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Retail Audit Forum – London, January 21, 2015, P Courtemanche

‘Own Brand and Private Label ProductsEffective management of reputational and regulatory risk’

Session Plan

Opening presentation: 30 minutes on Ethic, Risk and Traceabilitywithin supply chains

• 10 minutes guided table discussions,• What assurance do you currently get across your whole

supply chain?

• What can be improved and how?

Second presentation: 10 minutes on the Modern Slavery Act

• 10 minutes guided table discussions,• What preparations are you making for MSA compliance?

• Where do you consider yourselves most at risk?

Feedback: 30 minutes for tables to feed back, hold general Q&A and interaction

Ethical trade

Source: Professor Robert Hijmans, University of California

Each dot represents 250,000 people living on less than 2 dollars per day

Ethical trade

Over 3000

Africa’s new class pyramid

Less than $2/day

Between$2-$4/day

Between$4-$10/day

Between$10-$20/day

More than $20/day

60%

20%

9%

5%

6%

Population living below the poverty level

Floating class

Lower middle class

Upper middle class

Upper class

Source: AfDB

Efficient campaigning…

2015 - Corporate Scandals accordingly to The Guardian

What is at stake?

Market Value

BookValue

$217 B

$133 B

Brand Equity:$84 B

Market Value

BookValue

$177 B

$30 B

Brand Equity:$147 B

Market Value

BookValue

$22 B

$1.5 B

Brand Equity:$20.5 B

Finance data provided by:

Brand damage

Complex supply chains

Eating a hamburger and fries in Austria

Mineral supply chains

Smelter Electronic devicesExporter

‘’ EU smelters and refiners importing designated conflict minerals and metals will have to be certified by the EU to help cut funding to armed groups, if draft legislation is brought in this year.’’ April 15, 2015

The conflict minerals issue:

Artisanal miner Electronic components

‘’ MATERIALS used in your mobile phone and laptop could be fuelling sexual violence and war in places like the Democratic Republic of Congo, Burma and Colombia.’’ April 9, 2015

‘’ More than 1,300 U.S.-listed companies filed reports on their efforts to root out so-called conflict minerals in their supply chain, but only four companies were brave enough to face an audit, according to a report Thursday.’’ September 18, 2014

‘’ In 2013, rebel groups in DRC generated almost $1bn from minerals extracted from mines in conflict zones and use the profits to pay soldiers, buy weapons and attract new recruits… combatants are willing to use brutality to obtain minerals.” June 18, 2014

Slavery in prawn supply chain

CP FOODS Prawn farms

Large Thai food distributor

RetailersFishmeal suppliers

Fishmeal fishing

‘’ A six-month investigation has established that large numbers of men were bought and sold like animals and held against their will on fishing boats off Thailand’’

‘’ Horrific conditions, including 20-hour shifts, regular beatings, torture and execution-style killings’’

‘’Some were at sea for years; some were regularly offered methamphetamines to keep them going. Some had seen fellow slaves murdered in front of them’’

‘’ In addition to Walmart, Carrefour, Costco and Tesco, the Guardian has identified Aldi, Morrisons, the Co-operative and Iceland as customers of CP Foods ‘’

Issues far down the supply chain:

The basics for procurement

The aim:

• The right product(spec compliant)

• Delivered in the right quantity, at the right place, at the right time (just in time)

• In a cost-effective manner

What you need to ensure:

• Know and understand your supply chains

• Identify and asses the risks

• Manage the risk

• Have leverage over your suppliers

• Mitigate risks

• Have backup plans

What you need to avoid:

• Supply chain blindness

Running supply chains full speed…

…at the lower cost

Being proactive or reactive?

QualityControl

Quality Assurance

Time

Cost

Brief

Design

Manufacture

Shipping

Distribution

Sale

Concerns & Returns

Being proactive or reactive?

Sourcing complexity/risks

Pro

fit

imp

act

Leverage supply

Non-critical supply

Strategic supply

Bottleneck supply

Supplier assessment & performance

Being proactive or reactive?

Risks/Regulation

Re

pu

tati

on

al d

amag

e/B

ran

d c

om

mit

me

nts

Traceability of raw materials & products

Paper trail

Chain of custody

Mass Balance traceability

Physical traceability

What are the options?

Certification Make your suppliers

responsible through contracts

Put yourself in the driver’s seatand take control

The Race to Trace*

*MIT CTL Roundtable - The Race to Trace: Integrating Profits, Planet, and Precaution

… consumer brands are already going traceable

‘Kuerig Green Mountain commits to source 100% traceable coffee by 2020’

‘As a responsible food company, we believe our products should contain palm oil that is traceable back to the plantations …. Traceability is critical to achieving this; knowing exactly where the palm oil we buy comes from is the only way to assess practices on the ground and understand if improvements need to be made.’

‘We …are now making changes to further strengthen traceability throughout the entire food value chain.’

‘100 per cent of the raw coffee used in their products should have transparent origins and be traceable right back to the field it was grown in.’

About traceability… ‘2014 has been a defining year for our goal to create a more transparent palm oil industry. Knowing where it comes from is a critical step in the journey.’

Tracing what?

INCREASE SUPPLY CHAIN VISIBILITY

Products compliance

Suppliers assessment

Impactsassessment

Regulatory compliance

Sustainability

Premiums assessment

Risk management

Physicaltraceability

Chain of custody

approach

Mass / Balance

Approach

Safety

Assurance

Products recall

Supplychain control

Quality

What a good Traceability System should allow

Counterfeit

Technology available

Supply Chain Management

• Many solutions available

• Focus on stock management, control and logistics

• ERP-type systems or feeding such systems

• Often linked to financial and accounting systems

Supplier Procurement Manufacture

ProductInventoryDistribution

Retail Consumer

Point of origin

Point of consumption

Technology available

Product Compliance

• Increasingly available solutions

• Focus on compliance, security of supply, quality control

CONTROL

Business intelligence

Product development

Regulation

Sourcing & selection

Product approval

Sale & post sale

assessment

Technology available

Supplier Assessment

• Increasingly available solutions

• Focus on supply chain mapping, suppliers approval and performance

Technology available

Tracing and Tracking

• Fewer solutions available

• Focus on movement of products, raw material origins and processing, sustainability and assurance

Technology available

Supply Chain Management

Product Compliance

Supplier Assessment

Tracing and Tracking

• Many solutions available

• Focus on stock management, control and logistics

• ERP-type systems or feeding such systems

• Often linked to financial and accounting systems

• Increasingly available solutions

• Focus on compliance, security of supply, quality control

• Increasingly available solutions

• Focus on supply chain mapping, suppliers approval and performance

• Fewer solutions available

• Focus on movement of products, raw material origins and processing, sustainability and assurance

What makes a good system?

A good Traceability System should:

• Inform sourcing decisions and supplier engagement

• Build trust

• Protect commercially sensitive information

• Ensure data security

• Allow selective data sharing

• Synchronise data across devices and platforms

• Improve efficiency

• Inter-operate with other platforms and technology

• Its cost should decrease with time and maturity

• Cope with operations and field/market realities

Traceability could be complex

End-to-end traceability of complex supply chains

The GeoT approach

Providing internal & external traceability with

GIS data

Raw Materials

Producer

Processing / warehouse

Cooperatives / Traders

Export

Geotraceability report showing thecontribution of producers to supply

End-to-end traceability

ORIGINTIER

SUPPLY CHAIN TIER 2

SUPPLY CHAIN TIER 3

SUPPLY CHAIN TIER 4

GeoT’s Collaborative Traceability Platform

GeoT

Interoperability between systems=

CUSTOMERTIER 5

ERP

Traceability Request

GEOT’S WEB SERVICE

A supply chain partner can provide requested traceability data by :• Configuring its Information System (SAP, Oracle, MS Dynamics, Excel, etc.) to automatically receive and answer data requests

• Responding to the data request through the user-friendly and secure GeoT Web Service

Product flow

Product flow

Product flow

Product flow

Tips and advice

• Determine clear objectives

• Evaluate the leverage you have on your suppliers

• Define your data framework and traceability requirements

• Prioritise products, suppliers, origins, raw materials

• Adopt a phased approach

• Get a good understanding of what the IT providers are offering

• Identify which technology suits your needs

• Put yourself in the driver’s seat

A new piece of legislation setting out a range of measures on how modern slavery and human trafficking is dealt with in the UK.

The Modern Slavery Act

Share of each country's population that is enslaved. Click to enlarge. Data source: Walk Free Global Slavery Index. (Max Fisher/The Washington Post, October 17, 2013)

What are the requirements?

The Act and accompanying ‘Practical guide’ describes the requirements for businesses. Here is a PwC summary of what you need to know.

Does your business haveto comply?

What do you have to do?

Your business has to comply if it meets the two criteria below. These rules apply to public and private companies, and partnerships, wherever they are incorporated or formed and in whatever sector they

operate.

• Global turnover of over £36m

• Carries out business, or is part of a business, in any part of the United Kingdom

All obligated businesses must publish a ‘slavery and human trafficking statement’ for each financial year. This statement should disclose:

• Either the steps your business has taken during the financial year to ensure that slavery and human trafficking is not taking place in your own operations and in your supply chain; or

• That you have taken no such steps.

• Whilst you will fulfil your regulatory requirement by publishing a statement explaining that your company is taking no steps, this introduces additional reputational risk –we do not expect many companies to take this option.

What are the requirements?

What is the timeline for action?

What should be included in the statement?

Any business with a financial year ending on or after 31 March 2016 will need to publish a ‘slavery and human trafficking’ statement. The Act states that businesses should publish their statements as soon as reasonably practicable after the end of each financial year for which they are producing the statement.

The Government has stressed that the contents of the statement is not prescribed and that it is up to each company to decide on the content of its statement. However, the Act describes six areas of interest:

• Your business’ structure and a summary of its operations and its supply chains;

• Any policies relevant to slavery and human trafficking;

• Due diligence processes in relation to slavery and human trafficking in your business and supply chains;

• The parts of your business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps you have taken to assess and manage that risk;

• The effectiveness of your approaches in ensuring that slavery and human trafficking is not taking place in your business or supply chains, measured against such performance indicators as you consider appropriate; and

• Training about slavery and human trafficking.

What are the requirements?

Who should approve your statement?

Where should you publish the statement?

The Act states:

• If your business is a corporate body other than a limited liability partnership, it must be approved by the board of directors (or equivalent management body) and signed by a director (or equivalent);

• If your business is a limited liability partnership, it must be approved by the members and signed by a designated member;

• If your business is a limited partnership registered under the Limited Partnerships Act 1907, it must be signed by a general partner; or

• If your business is any other kind of partnership, it must be signed by a partner.

You should publish the statement on your website with a prominent link to it on your homepage.

What happens if you do not comply?

Theoretically, the Secretary of State could force you to disclose the statement through an injunction. However, the Government have made it clear that it is hoping that pressure from stakeholders will encourage businesses to comply without it needing to bring civil proceedings in the High Court.

Modern slavery and forced labour in global supply chain

Recent articles:• US Steps Up Fight to End Modern Slavery, Voice of

America, January 5, 2016

• Modern Slavery in the Travel Industry, fieldfisher, December 16, 2015

• Modern-day slavery is just part of business in Thailand’s seafood export capital, a major supplier for U.S. brands, Daily News, December 15, 2015

• Modern Slavery Act 2015: lessons learned from Nestlé, TaylorWessing, December 16,2015

Human trafficking involves the movement of a person,either across international borders or within the boundariesof a single country, by means of threat, deception or abuseof vulnerability for the purpose of exploitation.*

‘Can the worker quit when he/she wants, without penalty?’

*Source: Sedex Global, April, 2014

Different channels:• Directly by the supplier• By an intermediary used by the

supplier, such as labour broker• By third parties (unknown by the

supplier or the intermediary)

How to address and manage the risks?

Filipino workers in Taiwan, a breakdown of worker's wages for a two year contract

TWD 17,280/month – c.6$/day

Source: Verité Audit 2009

• Raise awareness internally and externally of the risks of human trafficking;

• Establish corporate policies to address forced labour, human trafficking and the vulnerabilities of migrant workers;

• Map your supply chain to identify the most vulnerable workers and places of greatest risk and to target assessment, prevention & remediation efforts;

• Assess whether current monitoring and remediation activities are adequately protecting the company from broker-induced forced labour;

• Review supply chain practices to determine whether structural conditions (such as prices paid to suppliers) encourage forced labouror debt bondage;

• Build the capabilities of suppliers to identify and address risksof forced labour;

• Hold suppliers accountable to control antitrafficking risks in their operations;

• Engage public policy actors in support of laws, regulations and enforcement that effectively protect workers;

• Participate in industry or multi-stakeholder initiatives to undertake training, awareness raising, communications, and advocacy;

• Invest in local institutions that provide support for trafficking victims.

Source: Sedex Global 2014