Leading practices followed by companies to mitigate risk
In order to make responsible sourcing programs effective, companies need to follow a methodical approach that takes into account an organization's vision, its codified policies, and its engagement level with suppliers. Our analysis of leading practices shows that there are seven core components to having a robust yet dynamic responsible sourcing program:
- A clear vision and leadership commitment to that vision: It is important that the top of the company champions the vision and objectives of responsible sourcing. This is critical to ensure that there is consistency in action and decision-making from company leaders.
- Suitable policies and code of conduct: Codes of conduct lay the foundation for shared responsibility for improving sustainability. A supplier code of conduct, specifically around responsible sourcing, will enable companies to translate their vision for responsible sourcing into broad-level expectations from suppliers.
- Risk assessment: Organizations must conduct a risk assessment to assess focus areas for responsible sourcing initiatives. This could depend on the nature of the products, spend exposure, country of origin of suppliers, or other bases for assessing criticality. When carrying out this exercise, it is also important to focus not just on immediate suppliers, but also on the extended sub-tier suppliers as well.
- Screening: Screening of suppliers against any sanctions, past violations, or adverse media history along ESG metrics is a key step to ensuring greater visibility of risk in the supply chain. This can be driven at scale with procurement teams who, armed with insights from the screening process, can make quick decisions about their supplier base.
- Self-assessment questionnaires: Companies are issuing self-assessment questionnaires to suppliers and leveraging reports from specialized rating agencies to monitor supplier performance and create reports. Organizations integrate ratings across the procurement lifecycle and use these rating agencies as a transformative tool for their teams.
- Supplier audit programs: On-site supplier audits can uncover local practices, behavioral challenges, and opportunities for improvement that questionnaires may miss. Some industries have developed common auditing and assessment frameworks to standardize the process and avoid audit fatigue.
- A responsible sourcing agenda that's embedded into procurement processes: The task of integrating sustainability consideration into sourcing practices is where the rubber hits the road. This includes developing processes to onboard new suppliers with strong sustainability practices, conducting periodic due diligence, and making sourcing decisions with sustainability in mind.
In addition to the above practices, networking with industry professionals to exchange notes and ideas on best practices, developing shared standards for the industry, and sharing intelligence about potential risks and challenges can have significant merit.