As discussions on the effectiveness of Dodd-Frank continue, the EU’s Conflict Minerals Regulation rumble on, and with the recent introduction of the Modern Slavery Act in the UK (see the February 2016 edition of the Crucible for more information), it is easy to understand why companies might simply want the whole topic of supply chain risk management to disappear – it’s clear that it’s going to take time and cost money, and it’s not always possible to see any positives. Nevertheless, understanding and managing supply chain risk in the industry has never been more important. The complex supply chain from mine to end product involves many Members of the MMTA, and one thing is certain, this is a topic that won’t go away!
This is an area that the MMTA has been increasingly involved in, and we have organised a discussion at the MMTA International Minor Metals Conference in Amsterdam this April where experts on the subject will discuss how different commodities are approaching this complex issue.
The pressure around responsible sourcing and supply are not only regulatory; consumers and investors are also key drivers in the changes that are affecting the mining and metals industries, so companies must act now to better understand the risks they face as an upstream or downstream supplier.
A key component to making supply chain risk mitigation manageable is having a robust management system that enables risk assessment, strategy development, data management and reporting both internally and externally.
This article looks at some of the key aspects to supply chain management and offers practical solutions to managing and reporting supply chain information.
Sticks and Carrots – Why implement supply chain management?
Conflict Minerals Regulation
With the Dodd-Frank Act already in place, the European Parliament is currently seeking agreement on the final version of an EU Conflict Minerals regulation. At the moment, the regulation differs from Dodd-Frank in that it covers not only the Democratic Republic of Congo (DRC), but also includes other regions defined as ‘conflict-affected and high-risk areas’. In its present form, the regulation will capture far more organisations than Dodd-Frank, with disclosure requirements affecting both upstream and downstream companies (agreement is still to be reached as to whether disclosure will be voluntary or mandatory).
Given the increasing pressure on the industry to avoid sourcing from conflict-affected regions, it is definitely in a company’s best interests to prepare itself now for future legislation. An efficient management system supported by robust due diligence is the best way to do this.
For more information on supply chain management particularly with respect to conflict minerals read the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Modern Slavery Act 2015
As outlined in the February edition of the Crucible, this Act affects all businesses with a turnover of over £36 million and is valid for any organisation which has operations within the UK – meaning many companies based outside of the UK are also affected.
The Act requires impacted organisations to prepare and publish an annual statement detailing the ongoing process they are taking to ensure that there is no modern slavery or human trafficking within their business and supply chains. Without wishing to repeat the steps to be taken (see Crucible February 2016), organisations must prepare and publish either:
- A statement detailing steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any part of its own business or supply chains; or
- A statement that the organisation has taken no such steps.
Although option 2 is the simpler journey, having a publicly available statement that effectively says that the organisation does not care about the issue of modern slavery and human trafficking sends a strong message and risks a backlash from stakeholders. As such, the safest route to compliance and brand management is certainly the first.
Again, a robust due diligence process is central to being able to meet the requirements of the Modern Slavery Act. These processes will involve many different aspects including identifying high risk suppliers, gathering and evaluating relevant supplier information, and managing non-compliance, the key will be to have an effective and efficient way to gather and manage the information.
Customer and Investor pressure
With a rapidly growing spotlight placed on mining practices and the metals supply chain, more and more customers are seeking to mitigate their own supply chain risks by requesting sourcing information from their suppliers.
This is also true of investors, who are increasingly concerned about the reputational risk attached to issues such as poor labour practices or human rights abuses in the supply chain. Having the right processes in place to evaluate suppliers can not only prevent incidents from occurring but can demonstrate the commitment to responsible business.
Sustainability reporting requirements
Organisations looking to address sustainability often choose to report their progress through the use of reporting frameworks such as the Global Reporting Initiative (GRI). The GRI G4 guidelines use the concept of addressing an organisation’s ‘materiality’ when defining sustainability aspects to report on.
Assessing areas that are most important or ‘material’ to an organisation allows them to streamline reporting to focus on key topics which carry the greatest sustainability impacts, risks or opportunities; are of greatest interest to company stakeholders; or carry the greatest regulatory risk.
Often, for producers or users of raw materials, supply chain risk management is included as a material aspect for reporting. For those thinking of starting to report on sustainability, don’t forget the MMTA has produced a guide to get you started. This can be found at: http://www.mmta.co.uk/newsletter/sustainable-minor-metals
I understand why I’m going to have to do this, but what are the positives for my business?
Let’s start with an example of energy saving washing machines. If we go back a few years, there were energy inefficient machines and we were all using them. Then regulation was introduced to force washing machine manufacturers to show how energy efficient their appliances were. Aside from the initial protests about bureaucracy and red tape, this requirement has acted as a stick for those manufacturers not producing energy efficient machines – we can all see who they are because we, as consumers, are now better informed (helped by the visual energy usage system on the front of machines). The change that we are most interested in, however, is that it has allowed manufacturers of the most energy efficient machines to market their appliances in a positive manner, and in many cases to charge more because they are selling higher quality products that will save the consumer money over time.
Now, the metals supply chain is not a washing machine – although there’s a lot of metal in them – but how great is it to be able to say to your customers, ‘we’re a compliant supplier; here’s all the paperwork, exactly as you need it, giving you all the information your customers are asking for to reassure them and your investors. We are a responsible supplier’.
In doing so, you can have a marketing message that can be a very powerful one when attracting new business, as well as maintaining current relationships. Not to mention that the companies you sell your product to will really appreciate you making life easier for them in their efforts to comply. There is an advantage to be gained by being an early adopter of such initiatives.
Here is a summary of some of the main reasons a company may choose to report:
- Transparency and reputation
- Customer requests (immediate customer and/or end users/consumers)
- Ethical Behaviour – acting in with ‘good values’ which may include fairness, equality and diversity
- Supplier requests for information
- Companies can gain valuable feedback from stakeholders so that they may better position themselves in the marketplace
- Attract new business
- Compliance / license to operate (in certain markets)
So how do you make compliance effective without overwhelming your business?
Your organisation may already be collecting supplier information, for example through a spreadsheet or survey, but with the increasing scrutiny placed on third party risk, there are advantages to a single, auditable solution, and there are online products on the market that can certainly help streamline the process and make it more efficient.
Whether online or not, the key aspects that need to be considered are as follows:
- Ensuring all suppliers, wherever they are located, are covered and kept track of
- Easy visibility of which suppliers have complied and the relative risk related to each
- Ensuring you save time and cost associated with collection and management of large quantities of information
- Ensuring your data gathering and reporting capability meet all applicable legislative requirements
- Undertaking detailed analysis to ensure the information you are gathering is meaningful
- Ensuring you consolidate all supplier information requirements in one place and that they are easily accessible
Ensuring you get as high a level of compliance from your suppliers as possible by making the process efficient and user friendly for them. Yours is unlikely to be the only request, for such information, so the easier it is to complete, and the more uniform it is, the more likely you are to get a response.
If you do decide to look for an online solution
There are number of aspects that should be considered when moving your supplier management or due diligence processes online. Software can improve upon current processes, but it is important that it is not treated as a silver bullet in meeting conflict minerals or modern slavery requirements.
Flexibility of content:
It is important that you are not constrained or dictated to by the solution that you select. Over time, your information requirements will undoubtedly alter or expand. It is therefore essential that you use a system that can accommodate this.
Focus on what matters and how to analyse it:
When starting the process of managing supplier risk and compliance, or even when moving from an offline to an online process, the temptation is to ask too much. By attempting to collect vast volumes of data or to obtain detailed information that you don’t use, or can’t analyse, you are more than likely wasting not only your own time but also your supplier’s time; this can lead to indifference within your organisation and amongst your suppliers.
Use your reporting requirements, or industry and legislative drivers, to inform the questions you ask.
Not all suppliers are the same:
As your organisation becomes more familiar with engaging suppliers, it is likely that you will want to gather different information from different suppliers, or groups of suppliers. With a large supplier network, there is often a need to categorise suppliers and request different information according to geographic location, supplier risk category or the value of spend with the organisation.
Make supplier compliance easy and efficient:
Ultimately it is your suppliers who will have to engage with and complete information through your chosen solution. Bear in mind that suppliers are dealing with multiple requests for information, so any decision taken to lessen the burden on them will be appreciated.
For example, an online solution can enable suppliers to reuse the data that they disclose for other purposes such as sharing it with their other customers, as well as how it can provide a simple single environment for responding to all of your own company’s requests for information.
When you consider that you may have hundreds or thousands of suppliers resulting in thousands of answers, you need to make sure that your solution has the capability to make use of this data. At the very least you should be able to automatically score responses in a manner that is meaningful to all aspects of your business, flag responses in order to easily identify risk areas, warn of expiring documentation and of course manage your suppliers in an efficient and relevant manner.
Online Supplier Portals
There are a range of web-based platforms for securely sharing information between buyers and suppliers. They should have the functionality to enable a wide variety of qualitative and quantitative information to be gathered from suppliers and analysed, grouped, filtered and scored by buyers.
Key benefits of the platforms for buyers:
- Ability to collect supplier compliance information aligned with frameworks such as GRI G4, UNGC, ISO 14001, ISO 26000; covering anti-bribery and corruption, labour standards and modern slavery, conflict minerals, environment, health and safety and commercial information.
- Information obtained through supplier questionnaires which can be tailored to different suppliers depending on information requirements e.g. by geography or sector
- Proprietary buyer questionnaires ensure coverage of specific information required by suppliers
- Analysis dashboard for analysing, comparing, and benchmarking suppliers
- Registration is free for buyers on the portal, you can then invite your suppliers to join
Key benefits of the platforms for suppliers:
- Enable suppliers to maintain a secure, private and up to date profile of all their non-financial information
- Suppliers can publish information to multiple buyers and invite customers to view their information
- The portals allow suppliers to upload compliance information and certification, along with the ability to record, calculate and report on annual carbon emissions, waste and water consumption
An example of such a portal is Greenstone Supplier Portal:
Dr Sophie Parsons is a Senior Consultant at Greenstone, a non-financial reporting software provider which works with a number of multinational organisations to manage and report on their environmental and social impacts. If you would like more information about the SupplierPortal platform provided by Greenstone, and how it can help manage your supply chain due diligence issues relating to conflict minerals, modern slavery or other areas then get in touch with Gyles, our Head of SupplierPortal, at firstname.lastname@example.org.