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The procurement practices that could be increasing your modern slavery exposure.

With the introduction of a mandatory annual Modern Slavery Statement for businesses with over $100 million revenue, the Australian Government has made it clear that large companies are responsible for investigating potential modern slavery issues and addressing them.

But every organisation, no matter its size, has a moral and commercial imperative to tackle the inhumane practices that constitute modern slavery. These include trafficking in persons, slavery, servitude, forced labour, debt bondage, forced marriage, deceptive recruiting for labour or services, and child labour.

In addition to the legal requirements of the Modern Slavery Act 2018, businesses should actively seek clarity on their modern slavery risk for sound commercial reasons. Lack of awareness can put your supply chain at risk, as trade regulations prohibit the import of goods produced by forced or trafficked labour. And, as history has shown, revelations of problems in this area can have severe repercussions for a brand. Companies who've been exposed for being involved with sweatshops, child labour, and other human rights violations, have been subject to negative publicity, demonstrations, and consumer boycotts.

Given that modern slavery exists within the supply chain function, organisations will be relying on procurement personnel to practice ethical procurement practices and rid slavery from their global operations and supply chains.

So, what are the common mistakes that businesses make in the procurement process that lead to increased modern slavery risk? And what could you be doing differently?

1. Not recognising the scale of the problem

You can't mitigate the risk of modern slavery if you don't recognise the dangers for your business. The 2018 Global Slavery Index estimated that there were more than 40.3 million people in modern slavery globally with 71% being female. Of that number, 24.9 million were in forced labour. It's also estimated that one in four victims of modern slavery are children.

With increased globalisation comes an increased complexity of supply chains. You may have an excellent relationship with your first-tier suppliers and be confident that they have no problems. But what about their suppliers? And others further down the chain? You really require clarity across your entire supply chain because it's your business that ultimately will be held accountable.

2. Not asking the right questions

Of course, modern slavery can occur anywhere, but there are some key factors that significantly increase its likelihood. Operating in countries that are conflict-affected or have a weak rule of law have a greater risk for social rights abuses, as do those with a high level of migrant workers. The vulnerable populations of migrant workforces are often subject to poor working conditions, excessive working hours, and underpayment or non-payment of wages. Issues such as language barriers, lack of education, and visa insecurity, are all likely to prevent them from speaking out.

As with countries, there are some industry sectors that offer a higher risk of modern slavery. Industries utilising temporary workforces, for instance construction or seasonal work, tend to have less oversight, which can increase risk.

Outsourced base-skilled labour, such as cleaners, maintenance workers, and security staff, also suffer from a lack of oversight.

And when these factors merge, say seasonal work combined with a high migrant population, the likelihood for modern slavery to take root increases exponentially.

Identifying modern slavery risks means asking for additional information about the extent of your supply chain network across these factors. It also means setting expectations with suppliers throughout the tender process, from evaluation through to contract management.

3. Ignoring a big red flag

Have you ever questioned why one tender price is significantly lower than its competition? It would be prudent to investigate exactly why that discrepancy exists.

Exploring potential risks through a modern slavery assessment at the beginning of a new procurement can help you assess the general risk of the engagement and highlight potential causes for concern before signing the contract.

It's also worth looking at how the procurement function is incentivised—by meeting cost metrics, rather than ethical metrics, for example. Consider the behaviour you're wanting to drive and incentivise accordingly.

4. Neglecting to audit existing and future suppliers

Procedures for regularly auditing suppliers should be put in place. Ideally, an independent authority from a different department or location should check elements, such as recruitment processes, working conditions, working hours, health and safety, level of wages being paid, and so on. Unannounced checks may be necessary to ensure no deception is involved. And information provided by the supplier should be verified by other stakeholders and third parties.

5. Failing to include modern slavery terms and conditions in contracts

Are you clearly setting out your expectations regarding modern slavery in your contracts? Are you including requirements regarding site visits or receiving management information? What responsibility do first-tier suppliers have in monitoring sub-contractors? Have you established a process for reporting and responding to suspected incidents of modern slavery?

6. Not establishing appropriate training programs

Clearly there's a lot to consider when mitigating your modern slavery exposure. Your staff should be educated about the problem and be a part of your plans to address it. They need to be trained in how to implement your policies and identify potential modern slavery risks. Meanwhile, staff that visit suppliers require training in how to spot the signs that may indicate worker exploitation.

7. Not considering modern slavery risks when pulling together panels

Education is essential for internal staff, but it can only go so far. Approved provider panels are traditionally used as a way of signalling those suppliers who've passed due diligence reviews and are approved to use. Not considering modern slavery risks when pulling together panels may cause other staff to unwittingly engage with unethical suppliers, increasing your operational and reputational risk.

8. Failing to use your negotiations for good

Large organisations have significant leverage to use their purchasing power to drive positive change in supply chains. Choosing to limit purchasing discussions to price or logistics may avoid a difficult conversation, but it can also mean casting a blind eye to potential risks. Procurement staff are in the unique position of having the ability to influence the way suppliers operate and as such, can a play key role in combatting modern slavery across their supply chain and across the world.

Next steps

When deciding how to reduce your commercial exposure to the risks of modern slavery, there's a lot to consider. It all begins with evaluating your supply chain procurement practices and contemplating how your processes need to change. For a comprehensive action plan on working with your suppliers and suppliers further down the chain, request a copy of our whitepaper, Closing the gap on modern slavery: an action plan to help your suppliers—and their suppliers—reduce your modern slavery risk.

You can get it here.

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