Plea for due diligence on every supplier

To properly address supply-chain risk, multinationals should be doing due diligence on every supplier and cascading action down through the value chain. That is what Carlos Cordon (pictured), Professor of Strategy and Supply Chain Management at IMD, argues.

As multinational corporations try to cut their carbon emissions and tackle other social ills, they are coming under pressure to take a closer look at every link in the supply chain – which is now at the forefront of efforts to ‘green’ the global economy. That means assessing the environmental, social and governance (ESG) credentials of suppliers, which can number in the tens of thousands for a large group like Unilever, for instance.

Properly addressing supply chain risk is, therefore, a mammoth organizational challenge. The three-decade march of globalization has created sprawling value chains that span multiple continents. Further, those operations will be spread across parts of the world where data is hard to come by, and where the legal and regulatory regime may be far below European standards. But try you must. In some jurisdictions, supply chain visibility is now being mandated by lawmakers. Germany, for one, is handing out fines of up to €8 million for larger companies that fail to check whether their suppliers are abusing human rights.

The dangers of failing to carry out proper due diligence all the way along the chain have been illustrated by tragedies in the garment industry, including the Rana Plaza factory collapse in Bangladesh in which more than 1,100 workers perished. This underscores the legal, commercial and reputational risk for companies that fail to ask tough questions of their suppliers.

The need to carry out proper due diligence is further amplified by the importance of tackling Scope 3 emissions, the greenhouse gases that are emitted along the supply chain and in products or services. In contrast with direct emissions from, say, offices and travel, Scope 3 emissions typically account for the bulk of any company’s carbon footprint. But they are the hardest to measure. … … …

Want to read more?