Supply chain legislation is sweeping across the world placing new requirements on vendors to prove their environmental, social and governance (ESG) credentials. But where to start to ensure your business succeeds in this new era of supply chain regulation.
New supply chain regulation is coming into force as governments respond to the UN’s Sustainable Development Goals and seek to address global inequality, social and environmental issues. Over the last few years, new legislation has included BRSR Core in India, LkSG in Germany, Apenhetsloven in Norway, Uyghur Forced Labour Prevention Act in the US and Bill S-211 in Canada with more expected to follow across the EU and Asia Pacific.
This new wave of legislation is designed hold major corporations to account for impact their end-to-end business operations on people and the planet. The result is an unprecedented drive for transparency and heightened level of interests in vendors policies, processes and actions. The nature of this legislation means that you don’t have to be based in one of the countries that has introduced due diligence legislation, you just have to be selling your products and services to clients in one of those countries for it to impact you.
In this blog, we look at the 5 biggest impacts of this surge of new legislation on supply-side businesses and offer guidance about how to make it work to your business’s advantage.
1. Increasing accountability and need for greater transparency
First up is increasing accountability. One of the key objectives of the new supply chain legislation is to create more transparency and make corporations accountable for their actions. In Norway, the Norwegian Apenhetsloven even directly translates to “Openness (or Transparency) Act” in English.
In the past, your biggest customers might have asked you to fill out a tick box form asking you to confirm your business was not engaged in modern slavery and other social and planet related concerns, but in this new era of supply chain legislation, that is no longer enough. If any of your customer have offices in countries where regulation has been introduced, they also now need to further.
The OECD Responsible Business Conduct Guidelines are a good place to start here. They underpin much of the legislation that is coming into force and set out a 6-step framework that your customers will be following to ensure they comply. This process explicitly refers to using tools like supplier audits or workforce surveys and interviews for example.
As a supplier that means being prepared to be much more open to questioning from your customers, including providing more detailed information about, and evidencing policies, practices, and processes and opening your operations up to independent auditing.
Supplier checks may include:
- Desktop auditing
- On-site auditing
- Worker interviews
2. Improved ethical and sustainability standards
A key element of the new legislation is the monitoring of ongoing supplier performance to support a continual improvement approach. Supply-side businesses are likely to find they need to demonstrate to increasingly higher ethical and sustainability standards. This could involve showing how your business is adopting more environmentally friendly practices, ensuring improving labour or employment conditions, and / or promoting responsible sourcing within the supply chain.
3 ways to demonstrate ethical and sustainability standards:
- Adopt environmentally friendly practices
- Ensure labour or employment conditions are improving
- Promote responsible sourcing within your own supply chain
3. Cost and investment
In cases where businesses have multiple clients wishing to undertake the same in-depth checks, there is a risk that these sorts of requests for information and audits may become very time-consuming and a real cost to your business.
You may also find you need to invest in new systems to enhance transparency and traceability as well as recruit people to manage documentation effectively and/or provide training to your staff to ensure they are aware of and capable of implementing what is required.
Third-party solutions, like Achilles, help you manage the detailed information and evidence you need to capture and track in one place and enable you to share it with multiple clients efficiently. The Achilles solution also provides access to new commercial opportunities – helping your business to keep costs down whilst maximising business opportunities from your increased level of compliance.
4. Greater focus on risk mitigation and management
This new wave of supply chain legislation is causing larger corporations to look to achieve deeper supply chain transparency going beyond direct suppliers (Tier 1) to include their suppliers’ suppliers (Tier 2 and beyond). This cradle-to-grave approach considers the end-to-end process from the extraction of raw material through to manufacture and distribution and ultimately final disposal of the product.
Suppliers that want to work more collaboratively with their clients and develop stronger relationships with greater longevity, may find it pays to invest in their own supply chain risk management and due diligence and undertake their own supplier audits, to improve overall transparency. You can learn more about Achilles’ supply chain due diligence services to support your business here.
5. New business opportunities
The good news is that, for suppliers that do this well, this new legislation also creates opportunities to build closer relationships with clients, create important differentiation, and deliver a stronger financial performance. Other benefits may include shorter sales cycles, preferred supplier status, and faster growth.
It makes sense that, if failure to demonstrate ESG credentials could result in losing customers who prioritise ethical and sustainable business practices, conversely, visibly demonstrating your ESG credentials is equally likely to enhance your business’s reputation as a responsible and trustworthy business partner and strengthen your market position.
This is supported by studies such as ‘Beyond Checking the Box’ by IBM which indicate that companies who adopt more sustainable business practices create increase value and profitability. You can read more about the business case for sustainability here.
In summary, while supply chain due diligence legislation aims to promote ethical and sustainable business practices, it can pose challenges and opportunities for the supply chain, requiring adaptation and alignment with ever evolving standards and expectations.
Alongside those challenges are very real business opportunities – to drive process improvement, demonstrate competitive differentiation and win more business with clients that are increasingly focused on operating with higher levels of higher ethical and sustainability standards across their end-to-end value chains.
Astute companies are already taking steps to prepare for these likely impacts by introducing better processes and documentation. Many are voluntarily undertaking independent audits and sharing the audit results with clients. You can read about Achilles audit programme and, even book a no-obligation consultation to discuss audit options here.
Businesses that work with Achilles to help them manage their business credentials talk about these sorts of outcomes:
- It being more efficient to bid for new business because they have all information that buyers want and need in one place. Read about Grupo Eulen’s experience.
- Management and regulatory compliance being so much easier in the MyAchilles dedicated platform compared with Excel spreadsheets and PDFs.
- Having more time to focus on doing things closer to the company’s core business.
- Having systems and processes to drive business improvement and compliance efficiencies. Read about Sanghvi Movers experience.
- Having much better control with Achilles acting as the extension of their internal team.
- Accessing new business opportunities by being part of the Achilles global network of buyers and suppliers.
Contact us to learn more about how we can help you demonstrate and improve your supplier credentials and meet the increasing demand for supply chain transparency.
