Supply Chain

Supply Chain Traceability Key to Fulfilling Sustainability Promises

Consumers these days want to know that when a business says that it is producing something ethically and sustainably, that it can back up such claims throughout its entire supply chain. After all, a business’s claims to operating sustainably are only partly fulfilled when it can’t confirm the sustainability of its raw materials or other products involved in production. So customers increasingly expect businesses to make sure their supply chain is as committed as they are to principled behaviour.

By Daniel Prakarsa | Published 8 years ago | About a 5 minute read

Meeting this expectation is one of the biggest challenges that businesses now face, which is where supply chain traceability – a company’s ability to map its supply chain thoroughly and to know exactly who produces what at which stage of the business, from raw material to finished good - comes in.

Getting that mapping done can be a laborious journey. This is particularly true of agricultural and retail sectors, which tend to have very complex supply chains. The Indonesian palm oil industry, for example, has over two million smallholders running over 40 percent of plantations across the country. The effort it takes to map the supply chain down to the individual farmer is enormous.

Add to that the fact that this kind of exercise might take place in areas of the world where minimum disclosure is the norm and questions that go beyond that are regarded at best with puzzlement and at worst with suspicion, and you start to get a picture of just how delicate the task is.

Golden-Agri Resources (GAR) took nearly two years to complete the first phase of supply chain mapping to the level of the individual mill. In the process, we mapped about 500 mills that supply palm oil to our processing facilities in Indonesia. This means that each of those hundreds of mills had to be contacted individually and details verified, such as their location with exact GPS coordinates and their sustainable certification status. Moving forward, we are working on a plan to map the palm oil we buy down to the plantation level or individual farmer.

What is the true value of traceability and what does it really mean in practice?

There is often a tendency to regard the end goal of traceability as a means to pressure companies to make errant suppliers toe the line or get the boot.

This hardline attitude is often the least effective way to change behaviour and mindsets. In many instances, there will be a predictable backlash ranging from claims of unfair practices to nationalist and protectionist measures. Dropping a supplier not only creates a hostile environment, it also means that the business loses all further ability to influence the supplier. Bottom line: Everyone loses.

This attitude also often goes hand-in-hand with the thinking that achieving traceability is the be-all and end-all, that forcing businesses to reveal all, and backing that up with punitive measures, is being sustainable.

Having embarked on the mapping of our supply chain, we have discovered that traceability is merely the start of a very complex process. It is an invaluable tool that leads towards sustainability, but only if it is used in the right way.

Traceability’s real value lies in the process of engagement, of gaining real knowledge and better understanding of our suppliers.

This takes the relationship between supplier and business to a whole new level. Gone are the days when it was simply enough to receive goods at an agreed price on time. The demands that consumers are now making on a business to take responsibility for its supply chain requires a deeper, non-traditional form of interaction with suppliers.

The mapping, and the engagement it entails, has enabled us to understand the specific difficulties and challenges each individual supplier is facing in trying to adopt better environmental and social practices. There may be constraints due to lack of resources and experience. In one case, reaching out to a supplier about deforestation concerns led to them discovering that external parties had encroached illegally on their undeveloped land and were putting them at risk.

GAR is using all the information gained through our enhanced engagement to identify both specific and common problems which our suppliers face as they try to implement sustainable practices. This then allows us to design tailor-made programmes to help our suppliers address their main concerns and bring them closer to complying with our policies. We want to share our experience and knowledge we have gained from being one of the first palm oil companies to adopt a Forest Conservation Policy – we want to tell our suppliers that we have been there, done that and can share solutions.

For a business, really knowing its suppliers just makes sense because it means better supply chain and risk management. For suppliers, the offer of collaboration to upgrade practices is welcome since they can tap the resources of a bigger company. For both, it helps build goodwill and ensure longevity as a business.

Traceability can and should open the way for new forms of working together in any industry to achieve common goals such as sustainable production.

We should guard against focusing on traceability solely as a means to name, shame and pressure. To really change the supply chain is to take part in a process with no easy shortcuts. GAR is investing in a continuous process beginning with traceability but ultimately our true focus is on reaching out to our suppliers, talking to them, understanding their problems, and brainstorming together for solutions if we have to; we believe this is what will bring about the transformation that we all want.