- Establish strong company management systems.
- Identify and assess risk in the supply chain.
- Design and implement a strategy to respond to identified risks.
- Carry out an independent third-party audit of supply chain due diligence at identified points in the supply chain.
- Report on supply chain due diligence.
The Five-Step Framework should be viewed in the context of a process to better understand your supply chain and the source of raw materials, and better identify and address risks, rather than as an end result. Demonstrating a due diligence process and compliance with applicable standards is equally as important as stating the elements of the process.
With these basic steps and overall principles serving as a foundation for a generic risk-based due diligence program, the OECD establishes supplemental guidance for individual sectors, such as minerals, and apparel and footwear.
A risk-based approach focuses resources more efficiently on the areas needing more attention. In the case of conflict minerals, the Conflict Free Smelter Initiative (CFSI) has identified areas of high risk and due diligence expectations, including which documents should be obtained for each transaction (purchase orders, transportation documents), along with additional requirements for transactions originating in high risk regions (mine license, export license, chain-of-custody, etc.). These requirements place the onus on the processor to be accountable for all material that they purchase and/or process.
Under both the Five-Step Framework and the CFSI, all processors - regardless of whether or not they source from high-risk regions - would have to meet minimum standards for all policies and supporting procedures, including management systems, due diligence (risk assessment, supplier engagement, document requirements), and public reporting.
Establishing a common set of due diligence standards, such as the Five-Step Framework, across an industry or multiple industries would minimize confusion among various stakeholders and increase efficiencies. It could eventually become a global standard for due diligence programs and evidence disclosures in various supply chains - even with the need to address unique conditions for particular industries (agriculture versus apparel manufacturing, for example). Additional benefits could likely include improved supplier-buyer relationships and increased pressure on governments in high-risk regions to address illegal activities within their borders, leading to easier access to markets.
What excites me the most about the Five-Step Framework is that it provides clear and consistent guidance on what is expected of supply chain actors. The initial processors and upstream manufacturers are often in the best position to drive positive change further up the supply chain through their relationships-and direct influence-with suppliers. They can truly become our engine of change if directed and supported to do so. If buyers clearly communicate what is required of processors to sell their products, most processors will do their best to meet these expectations.
With this said, establishing expectations and providing guidance is only the first step. We will need to help these actors establish and implement effective due diligence programs through trainings, outreach and assessment (audits may serve this purpose). Here are some of the areas where supply chain actors could use support in gaining a better understanding:
- Developing protocols and sourcing policies
- Conducting sufficient due diligence of their suppliers
- Communicating expectations to suppliers, including encouraging participation in an industry initiative (the CFSI, for example) when appropriate
- Ensuring that management systems are optimized
- Collecting, reviewing and retaining appropriate evidence to validate origins
The actors with truly effective due diligence programs - programs that include supporting sourcing policies, communicating expectations to suppliers and conducting due diligence of these suppliers - can, in turn, help their suppliers to improve their own due diligence programs and practices, thereby spreading the positive change up and across entire supply chains.
I hope all industries, initiatives, multinational enterprises, and individual supply chain actors will embrace the OECD's Five-Step Framework and begin implementing appropriate due diligence of material they purchase. Go here to learn more about OECD's Five-Step Framework and other guidance for multinational enterprises.