by Sandeep Singh, vice president procurement and supply chain services at Genpact
Is corporate social responsibility (CSR) making its way onto procurement executives’ “to do” lists? If it isn’t, it should be. In today’s closely-connected world, digital media make it easier than ever for consumers to make their voices heard, and these consumers favour brands identified with social responsibility.
While definitions abound, CSR is widely understood to entail compliance with ethical and regulatory standards, promoting accountability for an organization’s actions that can lead to a positive impact on the communities and markets in which it operates. Organizations across the world are grappling with these issues and how their conduct impacts internal and external stakeholders. And procurement is especially affected, with regulatory requirements demanding an ever-increasing CSR role.
For a typical global procurement organization with thousands of multi-tier suppliers spread across the world, this additional responsibility poses a challenge. Executives are faced with the unenviable task of finding resources within an already lean procurement function to assess, monitor and support their suppliers. Moreover, they must devise an effective course of action in an emergent area where they may lack structured processes. Incorporating CSR into a company’s procurement function demands that the right people, processes and technology infrastructure are put in place.
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Creating a Well-Run Compliance Organization
A business can begin integrating corporate accountability by adopting initiatives that set and maintain high standards throughout the supply chain, including anti-corruption, fair trade, personal data protection and safety, health and the environment. It can further task the procurement organization to implement programs that safeguard its corporate reputation. One global company, for example, implemented a comprehensive CSR program to ensure it works exclusively with suppliers whose behaviour aligns with its own. By integrating CSR into procurement strategy, companies like this one can ultimately foster a positive corporate image in the minds of its employees, customers, suppliers and regulators.
With procurement already stretched by the need to meet demand and deliver savings, a formal commitment to CSR is necessary to ensure success. The enterprise must create a compliance organization that will manage—and where necessary challenge—the way business is carried out, ensuring relevant standards are being followed by suppliers and the procurement organization itself.
Two elements characterize a successful compliance organization:
1. It is centrally led with regional representatives from key geographies.
2. It has a clear mandate: to create risk assessment criteria and scores, and to measure and monitor compliance.
An example of this is when a company commits itself to ethical procurement. In one instance, acompany adopted a new matrix organization to execute its risk management strategy for procurement, including CSR, thereby strengthening the integration of its CSR program into the company’s risk management and compliance processes. The organization designated a senior leadership team member to oversee its CSR program, supported by the chief procurement officer. Such senior executive involvement ensures that the right skills and resources are in place to implement CSR programs led by procurement.
Putting in Place an Effective Process
Given the realities of global sourcing and a complex supply chain, a rigorous process lies at the heart of CSR. Companies must focus on supplier analysis, primary and secondary due diligence, audits and reporting to achieve an effective process that provides ongoing visibility into the practices and attendant risks of their suppliers as well as the means to take corrective action. Specifically, an effective CSR process must encompass:
• Supplier identification
• Supplier segregation to remove those who do not qualify for the process, such as non-governmental organizations (NGOs)
• Assessment criteria definition
• Supplier education
• External service provider and supplier coordination
• Self-assessment and external assessment reconciliation
• Remedial measures.
Implementing the Right Technology for Collaboration
Properly chosen technology solutions can support and enable collaboration for corporate accountability in accordance with an organization’s specific needs. For example, with the right technology, companies can tighten governance and increase visibility by creating an online hub where suppliers respond to online questionnaires and procurement executives view category and supplier risk dashboards both at an overall supplier level and at a contract level.
Companies can also manage third parties using specialized software-as-a-service (SaaS) solutions designed for compliance and due diligence. This can include case-relevant segmentation, continuous and tailored monitoring of suppliers, electronic alerts when a parameter is breached, multiple risk categories with associated algorithmic models, and an efficient review sub-process.
In addition, companies are increasingly using third-party solutions to optimize platforms, often using a commercial model that requires minimal capital investment. And these technologies can be further optimized to address specific issues such as anti-bribery and corruption concerns in designated geographies.
One Fortune 100 financial services company discovered that using a specialized SaaS tool allowed it to collaborate effectively with more than 60,000 third parties. Its technology solution stored all third-party information, fed data into multiple enterprise systems, and provided stakeholders with a single point of reference to evaluate, monitor and communicate with third parties.
Surmounting Real-World Obstacles
With the three levers of people, process and technology in place, companies are well positioned to tackle the CSR challenge. For those companies that are serious about integrating CSR into their procurement strategy, working with an experienced partner to extend bandwidth and bring the right skillset can be helpful. In addition to looking for the right skills, these companies should look for a partner that can bring deep insight into best practices and sophisticated project management to a CSR program.
For global finance organizations whose fortunes depend on their brand and regulatory oversight, the time for a formal procurement-led CSR program has arrived. While the challenges are significant, leading companies are demonstrating that the journey is both possible and advantageous.