While inflation rages, OPEC’s pricing decisions and supply chain bottlenecks are fair fodder for newscasts and social media commentary. But companies’ relationships with their suppliers will present daunting challenges along with irresistible opportunities long after interest rates and the cost of living stabilize.
Understandably, American companies are demanding consistency in product quality They’re concerned about their suppliers’ failure to meet deadlines and other performance failures. They push back when supplier pricing isn’t transparent. And they expect accurate and timely communications from their suppliers.
But businesses are also playing a leading role in ensuring that their suppliers meet increasingly rigorous Environmental, Social and Governance (ESG) criteria.
While labor shortages have contributed to supply chain woes, businesses aren’t letting their suppliers, especially those offshore, cut corners. They’re simply not tolerating sweatshop conditions, unreasonably long worker hours, child labor, oppression in the workplace or other unfair employment practices. And environmental malpractice is viewed just as seriously.
It’s no surprise that savvy companies’ legal, risk and compliance professionals are carefully tracking and measuring the ESG performance of their suppliers as well as their own. Human rights violations and negative environmental impact within a company’s supply chain can put its reputation at risk. They can also draw the ire of regulators, shareholders, customers, and strategic alliance partners.
But the management of socially conscious companies are going a step further. They’re starting to source goods and services from entrepreneurial nonprofit organizations and social-purpose businesses. In so doing they’re elevating their supply chains to “value chains.”
A Cook County, Illinois ordinance, which I was privileged to draft, gives social enterprises a preference in government procurement of goods and services. The ordinance stipulates that, if bids from eligible enterprises are 5% higher than the lowest offer, that venture gets the contract. So a $100 bid would be treated as if it were $95.
The ordinance considers two entities automatically to be eligible: L3Cs, or low-profit limited liability companies, and Benefit Corporations, which are businesses that legally can make decisions based on non-financial, societal and environmental issues. In addition, other for-profits and nonprofits are eligible if they make most of their income from earned revenue and directly address social needs by selling products or services to disadvantaged people or employ such people.
The county agencies sourcing goods and services from mission-driven ventures get what they need while contributing to the financial sustainability of such businesses. When journalist Anne Field featured the Cook County initiative in Forbes.com, she pointed out that its goal is not only to provide a model for other government units around the country, but also to encourage socially minded businesses to support social enterprises that are contributing to the communities in which they operate. That’s exactly right.
May the business community, in large numbers, soon follow Cook County’s innovative and disruptive example.
If you’re interested in exploring how your business’s supply change can more effectively drive positive solcial change, we would be happy to help. Feel free to contact Marc Lane, in confidence, at mlane@MarcJLane.com or 312/372-1040.