Trade flows

Responsible supply chains: time for action

While companies’ rhetoric on social and environmental supply chain responsibility is impressive, there is a moral imperative to do more

Globalisation is scarcely ever out of the news these days. The political, economic and financial structures that have shaped our world since the Second World War face unprecedented stress as a result of lacklustre global growth since the financial crisis and growing dissatisfaction with the status quo.

In a number of countries, rising nationalism and populism threaten to undermine the gains that have resulted from the world’s increased inter-connectedness in recent decades.

Yet while we should defend globalisation for its many benefits – the extension of multinationals’ supply chains into developing countries has lifted millions of people out of poverty – we should also be aware of its shortcomings and aim to address them. By improving how globalisation functions, the world stands a better chance of consolidating the many gains of industrialisation in emerging market countries.

An estimated 80 per cent of global trade now passes through a supply chain

New research, called No more excuses: Responsible supply chains in a globalised world, commissioned by us and conducted by The Economist Intelligence Unit (EIU), reveals the scale and nature of the challenge by detailing the extraordinary increase in the length and complexity of contemporary supply chains.

An estimated 80 per cent of global trade now passes through a supply chain. New chains have accelerated industrialisation in emerging markets, compressing an evolution that took centuries in today’s advanced nations into just a few decades. Unsurprisingly, local governments, businesses and civil society have struggled to keep up with the changes wrought by industrialisation and integration with the global economy. As a result, local communities and environments have sometimes been inadequately protected.

Recognising the challenges

Encouragingly, the EIU survey of 800 corporate executives headquartered in eight countries shows that an increasing number of firms see the value of taking a more responsible approach to their supply chains: nearly eight in 10 respondents say their firms have responsible supply chains.

However, the survey also revealed a worrying degree of complacency by executives about how responsible their supply chains were. For example, less than a quarter of respondents say their companies address issues such as climate change or child labour in their supply chains, while only a third of respondents say they target corruption and bribery. Some examples are shocking: only 12 per cent of respondents in China say their companies address child labour in their supply chains; and only 14 per cent of respondents in Italy address gender equality.

There can be no more excuses for not working to improve supply chains and introduce best practice. There is a clear moral imperative to act

Clearly, corporates need to do more than simply accept their corporate responsibility for supply chains: they actually need to take action. On top of best practices such as giving supply chain responsibility to a core business executive and constant engagement with suppliers and their parties, digitisation can play an important role in helping companies to implement responsible supply chains.

New technologies, including blockchain, cloud computing, big data, predictive analytics, artificial intelligence and sophisticated modelling can enable companies to better utilise and understand data associated with their supply chain. By improving transparency, digitisation of the supply chain allows companies to monitor the ongoing sustainability of their supply chain partners and spot trends, risks and opportunities as they emerge. Using analytics, they can even anticipate problems before they arise.

A business case for responsible supply chains

In a world in which 69 of the world’s 100 largest economic entities are corporations rather than countries, there can be no more excuses for not working to improve supply chains and introduce best practice. There is a clear moral imperative to act.

There is also a growing business driver towards improved social and environmental sustainability. Mounting opposition to globalisation and the increasing economic threat of climate change make a heightened focus on supply chain responsibility a sound business decision. An increased emphasis on the ethics of doing business will also play well in an era of growing consumer expectations; it may even help companies win the attention of the best millennial recruits, who prefer to work for companies seen as socially responsible.

Creating a more sustainable supply chain is not straightforward: each company is different and there is no single blueprint for success. However, as this report shows, there are clear steps that every firm can take. Some companies are already reducing their supply chain complexity in order to make tackling social and environment risks easier. Ultimately though, companies need to recognise that responsible supply chains are both a business necessity and an enormous opportunity: they ignore them at their peril.

Read the full research report for more.