Policy or Practice? Supply Chain Risk Management in Reality

Procurement and supply chain management are logical functions. Work through a process, and you can bring spend and transactions into a managed state. Apply a framework and you can bring structure to seemingly disorderly activity. Implement technology and tasks will be completed faster and more efficiently than ever before. Centralize and cleanse data and you can answer any query.

It was from that point of view that I read a recent Wall Street Journal article: Despite Cleanup Vows, Smartphones and Electric Cars Still Keep Miners Digging by Hand in Congo (subscription required).

The piece describes the working conditions of the “cresseurs” – freelance Congolese miners (some of which are children) – who work underground without basic safety equipment to retrieve cobalt, a metal used to conduct heat in lithium-ion batteries. Because these batteries are used in consumer goods ranging from smartphones to automotive batteries, cobalt is in high demand. 67% of the world’s cobalt is produced in Congo.

It is a scary reality for companies with global raw material supply chains that the data does not always exist to verify the source of the metals they and their suppliers buy. We can invest in supply chain risk management and/or compliance solutions and regularly audit our supply chains, but reliable visibility remains elusive.

This is not just a challenge for small or growing companies. The firms named in the WSJ article include Fortune Global 500 regulars such as Apple, VW, and Samsung. If they cannot keep conflict minerals out of their high visibility supply chains, how can any company hope to?

The pervasive nature of the challenge seems to stem from three primary sources: location difficulties, multi-tier international processing, and consumer expectations.

Location, location, location

When companies talk about supply chain audits, the effort is usually as analytical as the term ‘audit’ suggests. Based in safe, comfortable conference rooms, companies and their consultants gather and review data, make phone calls, and perform research. This is inadequate when trying to uncover violations that exist in conditions that are neither data nor reporting driven. In fact, according to the Wall Street Journal article, when PricewaterhouseCoopers was hired to audit the supply chain of a Belgian chemical company, they did not even visit the Congo. Their goal was to ensure compliance with the company’s own framework, not to actually prove it was free from conflict minerals. If companies want to assure the exclusion of material from non-compliant mines, someone has to take on the dirty and dangerous task of monitoring where the work takes place.

Globe-trotting Supply Chains

Supply chain managers know full well just how reliant their company is on the performance of third parties. It is a challenge to get visibility through the multiple tiers of the supply chain. Crossing geographic borders and cultural boundaries only makes the task more complex. After leaving mines in Congo, cobalt is traded by Swiss and Chinese companies to manufacturers all over the world. Cresseur-mined cobalt is untraceably mixed with cobalt from fully mechanized mines, making it nearly impossible to certify that any cobalt-containing product is conflict free.

The Consumer is King

While consumers want to buy from companies that share their standards and ethics, they, too, are highly logical creatures. They see supplier ethics statements and supply chain disclosures and are satisfied that companies are keeping conflict minerals out of the supply chain. And while corporations are making significant efforts, the complexity of the situation and the variable nature of conditions on the ground keep adherence to these policies and frameworks in flux. A truer policy would have to reflect the reality of uncertainty while stressing that the company is doing everything they can. Adherence to an ethics policy is not the same thing as being conflict or child-labor free.

Closing Thoughts

Anyone that regularly reads the ATSC blog can see this daunting challenge from two perspectives: as a professional with supply chain responsibilities and as a consumer of goods that may or may not contain conflict minerals. The best way for us to serve our company AND the humans that are toiling at the far reaches of the supply chain, is to maintain both views at all times. Doing our best to act in accordance with ethical principles and emphasizing the need for transparency – prioritizing results over the appearance of control.

Where have the challenges of supply chain risk management caused your company to work towards policy rather than verified practice? Are those policies having the desired effect?

Header photo: redrhinostockphoto/shutterstock.com