Tag Archives: procurement legislation

Modern Slavery: Don’t Get Named & Shamed In 2019

How should procurement and supply chain professionals prevent and address modern slavery in their supply chains?

The first day of 2019 saw the implementation of the Modern Slavery Act in Australia, requiring organisations above a certain size – consolidated revenue of A$100 million – to report annually on the actions they are taking to address modern slavery.

The Walk Free Foundation’s Global Slavery Index 2018* estimates:

•  In excess of 40 million people globally are subject to some form of modern slavery and approximately US$150 billion per year is generated in the global private economy from forced labour alone

• 24,990,000 people in the Asia-Pacific Region are ‘enslaved’, which accounts for 62 per cent of all modern slavery victims

•  15,000 people are currently victims of modern slavery in Australia

As organisations in Australia begin turning their focus to understanding their risk profile, there could well be a significant rise in these figures. With the legislation ensuring access to a public register revealing all the details of the submitted company statements, we can expect more noise online about the state of the nation when it comes to modern slavery, as well as the organisations implicated.

Organisations might be named and shamed for their lack of reporting, incomplete reporting or lack of action. As a result of the public access, board directors will be acutely aware of the risks to their brand reputation and demand much greater visibility of their supply chains.

Enter the procurement and supply chain leaders who are increasingly becoming the custodians of social responsibility in their organisations. Many organisations will be ignorant as to the scale of modern slavery risks in their supply chains. Forcibly detained adults and enslaved children work in many industries including fashion, fishing, cocoa, cotton, clothing, cannabis, construction and prostitution.

Integrated, global supply chains make it hard to tell whether products, even those that are stamped “Made in Australia” have at some stage relied on slave labour or underage workers as part of the production and supply processes.

Boards of organisations will need to accurately report:

1.The extent of their exposure to risks of modern slavery in their operations and supply chains

2.The action they have taken to assess and address those risks, and importantly

3. The effectiveness of their response

Some organisations may even take the next step and act strongly and visibly to help address the issue and help reduce or eliminate the slavery issue

How should the procurement and supply chain professional prevent and address modern slavery

  • Policy and Process Frameworks

It’s important to have a policy of some description that covers all the relevant principles. Policy also needs to extend into action by embedding changes into processes that cover things like supplier due diligence and ongoing performance monitoring

  • Understanding forced labour and monitoring slavery red flags in your data

Understand the areas of your organisation’s supply chain that will be particularly vulnerable to slavery practices. Many procurement platforms have additional features that can connect you to suppliers with known issues. There is no doubt that procurement and supply chain professionals will need to conduct extensive research into high-risk areas; certain countries, regions, suppliers, suppliers to suppliers, high risk supply chains, certain industries and products. Ignorance to the issue is indefensible.

  • On-site inspections

Determining high-risk suppliers is important but it will also be necessary to conduct on-site inspections to investigate further. On-site audits are one of the key mechanisms for monitoring supplier performance against agreed standards.

  • Developing and implementing a corrective action plan

Where an audit or an on-site inspection has confirmed instances (or suspected instances) of modern slavery, it is critical that the supplier develops and implements a Corrective Action Plan (CAP). The purpose of the response should be to clearly define corrective and preventative actions for resolving any non-compliance identified during the audit or inspection.

  • Engaging Suppliers

A problem as large as modern slavery will never be effectively impacted by policies alone, setting standards for suppliers, developing action plans and monitoring their implementation. CAPs will only be effective in their remediation activities if they are combined with programs that build a supplier’s capability. The ideal is for the supplier to integrate and drive antislavery policies into their own business. Be prepared to be involved in this activity and in some cases sponsoring the necessary business changes.

  • Building supplier incentives

The key to effecting changes needed is to develop supplier incentives, which ensure that the supplier takes ownership of the process and ensures continuous improvement.  Improvements need to be measurable to support the reporting and prove that progress is being made.

Such incentives may involve publicly announcing a supplier preference, in cases when the correct steps have been taken to address slavery. An alternate incentive might be to automatically qualify suppliers that have implemented robust procedures into their second tier supply base

What is the bottom line for Procurement and Supply Chain professionals?

While these changes to the regulatory environment are disruptive there is a silver lining in that it will bring new opportunities for the CPO to ensure increased visibility into the supply chain. Larger organisations, that have invested heavily in leading supply chain practices, may find themselves better equipped for responding to these changes. For others, the legislation will mean additional investment in order to play catch up, resulting in higher capital and operational expenditure.

Ultimately, the most effective response is likely to be organisations joining forces and jointly managing the supply-side, thus building an over-whelming demand for suppliers to abolish these practices. A slavery-free catalogue or certification may become the ticket-to-play for suppliers. A co-operative response will have the hardest hitting message of all and now is the time to be working together.

Procure with Purpose

Procurious have partnered with SAP Ariba to create a global online group – Procure with Purpose.

Through Procure with Purpose, we’re shining a light on the biggest issues – from Modern Slavery; to Minority Owned Business; and from Social Enterprises; to Diversity and Inclusion.

Click here to enroll and gain access to  all future Procure with Purpose events including exclusive content, online events and regular webinars. 

Duty of Care Law: You Got The Green Light In France!

France’s new legislation, The Duty Of Care Law will prevent serious human rights risks and threats to fundamental freedoms. Will other countries follow suit? 

It would be wise for procurement professionals to pay close attention to France’s new sustainable procurement legislation.   The Duty of Care law, which affects organisations with over 5,000 employees, is likely to have some influence on other nations,  starting with those in the EU.

If similar human rights legislation is implemented across the globe; forewarned is forearmed, and sustainable, ethical procurement is a hot topic that’s only getting hotter!

Whilst the progress of global sustainability standards have traditionally been  pushed by individual businesses and activist groups, things are changing. This month saw the publication of ISO20400,  (International Standard for Sustainable Procurement), which creates a standard for every organisation in the world to follow.

The Duty of Care Law

In its much-awaited decision last month, the French constitutional council has given a  green light to the “Duty of Care” law (Devoir de Vigilance) although they stated that there remain some provisions to the French constitution.

The major points of the law, requiring French companies with at least 5 000 employees, including in their French direct or indirect subsidiaries (or 10 000 employees in their direct or indirect subsidiaries worldwide) to develop a diligence plan (“plan de vigilance”), are recognised of general interest. The intent is for the diligence plans to prevent serious risks related to human rights and fundamental freedoms, health and safety of persons and the environment. The constitutional council considers however that the sanctions initially included in the law violate the constitutional principle that penalties must have a sound legal basis. As a result, the civil fine of up to €10 million, as well as its increase to €30 million in case of damages that could have been prevented by implementing the diligence plan, are removed from the law.

Developing A Diligence Plan

The obligation of implementing a diligence plan however, as well as the formal notice and the civil liability mechanisms in case of lack or deficiency of the diligence plan, are constitutional. Consequently, companies are still compelled to implement a diligence plan, even if the law loses some of its deterrent effect, which makes for the first law of this type: it introduces an obligation much more stringent than a mere reporting obligation, such as the ones required by the UK Modern Slavery Act or the California Transparency Act. Companies are required to implement specific concrete actions and cannot limit themselves to reporting on what they do (or do not do).

There are also some talks of developing similar regulations at European Union level.  Eight national parliaments have called for a corporate duty of care towards the human rights and local environment impacted by the company’s operations. They have jointly proposed that the European Commission take action on this matter. This shows that the French “Duty of care” law is indeed the first step of a generalized global movement requiring companies to address their Corporate Social Responsibility (CSR) risks, including throughout their supply chain.

This article was first published on the EcoVadis Blog

Dynamic Discounting to Ease Payment Woes

A new report has highlighted that three quarters of UK businesses plan to use Dynamic Discounting to reduce supplier late payment woes.

Changing legislation, public and governmental pressure, and the threat of financial and reputational penalties are leading many businesses to use innovative new methods to ensure suppliers get paid more quickly/on time.

As many as three quarters of UK businesses plan to use the practice of Dynamic Discounting – offering suppliers the chance to accept a lower than invoiced price in return for speedier payment – potentially helping to overcome the endemic problem of unfavourable customer terms or late payments.

Cash Flow Issues

In research conducted among 100 UK procurement professionals, on behalf of procurement software provider Wax Digital, 27 per cent said that their business already used Dynamic Discounting with suppliers. Another 30 per cent said they plan to start doing so in the next 12 months and a further 20 per cent said they had it as a longer term objective.

It was also recently estimated that UK small and medium sized businesses are owed an average of £12,000 each in late payments, equating to £55 billion countrywide. 23 per cent have also considered insolvency as a result of late payment related cash flow issues, while 68 per cent wait for 60 days or more for payment.

The government’s recent enterprise bill is also designed to tackle the imbalance of bargaining power between suppliers and their customers.

But the trend of businesses taking up Dynamic Discounting suggests that suppliers and their customers are taking matters into their own hands. Dynamic Discounting systems work by offering a scaled discount for early payment at the point when invoices are issued to customers.

This has also become possible through the increased use of e-procurement software that automates and massively speeds up the matching and reconciling of supplier invoices on the customer side. Because many businesses can now process invoices in a matter of hours they are in a better position to pay the supplier early, should they choose to do so.

Cash in the Bank

Daniel Ball, business development director, Wax Digital, comments: “Serious late payment and cash flow issues are more likely to destroy a business of any size over and above anything else. It appears that the business community is now taking the bull by the horns to solve this growing problem while suppliers can use a different type of bargaining power.

“Although businesses may get paid slightly less for their products and services they gain the benefit of having the cash in the bank much more quickly.”

The research was commissioned by Wax Digital and conducted by Morar Consulting in early 2016.