Companies face a harder time today satisfying their customers. They expect their purchases to deliver as promised and, increasingly, they want to ensure the manufacturing process didn’t cause social or environmental damage along the value chain. They don’t want that imported, low-cost T-shirt or electronic gadget to be the product of dangerous or oppressive working conditions in Bangladesh or China, or that the metals in certain products also fuel military conflicts in the Congo.
In this new economic landscape, transparency is the name of the game. So companies must ensure that every layer of their supply chain meets stringent regulatory requirements, or else leave their brand open to a reputational crisis. No one can eliminate all risk, but well-managed companies move proactively to identify potential issues and put policies in place that prescribe clear consequences and swift remedial action when problems are discovered.
What they practice is “Principles-based Compliance” — when broader-value principles that allow for elasticity guide the decision-making process. Rather than follow approved rules, a principles-based compliance system draws upon the moral dispositions of corporate officers, managers and employees to create an intrinsic compliance culture. Principles-based compliance — as opposed to rules-based compliance — reflects a mindset, not a mere function within the firm.
Rules-based compliance — where agents are motivated by incentives that reflect legal constraints rather than moral imperatives — generates hidden costs that prevent maximum compliance at a level of economic efficiency. In contrast, value principles in terms of social norms can complement rules to achieve a higher compliance standard at reduced monitoring costs as well as enhanced resilience capacity that improves a company’s marketplace positioning.
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Join us as PepsiCo, Timberland and more discuss their efforts to optimize and future-proof their agricultural supply chains through regenerative practices — October 19 at SB'21 San Diego.
The first movers employing this trend to create a robust supply chain with appropriate checks gain a clear opportunity that goes beyond the peace of mind of a lower-risk profile. They now can begin to proactively communicate their actions and gain the positive benefits of the investment. Here are the top five reasons to start communicating your more sustainable supply chain:
- Consumers care: Your customers want to know your story. One of every three people believes shared experiences with brands are important and 87 percent of global consumers believe business should place at least equal weight on society’s interests as on business’ interests.
- Take advantage of increased transparency: You have uncovered opportunities to increase efficiency in the process of looking deeper into the chain; no doubt you also have found great stories to tell. These are part of your brand identity so find, learn and tell them.
- Turn risk-mitigation costs into brand equity: You have made the investment and reduced the likelihood of a major problem. You know how to deal with issues as they arise. This is a management and a moral success. Talk about it internally and externally. It will increase employee morale as well as customer brand loyalty.
- Use the opportunity to educate consumers (and others) on the complexity of the issues: Most people have little grasp of the complexity of the global supply chain. Talk about your product’s journey and how you are making it safe for the consumer, those who made it and the environment.
- Get ahead of the curve: You can’t hide anything anymore, so be a leader and become part of the dialogue. It is happening with or without you.
As you improve and begin to communicate about your supply chain, you might want to keep the following questions in mind:
- Do we know the true preferences of our customers and their concerns about the social impact of each link in the supply chain?
- Do we communicate a values mindset rather than mere prescriptive rules to our employees and business partners?
- Do the key actors along our supply chain understand not only what we are asking of them, but also why? Which value principles are at stake?
- Do we tell our success stories in a compelling and accessible way by showcasing our positive social impact in terms of outcomes, as opposed to mere activities?
- Are we constantly taking the initiative to discover new opportunities to improve?
Both communication and supply chain professionals know that the challenge ahead is significant. They also know that the rewards are great.
What are you doing to make your supply chain more sustainable? How are you talking about it?