Part 2 of a 2-part series
No company wants ethical issues in their supply chain. But many organizations today have deep and complex supply chains, and it’s challenging to know when and where to start looking for potential issues, what to do when they’re found, and how to avoid new problems cropping up that could disrupt operations.
In conjunction with National Slavery and Human Trafficking Prevention Month, I recently had an opportunity to discuss this topic with David Tulauskas, director of sustainability at General Motors and one of many people behind its efforts to mitigate supply chain risks.
David shares his insider perspective of GM’s multiyear journey to investigate their supply chain for human rights, environmental, and business ethics issues. He talks about how GM works closely with their suppliers and outside partners to identify issues, quickly find the best solutions, and scale the efforts that have been most effective.
Q: Can you share the unique challenges of managing supply chains in the automotive industry and give an example of how GM addresses these risks today?
A: In 2014, the automotive industry was rapidly evolving toward electric cars, and it still is. This meant dramatically changing vehicles, which called for new parts, suppliers, and growth strategies. This brought a host of new risks that we needed to plan and account for, including more exposure to human rights issues in our supply chain.
Our industry as a whole knew that we needed to do more, so competitors – a number of the leading auto companies – joined forces to set guiding principles for sustainability through a non-profit organization called the Automotive Industry Action Group (AIAG).
These guiding principles were set to ensure the world’s largest automotive companies with the most complex supply chains shared a common set of expectations for suppliers to practice business responsibly and fairly, which would result in positive social and economic impact around the world.
Today, these guiding principles are endorsed by 11 key players, including GM. All of us agree to meet what we defined together as the “minimum expectations towards business ethics, working conditions, human rights, and environmental leadership; for our suppliers as well as their subcontractors and suppliers.” We are all doing our part to go above due diligence, but it’s a work in progress.
At the moment, we’re working together to further tighten the industry guidelines.
Q: GM’s focus on supply chain risks has progressed over the years, well beyond industry requirements. What caused that, and what is your team doing now that makes the biggest impact?
A: The more aware our people get about how common ethical issues in supply chains are, the more we do. I think it’s important for companies to keep up the conversation both internally and externally. Once you’re aware of the severity of the human trafficking crisis, for example, and what actions are most beneficial, it’s impossible not to do more.
Here are a few important activities we have in place today:
- We have explicit requirements in our supplier contract to comply with local laws and international standards – this accounts for slave and child labor, among other human rights issues. These basic policies and principles have been with GM for a really long time.
- We communicate with our suppliers as best we can, and we track our supply chain as carefully as we can. We understand this is too big of a task for us to do alone, so we partner with the appropriate industry organizations, such as the AIAG, to get the information to stay on the frontlines and minimize our company’s risk exposure to human trafficking.
- We also believe in building where we sell. We manufacture locally so we can build stronger communities, drive economic growth, and help set appropriate levels of environmental and social expectations, requirements, laws, and standards. We’ve been taking this approach for years. When we localize manufacturing, it also brings us closer to the supply chain. It’s the right approach for customers and the economy and allows us to respond quickly to any concerns or issues.
Q: Can you share how GM works with their suppliers today to ensure a risk-free supply chain?
A: It starts with a cascading communications effort. We begin with our Tier 1 suppliers. We encourage them to pass down our expectations and standards to their suppliers, which is a zero-tolerance policy for human rights issues. You can’t expect your Tier 1 suppliers to be successful if you’re not right next to them, supporting them.
Because we don’t have contracts with Tier 2 or Tier 3 suppliers, we don’t have the authority to require certain business practices of every single business that touches our supply chain. We can’t audit or require self-certification. And we can’t ask for audit research.
However, we can push for the assurance that action is being taken. We ensure the conversation is happening and that ample effort is taken to notify our suppliers of our zero-tolerance policy.
The lesson here is, you can’t let the perceived difficulty of reaching a “perfect” supply chain deter you from making progress. Take the first step, and make it a point to engage with your suppliers as part of your regular process.
Q. How well would you say GM is doing in the fight? Can you ensure there are no traces of modern slavery in your supply chain?
A: We’re still learning on this journey.
While we strictly forbid forced labor in our supply chain, and our industry has a more harmonized approach with a consensus-based set of guiding principles, we know there are still risks. And even though we take a deep and multipronged approach that goes beyond legal requirements, it’s nearly impossible to guarantee a 100 percent risk-free supply chain.
So, we will never really rest. We will never really finish until we have a completely transparent and traceable supply chain where we can have high levels of assurance on all human rights issues.
One thing I realized is, no matter how hard you work, how hard you try, somewhere somebody is doing something wrong. We accept that perfection is what we may be aiming for, but we don’t expect it to the point of discouragement. As long as we’re improving one step or leap at a time together, and we’re transparent with our customers, it’s progress our team can be proud of.
Q: What would you say to companies who haven’t investigated their supply chain yet?
A: Supply chains are really complex. But that doesn’t mean you don’t do anything.
At GM, we have a supplier family of more than 21,000 businesses all over the world. That still doesn’t stop us. There is no silver bullet or single solution. We just keep going.
Companies need to take an industry-focused approach. Collaborate with your team members and even your competitors. You can’t do it alone – the commodities and related supply chains are too long and too complex for one company or one institution to solve. We need to all work together.
That’s why it’s all too easy to do nothing. You see companies delaying action because this is all so large, complex, and unknown. But not starting, and not doing anything, is not an option.
Q: How have changing laws and regulations, external resources, and technology helped GM with achieving supplier transparency?
A: Big data analytics enables us to better see, more accurately predict, and optimize the supply chain, so we know where there is risk. These insights allow us to create new solutions and focus resources in the most efficient manner, helping to mitigate, if not eliminate, risk.
Regulations also provide predictability and certainty. Given regulatory certainty, a business will understand how to best comply and minimize costs, whereas market-based solutions provide opportunities to compete on first-mover status and continued innovation. Both play a role in achieving supplier transparency.
Find an external resource familiar with the nuances of your business and supply chain that can turn data into intelligence. This way, your company can stay up to date on any trends or changes so you can quickly respond. It’s helpful to concurrently engage internal policy and government relations teams to be part of regulatory conversations both locally and nationally, as their input can help drive additional business value and impact.
Q: Finally, what is the business case for companies to lead the charge against issues like human trafficking and be more transparent about their supply chain? How does this help the bottom line?
A: Investors care about this. A strong sustainability performance is an indicator of a well-managed company.
When you look at the third-party raters and rankings organizations that serve the investment community, such as Bloomberg or Dow Jones Sustainability Index, they are already asking questions about sustainability and social responsibility to companies like GM. Those scores get used by investors, particularly institutional investors, to help inform their decisions. Long-term investors also use this measurement to help future-proof investments.
It’s not a matter of if, it’s a matter of when. People are getting smarter at predicting long-term issues that will impact a business. Shareholder value is being redefined from what it meant 10 years ago. It’s not just current stock price or points on a chart. It’s confidence in the company, and the proactive responsibility the company is taking for their entire value chain.
There are clear opportunities for first movers: to improve brand reputation, drive loyalty, and influence top-line growth. If you approach this from a risk management perspective, there are financial benefits to mitigating future disruption.
Do I think you’ll be congratulated or praised for doing it? Maybe, maybe not. That’s not important. But I do know you’ll be punished for not doing it, should someone else discover something questionable before you’re aware of it. That’s why I say it’s riskier not to do anything.