Do we need 3rd party responsible sourcing schemes as well as traceability tools?
By Tim Wilson
It is a commonly held belief that 3rd party responsible sourcing schemes provide traceability – in general they don’t. Their role is to define what constitutes responsible production and then to provide a market for products that meet that standard.
If a given brand already has a responsible raw material strategy and are working with a 3rd party ‘responsible sourcing scheme’ – why would they want, or need, visibility into the extended supply-chain? The short answer is – the combination of both is more powerful than either approach in isolation.
Proliferation of schemes
Will we need many ‘schemes’? How will information be shared without being duplicated?
A recent report from Boston Consulting Group highlights the growth potential for major brands who engage meaningfully in the development of products that support “responsible consumption” (RC). The reports points out that RC products frequently represent the only source of category growth and emphasizes how the smaller, responsibility focused brands are growing faster than the so-called A- brands. The report goes on to say that certification, and on-pack labelling are key drivers for consumer confidence in RC products and – when done well – labelling from a trusted 3rd party scheme can drive a price differential of up to 20-25%. The study was focused on FMCG products.
However, there is ongoing debate over global warming, water stress, biodiversity loss, social standards and poverty, competing demands for agricultural land and so on. Ever increasing requirements for reliable information demonstrating alignment with a diverse array of customer values. Whilst diversity of issues is significant, the requirement for data to meaningfully engage with them is much greater. Given that the level of expertise and resources required to create, launch and maintain a responsible sourcing scheme, it is unlikely that any given scheme could, or will, engage with all the product related issues arising. If this is true then we are left with a requirement for a proliferation of labels and schemes – each focusing on its own specific area, even though the data that will be required for assessment and verification will need to flow through significant regions of the same supply networks.
Which raises some important questions about the future. Which labels will become dominant, and which will fade? Which issues should be addressed in the product now, which can wait, and for how long? How many 3rd party labels should a brand expect to have on their product in future? What is the role of the “parent” brand in conveying messages related to these issues? Is it the case that the parent brand represents qualities that customers used to care about, and that the 3rd party labels represent those that will be cared about in future? Is it conceptually acceptable to ‘outsource responsibility’?
Visibility into the extended supply chain
By contrast, building the capability to pass any product related data through value networks, from raw material to final product - separate from any acceptability criteria - creates a flexible strategic framework that can respond to changing data requirements and underpin verification services for multiple schemes at the same time – driving efficiency and scalability. This does not mean that specific expertise related to carbon emissions or land use won’t be required, just that the data infrastructure necessary to meet these requirements won’t need to replicated. It also means that brand strategy becomes clearer – “We must know where the materials that end up in our product come from. We can choose to review this information with relevant experts in order to support due diligence and to drive incremental improvement over time. We can use this information to stay informed (and to inform stakeholders) about the distributed impact of our operations and to design programmes to ameliorate those impacts”.
Why do we need both?
It is important to stress that 3rd party certified responsible sourcing schemes are both helpful and necessary today. As ‘agents of change’ they are uniquely placed to highlight areas where existing trade mechanisms are failing and to provide credible interventions to demonstrate how those mechanisms might be improved. Those who participate in the value network recognise that they form part of a larger system – they deal with multiple schemes and some percentage of their intake and output is not within any scheme. The behaviour of the system as a whole is poorly understood. 3rd party certified responsible sourcing schemes may be able to address some undesirable symptoms of the system, but a better understanding of the system as whole is required if the causes are to be engaged.
Introducing mechanisms to drive improved data flow throughout the network (through value chain mapping and product traceability) to deliver reliable data on network performance has the power to not only improve the efficacy of the 3rd party certified responsible sourcing schemes but also to allow the development of conventional trade mechanisms - optimising price and availability of product which measurably improves outcomes for all actors. Once in place, dynamic value chain maps (i.e. where information on the structure of the trading network is kept up to date over time as the configuration changes) can support improved brand resonance.