Responsible sourcing programs require significant investment. Should companies perform this function in-house, a network of auditors needs to be established, across the world, along with the requisite management structures. Should brands decide to partner with third parties, then, costs may be considerable also. Given this, it is important that companies can measure how effective their programs are. How do you measure the success of your investment should you be challenged by either leadership or external stakeholders?
Traditionally, remaining out of the headlines was considered success in itself. These days though companies are required to do more; accurately measure compliance levels, address specific challenges, such as fire safety or migrant labor, and drive ongoing improvements on the factory floor. Metrics are often limited to the program’s scope; numbers of audits, broken down by country, as well as the percentage of suppliers covered. While this data is helpful, it doesn’t provide a picture into the varying levels of compliance, how significant your risks are or represent the improvements made.
Omega recommends a program based upon multiple levels; into which suppliers are assigned once they have been measured via onsite assessments. There could be 3 Levels, for instance, in descending order, with Level 3 allocated to the highest scoring suppliers. The proportion of suppliers assigned to each tier could be considered a measurement of success. A program with the majority of its suppliers in Level 3, for example, would be more successful than a program with the majority in Level 2.
However, is this optic the most helpful? Should commercial factors be considered also? Should a supplier, in Level 1, receiving ten million dollars annually, be viewed equally to a supplier, also in the same level, receiving just ten thousand dollars? Due to the difference in leverage, it would be reasonable to expect greater compliance from the supplier shipping ten million dollars. So the percentage of suppliers, say, shipping in excess of $1 million annually, and leveraged into Level 3, would be a good measurement of success. Utilizing business volume also enables companies to understand the proportion of their sourcing volume assigned to each level with the objective of sourcing the maximum volume from factories in the highest level. With that in mind, responsible sourcing can then dovetail with commercial strategy and focus resources on the higher volume suppliers to maximize leverage as well as potential impact.
So what role does transparency play in the overall measurement? Transparency is certainly a key consideration. Audits on suppliers which have provided falsified records are significantly diminished in value. There is a case to be made for isolating the results of these assessments and separating them out from the overall measurement. However, to do so would be to disregard their value in other areas, uncompromised by their failure to be transparent; machine and fire safety for example. As such, Omega recommends heavily weighting their failure to be transparent into the overall score instead.
Should companies lack the leverage and/or resources for this type of program there remain other metrics by which they can measure success. Examples include numbers of suppliers successfully trained, for example, on specific health and safety issues, or numbers which have worked with consultants to measure and reduce carbon and/or water footprints.
Omega has vast experience in developing and managing responsible sourcing programs across complex supply chains. Should you require information on our services please contact us.