As the world wakes up to social and environmental injustice, a spotlight is shining on global supply chains. Countries around the world are requiring greater transparency in supply chains, across a range of topics, from conflict mineral mining to deforestation regulation.
The burden on supply chain leaders and procurement teams to disclose and report on the values of their suppliers is growing exponentially. The pressure to perform, drive efficiencies, and deliver a competitive advantage is now compounded by administrative overhead to not only ensure supply chains reflect the values of the purchasing organization but also to prove it to third parties.
This can feel like a mountain to summit. For the future of sourcing, we must strap on our boots and get climbing.
Appropriate application of data and analytics will be critical in the successful management of these emerging requirements for procurement teams worldwide. The complexity of global supply chains creates a unique challenge. Fortunately, new technologies and data standardization make this an achievable goal.
Leveraging Prequalification Questionnaires
As procurement companies, we must stop thinking of a Prequalification Questionnaire (PQQ) as just a questionnaire. When we study traditional responses to PQQ questions as data points, we unlock huge value from the content stored in what is traditionally considered an administrative headache.
Digitization of a PQQ is not enough; building structure and intelligence into the design of a questionnaire, and the structure of its responses, enables analytics on a whole new scale. This drives enormous benefit for the procurement organizations facing new reporting strains, as well as for the suppliers sharing the burden.
There are three important elements to an efficient supply chain reporting framework:
- Common data standard
- Data sharing
- Analytics and benchmarking
With these in place, procurement teams can easily extract required figures for annual reporting or legal disclosures. Procurement reporting tools can help teams instantly answer the following types of questions:
- How many of my suppliers are SMEs?
- How many of my suppliers have a modern slavery policy statement?
- What percent of my supply base is operating an internally accredited carbon reduction scheme?
Empowering Procurement to Take the Lead
As a procurement leader, you are probably familiar with requests to report on the supply base. Perhaps you’ve heard something along the lines of, “I’d like to add a figure to the annual report on how many of our suppliers can demonstrate they mine conflict-free.” It seems like a sensible thing to do, but so often leaves a procurement team scrambling to determine which suppliers would be relevant to contact, how to reach them, and how to collect and store the information.
More and more, legislative action includes provisions for not only reporting on individual company practices, but the practices within companies’ supply chains as well, meaning these sorts of requests will only grow with time. By requiring companies to report on the ethics reflected in their supply chains, these pieces of legislation seek to drive out “bad actors” typically lurking at tier three or four of the supply chain.
New EU legislation takes effect January 1, 2021, aimed at restricting the trade of conflict minerals. It requires EU companies to only import tin, tantalum, gold and tungsten from responsible sources. From that same date, EU importers of these products will have to carry out due diligence on their supply chain.
SECR: Streamlined Energy and Carbon Reporting
SECR legislation, which came into force April 1, 2019, requires all large UK companies and large LLPs, as well as all quoted companies, to report on their annual energy use, greenhouse gas emissions and energy efficiency actions they have taken.
The UN Universal Declaration of Human Rights protects the rights of workers and individuals. The UK Modern Slavery Act includes a provision for transparency in supply chains and requires large companies to issue a slavery and trafficking statement annually. The statement must set out what steps the organization has taken to ensure there is no slavery in any part of its business, including its supply chains. France and Australia have followed suit with similar legislation while other European countries have legislation in the works.
The UK Government published proposals in August for legislation requiring large UK companies to perform supply chain due diligence and publish information certifying that certain commodities were produced in accordance with local laws pertaining to deforestation.
“This would mean publishing information to show where key commodities, including rubber, soil and palm oil, came from and that they were produced in line with local laws protecting forests,” reported Sky News.
Equality, Diversity, and Inclusion
Several countries have long-standing equality legislation that prevents discrimination based on a range of factors including gender, race or sexual orientation. Focus is now shifting to apply these principles to supply chains and promote diversity through procurement processes.
Driving Value in Your Procurement Team
Carbon accounting, as an example, is rapidly becoming the universal tool for procurement professionals to measure cost effectiveness and drive business performance both internally and within the supply chain.
It is well known that reducing an organization’s carbon footprint can deliver money straight to the bottom line. Organizations that focus on carbon reduction can save millions per annum through an internationally accredited ISO14065 greenhouse gas certification program.
Collection and promotion of the appropriate data regarding emission levels, performance against targets and offsets are critical to measuring the impact carbon accounting throughout the supply chain can have. Streamlined data collection, reporting and sharing tools are key enablers of tomorrow’s sourcing reality.
International standards and responsible sourcing protocols are common reporting frameworks organizations can complete once and share many times. A procurement organization’s willingness to accept and adhere to common standards has the power to dramatically reduce supplier reporting obligations.
Suppliers often feel overburdened by the sheer volume of forms, certifications and audits they must complete. By accepting internationally recognized standard data templates and audit protocols, suppliers can spend less time achieving accreditation and more time on their core business, driving efficiency and increasing productivity.
Standards have traditionally dictated how questions are asked but have put less emphasis on how the responses are collected and stored. It is equally important that responses to standard questionnaires are stored properly so they can be treated as data points to be compared and analysed.
It is not much use accepting a standard of data if that data is not easy to move between platforms and systems. API technology is standard and available with most ERP, P2P and S2P systems. Leveraging this means you can reduce the supplier burden further by taking data from accreditation bodies themselves, rather than requiring a supplier to submit the data separately for each buyer it wants to supply.
Analytics and Benchmarking
With the two previous steps of a common data requirement and standard data sharing in place, procurement teams can easily analyse and draw conclusions from the data. Data science teams can demonstrate strengths and weaknesses of suppliers individually, and as groups or chains aligned to specific products, or by their size, country of trading or other factors. Armed with these tools, procurement organizations can easily extract information required for reporting, such as how many suppliers can demonstrate their raw materials are mined in conflict-free zones.