In a global marketplace, responsible sourcing is more than just a “nice-to-have”; it’s essential. As a buyer in training, you might hear about the importance of ethical procurement, sustainability, and compliance, but where do these ideas come from, and how do they affect your day-to-day sourcing decisions? This is where the OECD Guidelines and OECD due diligence for responsible business conduct come into play.
These international frameworks provide practical standards that shape how businesses interact with supplier markets, with a focus on ethical practices, respect for human rights, and environmental sustainability. Let’s dive into these frameworks to see how they influence sourcing decisions and supplier relations, and then connect them to the sourcing process. By the end of this guide, you’ll have a better understanding of how to apply these guidelines in your role and feel empowered to make responsible sourcing decisions that align with best practices.
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Introduction to OECD Guidelines and OECD Due Diligence
What Are the OECD Guidelines for Multinational Enterprises?
The OECD Guidelines for Multinational Enterprises are recommendations developed by the Organisation for Economic Co-operation and Development (OECD). They provide a set of voluntary, but globally respected, principles and standards that multinational companies should follow. These guidelines address various aspects of responsible business conduct and help ensure that companies operate ethically, transparently, and with respect for social and environmental standards. They cover several areas, including:
- Taxation: Responsible tax practices mean paying taxes where economic activities occur, contributing fairly to the communities in which businesses operate.
- Human Rights: Businesses should respect human rights and avoid infringing upon the rights of others. This includes preventing issues like forced labor, child labor, and discrimination in any form within the supply chain.
- Employment and Industrial Relations: Companies should uphold fair labor practices, including workers’ rights to unionize, fair wages, safe working conditions, and access to grievance mechanisms.
- Environment: Enterprises are encouraged to minimize their environmental impact, focusing on pollution control, sustainable resource use, and initiatives that combat climate change.
- Anti-Bribery and Corruption: Ethical business conduct involves preventing and addressing corruption, bribery, and other illicit practices in all areas of operation.
- Consumer Interests: Companies should prioritize consumer safety and satisfaction, ensuring product quality and reliability while being transparent about any potential risks or issues.
- Disclosure and Transparency: Transparent operations are vital for public trust. Businesses should share accurate information about their financial performance, ownership, and other factors that influence stakeholders.
- Science and Technology: Companies should contribute to scientific and technological advancement and share knowledge, particularly in developing countries, to foster innovation and economic growth.
- Competition: Fair competition practices ensure that businesses act responsibly in their markets and avoid anti-competitive actions.
Why not download the OECD leaflet?
While the OECD Guidelines provide broad principles, the OECD Due Diligence Guidance for Responsible Business Conduct offers a practical approach to implementing these principles, particularly around due diligence in global supply chains. Due diligence is the process companies use to identify, prevent, mitigate, and account for how they address actual or potential adverse impacts in their operations. This guidance is tailored to help businesses of all sizes meet expectations around responsible sourcing and corporate responsibility.
The OECD Due Diligence Guidance outlines a structured due diligence process that companies can follow to manage their risks. Here’s a closer look at its main components:
Enabling Remediation: If adverse impacts do occur, companies should have mechanisms in place to address and remediate them. For instance, if a human rights violation is found, a company might work with relevant organizations to support affected workers or communities.
Embedding Responsible Business Conduct into Policies and Management Systems: Companies should establish and communicate clear policies on responsible business conduct, ensuring that these policies are integrated into their management practices. This can include training employees, setting up reporting mechanisms, and embedding responsible practices into everyday operations.
Identifying and Assessing Adverse Impacts: To responsibly source materials or products, companies need to understand where and how risks might occur. This involves assessing the entire supply chain, including indirect suppliers, to identify possible human rights violations, environmental harm, or unethical practices.
Ceasing, Preventing, or Mitigating Adverse Impacts: Once risks are identified, companies should take action to address them. This could mean working directly with suppliers to improve practices, establishing corrective action plans, or even disengaging from suppliers if the risks are too significant.
Tracking Implementation and Results: Effective due diligence requires regular monitoring to ensure that actions taken are working as intended. This might involve conducting audits, gathering feedback from stakeholders, and keeping updated on any changes in the supply chain.
Communicating How Impacts Are Addressed: Transparency is key to responsible business conduct. Companies should share information on their due diligence efforts and outcomes with stakeholders. This openness helps build trust and accountability in the supply chain.
Reflective Question: How might having a clear standard for due diligence affect your confidence in selecting suppliers?
Why Responsible Business Conduct Matters
Responsible sourcing isn’t just about reducing risk; it’s about building trust and promoting long-term, mutually beneficial relationships. By adhering to OECD due diligence for responsible business conduct, companies can safeguard their reputation, enhance resilience, and ensure compliance with global standards.
For buyers like you, following these frameworks helps you select suppliers that align with your company’s values and avoid suppliers that might expose the business to ethical or legal risks.
Reflective Question: How would you feel if a supplier’s practices negatively impacted your company’s reputation? What steps could you take to avoid this?
How OECD Guidelines Influence the Sourcing Process
When sourcing, we follow a structured process to evaluate suppliers and make informed choices. Here’s a look at how the OECD guidelines impact each step, focusing particularly on Step 4 (Conducting RFI) and Step 5 (Writing Selection Criteria), where buyers directly interact with potential suppliers.
Step 4: Conducting RFI (Request for Information)
The RFI process (Long list to Short list) is where you gather detailed information on suppliers. Here, due diligence is essential. You’re not only interested in whether the supplier can provide the goods or services you need; you want to know if they align with responsible practices.
Here are some questions inspired by OECD due diligence you could include in an RFI:
- Human Rights and Labor: “What policies do you have in place to prevent child labor and forced labor?”
- Environmental Impact: “Can you describe your approach to reducing environmental impacts, such as waste and emissions?”
- Supply Chain Transparency: “How do you ensure that your suppliers and subcontractors uphold ethical standards?”
Asking these questions in the RFI stage provides valuable insight and sets the tone with suppliers that responsible business conduct is a priority.
Reflective Question: Which RFI questions would give you the clearest insight into a supplier’s commitment to responsible business conduct?
Step 5: Writing Selection Criteria
Selection criteria are the benchmarks you’ll use to evaluate suppliers and make your final choice. Incorporating elements from the OECD guidelines here is key. Criteria can include specific requirements related to:
- Labor Practices: Does the supplier uphold fair labor practices as outlined by the OECD?
- Environmental Standards: Is the supplier proactive in reducing their environmental footprint?
- Anti-Corruption Policies: Does the supplier have policies to prevent bribery and corruption?
It’s essential to set clear, measurable standards for each criterion. For example, you might require that suppliers provide proof of compliance with recognized standards like ISO 14001 for environmental management or SA8000 for social accountability. These standards signal alignment with OECD guidelines.
Reflective Question: If you had to prioritize one criterion related to OECD standards, which would it be and why?
Role of Buyers in Promoting Responsible Conduct
As a buyer, you’re in a unique position to influence positive change. The OECD guidelines, combined with the growing emphasis on sustainability and social responsibility, mean that buyers are more than just price negotiators—they are champions for responsible business practices.
Looking forward, trends like digital traceability, increased transparency demands, and stricter regulatory requirements will likely make responsible sourcing even more critical. Buyers who understand and implement OECD due diligence for responsible business conduct will not only protect their companies but also contribute to a fairer, more sustainable global supply chain.
Reflective Question: How do you think responsible sourcing will evolve over the next five years? What skills could you develop now to stay ahead of these trends?
Wrapping Up: Taking Action in Your Role as a Buyer
Incorporating OECD due diligence for responsible business conduct into your sourcing process doesn’t have to be overwhelming. By asking the right questions, setting clear selection criteria, and working collaboratively with suppliers, you can make a significant impact. Remember, responsible sourcing is an ongoing commitment, and every decision you make has the potential to support a more ethical and sustainable business environment.
Learn more in the blogpost about Supplier Code of Conduct (CoC). A CoC can be used as a tool for the buyer to transfer requirements from buying company. If you want to learn more about Supplier CoC, LHTS have a course for the tactical buyer role. Procurement departments are responsible for sourcing goods and services from suppliers that meet the organization’s requirements for quality, cost, and delivery. However, in addition to these basic requirements, procurement professionals must also consider the ethical and social implications of their purchasing decisions. This is where a supplier code of conduct comes in.
OECD due diligence for responsible business conduct can be used when conducting Supplier Audits. Learn more in Hans Nilsson’s course.
Dr Aurora Dawn Benton’s courses bundle of courses includes all the basics a buyer (and others) need to know to get started on journey towards a sustainable supply chain. From definitions to tools needed to get started.
As you continue in your buyer training, keep these frameworks in mind and reflect on the questions provided. Building a habit of responsible sourcing will not only benefit your company but also set you apart as a buyer committed to positive change in the supply chain.
Happy sourcing!
Note: Illustration to the blogpost “Understanding OECD Guidelines for Responsible Sourcing: A Guide for Buyers” was created with support of Chat GPT on November 8, 2024.