Research from Ivalua, the global spend management cloud provider, has revealed more than half (58%) of European suppliers said buyers rarely or never include responsible labour practices in contracts or agreements.
The report also identified a lack of consistent monitoring of labour standards. Just half (50%) of European suppliers said they are frequently asked by their buyers to provide proof that they protect against unsafe working conditions. These figures were even lower for other labour standards such as child labour (47%), modern slavery (45%), and below minimum wage pay (42%).
The study, conducted by Coleman Parkes Research, surveyed 300 suppliers across the UK, France, Germany and Switzerland to explore labour standards throughout the supply chain. The findings show that buyers are not enforcing standards for responsible labour practices, with over three quarters (78%) of European suppliers reporting they don’t have fully implemented plans in place to detect and eliminate modern slavery in their supply chains.
In the UK, organisations are facing more pressure to identify unethical labour practices. The UK government has proposed new amendments to the Modern Slavery Act, to include fines and even prison sentences for the most serious cases of unethical labour practices in the supply chain. However, most organisations are unprepared for this, with over three quarters (76%) of UK suppliers not implementing plans to mitigate the risk of fines due to the proposed changes.
“Combatting poor labour practices must not be treated as a “box-checking exercise”. As regulations get tougher, organisations must keep track, as the business impact of unethical labour standards can be extremely damaging,”commented Alex Saric, CMO at Ivalua. “The responsibility to tackle unethical labour practices extends to the entire supply chain, from buyers all the way to downstream suppliers. But change starts at the top, and buyers need to start the conversation with suppliers early to make it clear that poor labour practices will no longer be tolerated. Incentives could be offered, but the message should be clear: we will only work with suppliers that have certifiable labour standards.”
With regulations becoming tougher, and responsible labour becoming a more pressing concern for policy makers, investors and consumers, organisations are increasingly recognising the need to work alongside suppliers to improve their labour standards. This means collaborating with immediate suppliers – as well as their suppliers’ suppliers – to drive long-term positive change.
However, the majority of suppliers are not fully prepared to root out unethical labour practices. According to the report, suppliers currently do not have plans in place to eliminate below minimum wage pay (77%), child labour (76%), unsafe working conditions (75%) or unreasonable working hours (78%).
“The responsibility to identify and eliminate unethical labour falls on every tier of the supply chain. But buyers must bolster their ESG strategies to drive meaningful change and reduce the risk of non-compliance,” notes Saric. “To make this a reality, procurement must get smarter. Crucially, organisations must have adequate data to identify and avoid partners with unethical labour practices. They require 360-degree visibility of their immediate suppliers, sub-tier suppliers, and subcontractors. To do this, organisations must have the right tools in place to ensure the reliability of data, and facilitate timely and effective decision-making. Otherwise, instances of poor labour standards can easily slip through the net.”
Notes to the editor
Additional statistics from the report include:
- Less than a quarter (24%) of UK suppliers have fully developed and implemented plans to mitigate the risk of fines due to the proposed changes to the Modern Slavery Act.
- Just 8% of suppliers said buyers always include responsible labour practices in contracts or agreements.
- Over three quarters (77%) of suppliers believe responsible labour practices can also give them a competitive edge.
- 86% of UK suppliers see responsible labour practices as a competitive advantage, compared with 71% in France and 70% in Germany – suggesting that UK buyers are putting more plans in place to address ethical labour than other European regions.
About the study
This report is based on an April 2021 study of 300 suppliers across the UK (100), France (100), Germany (50) and Switzerland (50), who provide materials, services, or parts to large (1,000+ employees) multi-national organisations. The research was conducted by Coleman Parkes and commissioned by Ivalua.
What is Responsible Sourcing?
Ivalua is a leading provider of cloud based Spend Management solutions. Our complete, unified platform empowers businesses to effectively manage all categories of spend and all suppliers, increasing profitability, lowering risk and improving employee productivity. Trusted by hundreds of the world’s most admired brands and recognised as a leader by Gartner and other analysts, Ivalua maintains the industry’s leading 98%+ customer retention rate. Learn more at www.ivalua.com. Follow us at @IvaluaEMEA.
It’s time for a smarter approach to manufacturing supply chains
By Alex Saric, smart procurement expert at Ivalua
Due to growing customer demands, UK manufacturers are under more pressure than ever to develop new, innovative and affordable products at pace. What’s more, manufacturers are spinning plates as they must navigate new regulations, such as the need to mark goods placed in Great Britain with the UK Conformity Assessed product marking. Yet many manufacturers continue to face historical challenges such as siloed business processes, a lack of collaboration and visibility across the supply chain. This is all the more difficult as the technology solutions they have implemented have often failed to bring together company stakeholders, data, and strategy.
Global crises like COVID-19, geopolitical factors like Brexit, and other international issues such as the ongoing semiconductor shortage have exposed these weaknesses in technology and processes further. In fact, UK factory production has slowed as almost 60% of manufacturers have experienced longer delivery times from suppliers. As a result, many are looking to bolster their supply chain resilience.
Manufacturers should see this difficult period as an opportunity to transform procurement processes, and shouldn’t opt for quick fixes. By laying the right foundations now, manufacturers can reduce risk, improve their ability to make strategic decisions, and collaborate with suppliers to launch better products faster.
Procurement remains in the slow lane
Most manufacturers currently have a long way to go to optimise supplier management practices. Recent research from Ivalua found just 16% have standardised processes and advanced digital platforms in place to monitor supplier risk and performance. As many found during the COVID-19 pandemic, a lack of clear processes can knock key stakeholders out of alignment, breaking down effective communication and grinding strategic decision-making to a halt.
Manufacturers must have a birds-eye view of the entire supply chain, as it ensures manufacturers have the latest data when communicating across departments and making strategic decisions. In fact, more than half of manufacturers believe that improved visibility and collaboration within their supply chains would reduce costs, improve decision making, and lessen supply disruptions.
A lack of supplier visibility is also hindering new product launches, slowing innovation cycles, and in some cases causing product launches to fail altogether. In fact, 48% of manufacturers launched new products on time and on budget less than three quarters of the time. This is further evidence that manufacturers need to make supply chain visibility a primary focus of future resilience strategies. Improved visibility will also help them to optimise production of existing products and maximise profitability.
Building a resilience roadmap
To build a truly resilient supply chain, manufacturers need a centralised view of not just their tier one suppliers, but also their suppliers’ suppliers. This means creating a single hub that can integrate effectively with other systems, bringing in and cleaning data from across the supply chain to offer a complete picture that will aid in decision making.
Not only will increased supply chain visibility help to improve decision making and risk response, it’s essential to facilitate collaboration between buyers and suppliers. By creating a clear way for stakeholders across the supply chain to share everything from new product requirements to production forecasts, organisations can easily identify new areas of innovation, and find new ways to work together to support business goals on either side.
For instance, recent research from McKinsey outlined how Unilever partnered with enzyme supplier Novozyme to work together on developing a more sustainable detergent. With Unilever’s knowledge of materials, and Novozyme’s experience with reagents that trigger the right chemical reactions, the partners created a new formula that performed better. The formula could also be transported at lower temperatures, so customers could save energy and reduce carbon dioxide emissions. Here, increased transparency across the supply chain accelerated innovation, improved profitability and supported the common business goal of improving sustainability.
Moving forward with digitisation
To truly harness the value of their data and optimise procurement processes, manufacturers must opt for a smarter approach to procurement. This will give them the visibility they need, while also providing tools to facilitate collaboration and improve efficiency. Today’s smart procurement platforms can boost automation, helping speed up supplier onboarding, maximise buy-in, and reduce change management across the supply chain – all while giving the organisation access to the data it needs to manage risk effectively.
More and more manufacturers are seizing the benefits of greater digitisation in procurement and enabling team members to collaborate using accurate data. In fact, our research shows that many organisations are currently planning to standardise their processes for supplier risk and performance management (54%), improve data quality (51%), and implement smart procurement solutions (44%). This ensures both greater resilience as well as increased profitability.
For example, global automotive parts leader Meritor digitised its complete product and supplier lifecycle, driving improved collaboration and efficiency. The resulting acceleration of product innovation and improved margins drove rapid growth in its stock price over several years.
Manufacturers that look to transform their supply chains will thrive at a time where many are playing catch up. For those that can standardise processes quickly, they will be able to use their deeper and broader visibility to have a more resilient supply chain when it is needed the most. With access to real-time collaboration and automated spend management, advanced manufacturers will be in a prime position to anticipate risk, make informed decisions, and ensure resilience against disruptions.