Defining the responsible supply chain
In the last blog, we thought about how to assure a responsible supply for a product, and we proposed that distributed ledger technology can be a new tool to provide that information with transparency and security.
Before exploring the “how?” further, let’s agree on some terminology.
Provenance is the process of determining the origin of something. In our case, we are examining metal provenance or the origin of the metals that will be used in the manufacture of products. Metals are derived from the mining and processing of minerals.
Metal provenance thus involves following the trail from mineral in the ground to refined metal.
Supply Chain is the entire process of making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods through to their distribution and sale. (1)
In the case of a smartphone, that supply chain can be complex, as the phone contains components. Each component itself has been manufactured through a series of steps — starting with raw materials like minerals, chemicals, or natural products, and proceeding through processing, refinement, and assembly, to the finished component.
This chain involves multiple companies and stages, and more often than not, these companies are unaware of what each other does, other than providing their link in the chain.
Sourcing is the act of obtaining goods or components from a specified source. (2)
This definition appears obvious, however, in the case of fungible goods, where one unit of the item is identical to any other unit of the item (like gold or grain or goose feathers), sourcing can become hidden.
A single bar of smelted gold can contain gold that originated from ore from multiple countries from multiple mines and under multiple mining conditions.
How does one distinguish among sources for a fungible good? This is one of the challenges that can be solved using blockchain technology.
Responsible sourcing — in the past: In 1984, the Chemical Industry Association of Canada initiated a program of ethics and sustainability in the chemical industry.
“Responsible Care” is now implemented in 67 countries, and guides member companies to “do the right thing and be seen to do the right thing” with respect to ongoing improvement in health safety and environmental operational performance. (3)
“Responsible Care” supported the World Summit on Sustainable Development vision 2002 that, “By the year 2020, chemicals will be produced and used in ways that minimize significant adverse impacts on the environment and human health.”
Thirty years on, “Responsible Care” has yielded significant process results. However, “Responsible Care” is a technical program involved principally in the improvement of manufacturing processes.
As we saw in the previous blog, today’s product supply question is social, “Has this product been sourced and manufactured responsibly?”
Responsible Sourcing — in the present: Here is a definition from the International Chamber of Commerce:
“Responsible sourcing, also referred to as supply chain responsibility, is a voluntary commitment by companies to take into account social and environmental considerations when managing their relationships with suppliers.” (4)
Responsible Sourcing — implementation: Given that implementing Responsible Sourcing is a voluntary process it can take many forms:
- Certification: Companies only purchase products that have obtained third-party approval for use, based on selected responsibility criteria. This is the case for some natural products, such as coffee, bananas, or cotton. Growers and suppliers are audited to show that they are successfully performing predefined processes.
- International obligation: Companies are expected to respect certain international regulations (see Due Diligence, below).
- Customer-specific obligation: One large multinational food company, Nestlé, implemented their own Nestle Responsible Sourcing Standard in July 2018. The standard defines expected duties, practices, and reporting by third party suppliers and establishes milestones for improvement. Such standards also appear in the form of Corporate Social Responsibility policies (see below).
- Request: Companies request suppliers to limit the negative effects of their activities or to respect regulation.
- Guideline: Some companies draft a responsible sourcing policy as a matter of business principle, trusting or that suppliers will act, however, if the policy lacks consequences, it may well be inadequate.
Responsible Sourcing — for business: responsible sourcing is understanding and acting upon the ethics, human rights, social conditions, human health and environmental impact of all the activities along the supply chain for a finished product. This process is voluntary, and is often:
- prompted by consumers and NGOs,
- encouraged by shareholders and leading-edge management,
- underpinned by corporate values and,
- implemented to help assure business sustainability.
Responsible Sourcing — for the consumer: responsible sourcing is looking at what we purchase beyond the more traditional aspects of cost, quality and delivery time. It involves three steps:
- asking the question, “under what conditions were this product produced?”,
- checking the answer by checking the available information, and then;
- implementing a choice based on personal “responsibility”.
Corporate Social Responsibility. In recent years some of the larger multinational corporations have established charters of principles or guidance that they apply to both their business activities and their suppliers. This engagement is called Corporate Social Responsibility (CSR).
“CSR is an umbrella term for a variety of theories and practices all of which recognize the following: (a) that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and the liability of individuals; (b) that companies have a responsibility for the behaviour of others with whom they do business (e.g. within supply chains); and that, (c) business needs to manage its relationship with the wider society, whether for reasons of commercial viability, or to add value to society.” (5)
Due Diligence and International Regulation: Due diligence is “the care that a reasonable person exercises to avoid harm to other persons or their property.” (6)
Due diligence appears in regulations focusing on “conflict minerals”, or minerals sourced from areas where child labour or forced labour have been used for mineral extraction.
These regulations, the US Dodd-Frank Act, and the EU Conflict Minerals Regulation, along with the OECD Due Diligence Guideline, outline business responsibilities to report on the evaluation of supply chain risk for four metals; tantalum, tin, tungsten and gold.
We will look at these regulations in more detail in coming blogs.
That wasn’t too painful, was it? We now are set to explore the components of a metal supply chain and reviewing the factors that could pose a risk to responsible sourcing in our next blog.
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