Palm oil has been all over the news lately – and not just because of health concerns around the way it’s processed. The problem actually goes much deeper than that, all the way to the depths of the supply chain, impacting procurement value. Recent reporting has shown that palm oil is often produced with slave and child labor – which has elevated the situation into an urgent industry issue that everyone is frantically trying to solve.

One way to tackle to the problem: improve supply chain transparency and reporting. New guidelines just came out that urge companies to disclose the percentage of palm oil they procure from traceable suppliers and publically declare their efforts to monitor and support workers’ rights.

This case is following a similar path to many social issues – such as greenhouse gas emissions and conflict minerals – where new and improved reporting measures have been enacted to ensure the industry steps up its game and works together to create a more responsible supply chain.

Beyond disclosure, supplier engagement and collaboration is core to sustainability success.

Getting to the heart of the problem: Taking a deeper look at supplier value

The new guidelines represent great progress and will enact ongoing and proactive monitoring of fair labor across all tiers of our supply chain, but to get to the root problem, we need to more effectively and strategically manage supplier relationships from the get-go. When companies put too much emphasis on the lowest cost supplier and other transactional considerations, and ignore sustainability and CSR, they open up their company to risk.

By not focusing on the overall strategic value a supplier could bring the organization – high quality products, sustainable practices, innovation, reduced risk – procurement teams are leaving value on the table, and risk being outperformed by competitors. When sustainable procurement practices and value-generating criteria are prioritized from the outset of a relationship, it sets the stage for future dealings and continual supplier improvement and innovation.

This approach needs to be embedded across all sustainability initiatives, and especially in the case of palm oil. Companies need to make business value and sustainability objectives a qualifying factor of supplier relationships. Here are a few guiding principles of successful partnerships:

  • Price and service levels are important factors to consider when choosing a supplier, but sustainability and overall supplier value need to be factored into this decision to safeguard longevity.
  • Companies should ensure potential suppliers have the required legal, financial and environmental documentation in place to deliver products and services in a specific category at the outset of a budding relationship.
  • Teams need to proactively establish performance goals and sustainability targets together with their suppliers and measure them frequently, holding both parties accountable in reaching them.
  • Buyers and suppliers should regularly participate in open and honest conversation about where they are in their goals, where they want to be and what the next steps are to get there.

To learn more about the role supplier value management plays in ensuring business success and best practices for transparency and proactive communication, please read: Next Generation Supplier Management.