Pixabay At the beginning of September, the supply management specialist State of Flux (SOF) launched the Safe Supplier Operating Standard. This is a global standard (methodology and process) developed to help organizations verify that their suppliers are prepared to operate during Covid-19 and other volatile environments without causing further supply chain disruption or breaching employee human rights.
State of Flux has been helping organizations improve their supplier relationships to create mutually beneficial value through technology, consulting and training for more than 17 years. It has spent 13 of those years consistently conducting a global annual survey of supplier management practices to better understand the nature and maturity of the market. This data has provided the foundations for developing this new international standard. State of Flux worked closely with the International Trade Centre (ITC) — a joint development agency of the United Nations and the World Trade Organization that is dedicated to supporting SMEs, to ensure the structure of the standard conforms to international norms.
We had a few questions about the new standard for State of Flux. Primarily we were interested in the “why,” the “who” and the “how” of this new standard, but also, the “what” in terms of what makes it a “one-of-a-kind” as the press release states. Also of interest is to understand why the industry doesn’t leverage relevant questions from standards that already exist or use internally developed standards. And why not expand the United Nations Sustainable Development Goals (SDGs) to reflect this area rather than create a new standard?
We spoke with Alan Day, CEO of State of Flux, and Ian Sayers, who is a Senior Adviser in the Division of Enterprises and Institutions at ITC.
Why create this standard now and who is it for?
State of Flux is able to draw from broad industry data from the findings of its 13 years of research to date, representing a level of supply management information to the tune of just under 3 million data points.
“This enables us,” explained Day, “to represent the supply chain industry and be a driver of excellence as a knowledge provider to forward the industry’s performance.”
In recent years’ research, State of Flux was alarmed to see that only 7% of organizations had included a pandemic as a supply chain risk, and that more than 50% of organizations experienced business-disruption risks occurring further down the supply chain beyond the first and second tiers.
“In our capacity as a research body (notwithstanding our technology provision status), it was clear that we could contribute greatly to helping the likes of producers, exporters, trade-related financing providers and buyers to help rebuild trade through enacting Covid-safe operations.
“We determined to outline a common set of best practices relevant for trade in any product or service sector, to help them reduce risks of non-performance associated primarily with the effects of the pandemic and generally to build supplier/buyer resilience,” he said.
So the goal of the standard from a risk management perspective was to protect supply chains with proven effective controls, and to rethink how we manage our suppliers and help them operate safe and resilient supply chains.
“From a procurement and supply management lens, the standard is concerned with how organizations get surety that their supply chains are not going to be disrupted, or at least that they get an early warning signal if something that may adversely affect them is ahead. Just as importantly, the suppliers themselves need to be able to convey to buyers and potential customers that they are taking measures to be ready to operate safely — without putting their workers at risk or cutting corners due to consumer pressure. This is something that all organizations should take seriously, and this is why a standard like this is really important,” he continued.
What makes this standard unique?
So how did State of Flux develop this standard, where did they draw the questions from to make it relevant and useable, and why not draw from existing standards?
“At the start of the pandemic,” said Day, “we produced a white paper that identified seven risks from our research that businesses should be concerned about.
“The questions that underlined those risk responses were used to form the basis for the new standard. It wasn’t until we worked with Ian’s team that we looked at other standards to ensure it was unique or to build on existing standards like human rights.”
As Sayers explained: “As an organization that builds awareness and improves the availability and use of trade intelligence, ITC acts as a platform for more than 260 voluntary standards across the world. Our role is not to promote any single standard, but at the start of a standard’s development we do carry out extensive research to see what already exists. With the help of our Sustainability Map team, we could not find any other standard that was as comprehensive as that developed by SOF.
“The UN’s SDGs are intended to guide users’ actions and reporting towards objectives that everyone on the planet should embrace, wherever they are. The UN SDGs are therefore set at a high level and provide specific measures in certain areas, like the goals on decent work and economic growth; good labor standards and workplace health and security; industry innovation and infrastructure and partnerships and, of course, responsible consumption. But they are not designed to drill down into questions like: 'How will Covid affect my supply chain?' ”
Why is this standard so important?
One of the roles of ITC is to help MSME exporters and cross-border traders in international supply chains from developing, lower and middle-income countries and small island states to access financing and investment. This is just one example area where they see this standard being of use. “In order to get access to working capital, like sales order advances, pre-shipment loans, advances or loans from their buyers,” said Sayers, “one of the key criteria that’s reviewed in all risk assessments (which are run before funds are allocated) is enterprise supply chain resilience and continuity.
“Many SME exporters have found workaround solutions to the current situation of full, partial or intermittent lockdown at ports and custom facilities. But the fact remains that you cannot get pandemic insurance — it is simply not considered a fortuitous risk anymore. So buyers and finance service providers need to know that suppliers have taken steps to reduce Covid associated risks and comply with standards expected by consumers of their products – that’s one area where this kind of standard has an important role to play.
“Another use is within major industries, like textiles or the agri-food sector, that are prevalent in developing countries and need to find affordable workaround solutions to bring Covid measures into their workplaces. While many people can now work more from home this is not the case in manufacturing sectors. The textile and garment sector has borne the brunt of some high-profile negative publicity about its working conditions in recent years, so ensuring that they are protecting their workers as best they can is a high priority. Buyers or merchandisers can no longer easily get on a flight or call on a regional auditor to visit an overseas manufacturing site to verify Covid working conditions.”
“So how does a buyer ensure workers are being looked after? How do they ensure the supplier is faring well? How do they know they are operating where they need them to be? How do they know they are taking H&S seriously, and so on. You might rely on someone providing video footage of course, but then they need good internet connectivity to do that, he continued”
“The whole challenge of not being in the same room isn’t going to change any time soon,” said Day, “so that was another consideration for a standard that people can adopt and use in response to this situation.”
“Of course, it’s now imperative for industry to search for new suppliers, new markets and new buyers. So the standard is a way of getting over the lack of a first visit that you would normally do physically,” he continued. “It means new suppliers can send their buyers a full set of credentials to show they adhere to a level of compliance within a standard. It’s a trend we anticipated, so we made the standard applicable to all suppliers and buyers.”
Going forward
“Developing a new industry standard is usually a two, or three-step, evolutionary process,” explained Sayers. “Part of the standard lays out what you are trying to address and the points you need to look at as an enterprise, and part of the standard involves the standard holder, in this case State of Flux, monitoring how people are using it. After a period of use, it is possible to determine meaningful scores, ratings or other measurable indicators of compliance that can be analyzed to then guide enterprises on how to navigate the pathway to full compliance. The compliance process also helps enterprises to get a ‘resilience mindset’ to improve how to organize their business to become more resilient to other shocks. A standard has a life. It evolves with use, and as implementation gets measured, it starts to become really interesting.”
State of Flux has made the standard freely available to download and incorporated it into SupplierBase, its supplier management technology, so that organizations can conduct continuous monitoring of their suppliers’ preparedness and associated risks. “We can then track how people are using it and how they are scoring it, with a longer-term view of auditing it and supporting it with training,” explained Day.
“One final thought,” said Sayers, “is that use of the standard affords the opportunity for suppliers and buyers to work collaboratively to create transparency, build stronger supply chains, and facilitate better working relationships. So this initiative from SOF creates an industry-wide, rather than a single vendor, standard for excellence, which is aligned closely with ITC’s philosophy on harmonizing global standards to reduce supplier compliance costs.”
To download the standard visit Safe Supplier Operating Standard.
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