Engaging suppliers on modern slavery: practical insights from the team at SD Strategies
The UNSW Australian Human Rights Institute recently published a great resource to help businesses engage stakeholders – including suppliers and vulnerable supply chain workers.
Having engaged with and undertaken due diligence of hundreds of potentially high-risk suppliers to national and international reporting entities over the last five years, we offer a few additional practical recommendations:
When confronted with thousands of Tier 1 (direct) suppliers in your supply chain, prioritising which suppliers to engage with is critical. You can't meaningfully engage them all! Start by prioritising suppliers by spend and use a category risk taxonomy based on geography, industry sector, commodity and workforce profile to identify the potentially highest risk suppliers. As a rule of thumb: 80% of total procurement spend is generally with 6 to 10% of suppliers, so using spend as a funnel to prioritise suppliers initially provides a great starting point for undertaking meaningful engagement with a smaller group of suppliers.
While prioritising suppliers on spend alone is not ideal (we absolutely agree with the UNSW guidance that there can be considerable risk associated with smaller spend suppliers) when combined with a sound risk taxonomy it will enable you to identify risk associated with major suppliers with whom you have deeper (and potentially longer term) relationships and more leverage. Collaboratively identifying gaps in these suppliers’ systems and processes and developing practical and achievable corrective actions together will result in more meaningful outcomes.
Additionally, we recommend developing a scheduled program of deep dive assessments of suppliers of high risk (but lower spend) procurement categories including uniforms, PPE, food & beverage, labour hire and facilities maintenance. Depending on resource constraints, you will still need to make a call on which suppliers or supply categories to prioritise in the short, medium and longer term.
Taking time to explain 'why' you are working on modern slavery is fundamental to 'meaningful' engagement and building trust. This will not happen overnight and takes a collaborative effort, but it does pay off. We achieve a 95% response rate to our modern slavery SAQs when we work with reporting entities to engage both the supplier and our clients’ contract / supplier relationship managers.
Cultural issues can complicate meaningful engagement with international suppliers, particularly where the term 'modern slavery' is unknown, disliked or has no real local equivalent. You can also encounter push-back when offshore suppliers don't understand how or why Australian modern slavery legislation applies to them. Taking the time to educate and train your suppliers and explain the benefits to local communities as well as the business opportunities associated with managing modern slavery and broader human rights risk is critical. Do not expect immediate transformational change, however, as change take time!
Our analysis of Tier 2 suppliers (and increasingly Tier 3 suppliers) highlights significant levels of potential risk, as knowledge and governance maturity is lower in lower tiers of the supply chain. Engaging Tier 2 suppliers is a delicate process requiring significant collaboration with Tier 1 suppliers and co-design of the engagement process. Supplier relationships built on trust and mutual understanding of the WHY will result in better and more sustainable outcomes and encourage honest and transparent reporting of impacts. Simply sending suppliers a Code of Conduct and expecting supplier to comply does not, in our experience, result in the protection of vulnerable workers or positive human rights outcomes.
