants to help them pass the audits or high-potential suppliers simply get evicted from the process because they fell to comply.

We thus recommend a clearer segmentation of your suppliers base, and then, a more qualitative approach based on dialogue that will enable you to get to know your most important/sensitive suppliers better, their mindset, their business situation and their potential (refer to our previous article), as a start. Of course, this kind of approach will require more commitment and investment from your side, but it undoubtedly help to trigger more transparency and thus actually manage your risks in a collaborative long-term way rather than a punitive short-term way. At the meantime and most importantly, it will provide a good base to develop potentials.

Walking the chain step by step

Traceability has become a hot topic, in the lights of the recent events in the UK and in China. As supply chains have become more complex, always keep in mind that your tier one suppliers are the only key to the rest of the supply chain. It goes without saying that adopting an understanding and benevolent approach with them is essential.

This is especially true when dealing with trading companies which might be reluctant to disclose partners’ information. Indeed, it is often their main added value, having no production means of their own. Therefore, unveiling all the links in your supply-chain cannot be down over a night and simply sending a questionnaire might not do the trick. It probably even requires a lot of back and forth exchanges. Very often, when we go to visit our clients’ suppliers, we discover new layers of complexity such as secondary workshops or subcontractors. However, the fact that this information was omitted does not always reflect bad intentions. In many cases it is just about misunderstanding or just fear of the consequences. If you take the time clear out all concerns during an informed dialogue and with a collaborative approach and define common objectives, tiers one suppliers are more likely to transparently disclose their suppliers and gradually give you the opportunity to visit them. At the end of the day, your tier 1 supplier is the one able to cascade down good practices, so teaming up is key!

Yes, to answer to the regulative and customer pressure on transparent supply, it can be tempting to go for a turnkey solution. Still, due diligence should reflect your company true concerns and values. it should be a tool to better assess risks but also help you explore and develop opportunities. A roadmap to build up true resilience, in the current VUCA (Volatility, Uncertainty, Complexity and Ambiguity) era.