Eight Steps to a Supplier Evaluation And Why Sustainability Matters in Your Supply Chain
Supply Chains and Sustainability are two subjects that only seem separate at first sight, especially in view of the ongoing globalization of business and industry. In their domestic and international relationships, business partners these days are held accountable for sustainable action and due diligence, which is the consideration of ecological, economic, and social aspects.
If your organization intends to conduct a supplier evaluation that includes CSR (Corporate Social Responsibility), starting from a relevance analysis to demonstrate your own sustainability profile all the way to the continuous development of suppliers based on an evaluation of the results of the analysis, you should proceed according to the eight steps briefly introduced below:
1. Determine relevant sustainability topics
The first step is to identify which sustainability topics are actually relevant to your organization’s supply chain. Reviewing these topics regarding their potential impact on your organization reveals their significance for the relevant interested parties. Entering the results into a matrix, where each axis represents one perspective, the position of each topic reflects its relevance to your organization.
2. Code of Conduct
A code of conduct is a set of rules outlining applicable norms, rules, and responsibilities. From the matrix, your organization can derive or adopt a Code of Conduct (CoC), which you can make available to suppliers for their acceptance.
3. Identify and resolve internal conflicts of objectives
The success of your supplier audit depends largely on resolving internal conflicts of objectives that may exist e.g. between the purchasing department and the people responsible for CSR evaluations (typically, that is economic interest vs. sustainability requirements). Resolutions of this nature need to involve all the departments concerned.
4. Specify evaluation criteria
A risk-matrix is well suited to identify and prioritize these criteria, taking into account every step in the chain of supply. Priorities determine the type of measures and/or tools suitable for the supplier audit.
5. Determine the examination method
After sorting suppliers according to their relevance, you can use the results from the risk matrix to specify the method for review or examination and its focus. For a document review, a self-declaration from the supplier may be suitable, or your own Code of Conduct. For an examination based on audits, you can use either generic standards (such as IQNet SR10 or SA8000) or sector-specific solutions (e.g. SEDEX or TFS).
Alternatively, your organization may use its own catalog of requirements if it contains the topics identified in the relevance analysis (e.g. CSR risk assessment).
6. Convincing suppliers of the examination method chosen
The successful implementation of measures depends on the supplier’s understanding of sustainability topics, the power dynamics involved, and the planned volume of business. It is therefore important to develop a strategy to gain the cooperation of suppliers and to point out the advantages of collaboration. You will need to be able to answer their questions and overcome their objections.
7. Auditing suppliers
Subjects of the audit are the sustainability topics specified in Step 4 or a CSR standard. The audit is conducted according to the method identified in Step 5, which, depending on the depth of the audit, may include a document review, site inspection, interviews etc. Once requirements have been stipulated, monitoring is required to ensure fulfillment by the supplier, especially where the method calls for the supplier to take action themselves.
8. Monitoring and analysis of results
You can then allocate the results of the examination to such aspects as risks, sectors, topics, benchmark/best practice, Hot Spots or countries. For the analysis of results and effective monitoring, the following aspects or measures should be considered or taken:
- Recognize deviations (non-conformities)
- Respect problems in developing or emerging countries
- Determine an escalation process
- Develop suppliers
- Measure progress, discuss results
- Make use of key indicators
For more information on Supply Chain Management, take a look at our White Paper on Supplier Management.