The issue
The client is a multinational luxury goods retailer, based in the UK with a well recognised international brand in Asia, the US and Europe. This company became increasingly aware of the reputational risks associated with their identifiable brand due to increased outsourcing of manufactured products outside Europe. This resulted in weakened controls over their manufacturers under licensees over time. As part of their subsequent focus on brand and reputation management and in anticipation of potential investor, activist or media attention, the client wanted to integrate ethical considerations into their supply chain management programme. This would also place the client in a position to publicly report on their ethical supply chain progress in their CSR reporting. PwC was engaged in August 2002 to help the client understand and manage this reputation risk exposure and prioritise areas of focus for monitoring efforts.
Our approach
We developed a risk assessment framework, focusing on product and country risks and assessed over 1,000 suppliers/manufacturers under license. Based on the results of this risk profile, we developed a strategy to implement a programme to monitor compliance of their supply base with their social and ethical code of conduct. A key element of the strategy was the roll out of a pilot programme, assessing compliance of suppliers and manufacturers under license in Italy, UK, Japan, Hong Kong and China, using local PwC ethical monitors in these countries. Following these pilots, PwC has commenced work in relation to:
- Raising awareness of the code within their Spanish subsidiary;
- Evaluation of the ethical monitoring programme of one of their major licencees; and
- Further monitoring of additional high risk suppliers from whom the company sources goods directly.
As a result of this relationship, we have also been engaged to monitor developments with respect to the use of banned substances/chemicals and provide an “alert service” to the retailer advising of any changes in either legislation/regulation or stakeholder concerns.
The outcome
From the ethical supply chain work conducted, relationships with and controls over suppliers and licensees have strengthened and ethical dimensions are now incorporated into procurement and licensing decisions. Working with PwC has also greatly improved the internal capacity of the client in terms of ethical sourcing. The client has established mechanisms to record supplier details, associated country and product risks and results of any monitoring visits.
