Because of its traditional status as an afterthought, Procurement often engages with the world in a reactive manner. However, as Procurement becomes ever more important in the direction of a company, the people involved need to think about putting in place proactive processes and tools to deal with the complexities of the world as it is and as it is changing.
This is most clear in the case of forced labor. In September, the International Labour Organization published a report it co-produced with Walk Free and the International Organization for Migration. The report, “Global Estimates of Modern Slavery: Forced Labour and Forced Marriage,” estimated that 27.6 million people lived under the conditions of forced labor. In fact, this number has grown by 2.7 million since 2016 due in part to the continued fallout of the Covid-19 pandemic.
While there is an obvious internal pressure to reduce the presence of forced labor in one’s supply chain, a mounting external pressure also exists. Governmental bodies all over the world have begun to implement forceful bans on importing goods made with forced labor. For example, the American Uyghur Forced Labor Prevention Act came into effect in December 2021, prohibiting the importation of any goods made with any use of forced labor in Xinjiang. Similarly, the European Commission has proposed a broader ban on the sale of all goods made with forced labor in September.
These regulations and the ones that will come — and they will come — put the onus on companies to prove the absence of forced labor in their supply chains. For example, if the ban proposed by the European Commission passes, it can request information from companies concerning their supply chains. If the company or a non-EU authority refuses to cooperate, the EU can make its decision based on the facts it managed to gather.
The trend is not towards vague guidelines though. The Lieferkettengesetz, the German Supply Chain Due Diligence Act that comes into effect in 2023, gives a more concrete indication of what a business could expect from future regulations. Once 2023 begins, businesses with more than 3000 workers will have to implement a human rights risk management system; in 2024, the threshold will lower to a minimum of 1000 workers. The purpose of these systems will be to prevent or end any environmental or human rights issues, and companies will have to regularly report the continued presence of such due diligence, the risks identified and the steps taken in response. In other words, it is in an organization’s best interest to have readily accessible proof that it does not rely on forced labor, and that interest is best handled by procurement.
In fact, it is worth noting that the increasing emphasis on due diligence is not solely focused on forced labor. This is especially so in the EU which has instituted new regulations to ensure that supply chains are free of deforestation. Similarly, the European Financial Reporting Advisory Group has finished composing the European Sustainability Reporting Standards. Like the Lieferkettengesetz, these standards will require proper reports about a company’s sustainability. The ESG topics covered by these standards include biodiversity, business conduct and, most importantly for this discussion, workers in the value chain.
Why Procurement is best placed to tackle forced labor for its organization
Occupying the convergence point of an organization’s sourcing initiatives, Procurement finds itself well-placed to tackle the issues of forced labor and Environmental, Social and Governance (ESG) in general. That occupation has encouraged a market of ESG providers to develop tech solutions for tracking social issues. In fact, as the link for the Lieferkettengesetz shows, an industry is already developing to provide procurement with the means to navigate the increasingly regulated market. This is not just the accidental result of an industry proliferating around a gaping, immediate need; the regulations and solutions target procurement teams because that is where the best progress can be made.
“I am totally convinced that the procurement tech providers are mission-critical in providing the necessary transparency needed to achieve sustainability goals,” Thomas Udesen, the CPO at the life science company Bayer, told Spend Matters in February 2021 when discussing Bayer’s decision to join the Sustainable Procurement Pledge (SPP).“Today more and more solution providers are creating a data-driven dialog, and it’s really encouraging that so many are coming up with innovative solutions for transparency, tracking, provenance and inclusive business models that help you make sure you are dealing with ethical suppliers.” The point is that since all sourcing and tracking data goes through procurement, procurement is the ideal place to sieve that data, straining out the unethical aspects of one’s supply chain.
Being ethical requires work though. It is a choice which involves a proactive follow through. Unfortunately, because of the chaos that has torn through the procurement world in the last few years, the issue of forced labor faces the risk of being forgotten. Supply Management warned in October that businesses operating in the United Kingdom may be tempted to lay labor concerns aside while the post of the independent anti-slavery commissioner continues to remain unfilled. While the warning was country-specific, the difficulty raised runs through the entire problem: it is easier for companies to put off the convoluted decision making involved in cleaning their supply chains than actually addressing them.
So, earlier this year, Spend Matters ran a three-part series by our senior analyst Bertrand Maltarvene on the technology created to assist procurement in the removal of forced labor from the supply chain. This is part of our subscription service which brings equal insight to problems throughout the procurement world. It addresses not only the solutions for these problems; it illustrates what the problems actually are — beyond the hand-waving specter of “regulation.” Each part of our modern slavery series goes as follows:
Part 1 dives into the topic, detailing the extent of both the issue of forced labor and the regulations being composed to initiate much-needed reform. Our analyst explains both the general rationale behind the recent push against modern slavery and the requirements of specific anti-slavery legislature like the Lieferkettengesetz and the Uighur Forced Labor Prevention Act.
Part 2 takes the information from part one and reframes it as a question for procurement. In other words, it formulates the nebulous yet urgent issue of modern slavery in terms that fit within the procurement landscape. He then turns his attention to pinpointing the general strategies procurement can deploy to mitigate this issue.
Part 3 explores the existing solutions procurement can turn to for help in reducing the presence of forced labor in the supply chain. As the subject of both forced labor and general supply chains are so broad, these solution providers include full suites and more targeted providers that cover SxM, Risk and BoB.
This series is part of Spend Matters PRO offering (subscription-based). Spend Matters PRO gives the deepest analysis of procurement technology, solutions and vendors available in the market. Trusted by CPOs, consultants, investors and solution providers as their procurement technology intelligence partner, PRO members gain access to a wealth of current, in-depth Technology Provider Assessments market outlooks and research briefs.