Most international companies have well worked out programs for code of conduct in China and usually rolled these out efficiently to their internal organization. However, there are only a few companies who have effective programs for suppliers in China. Some companies have checklists filled in by suppliers or purchasing staff but no deeper control. Those companies that use international guidelines find these are hard to implement fully in China. With the introduction of CSRD requirements it becomes even more important to have a clear view of the status of your supply chain as well as action plans and polices in place.

Why doesn't it work well?

While it is relatively easy to inform and convince e.g. your internal organization in China about your values, it is not easy for you sourcing and purchasing staff to discuss these values with the suppliers. This is partly because it is done on a too low level in the organization and thus the purchasing organization often lacks competence in EHS and labor issues, but more so because the focus in supplier discussions are normally very price and delivery focused. There is often a reluctance to get into these issues.


imageScandic Sourcing's solution

Scandic Sourcing provides a customized program that includes program development, training of sourcing and purchasing staff and independent third party inspections. When we design the program we look at international guidelines (UN, OECD, ICC, CSRD) and our client's internal value systems and policies.

We also look at the Chinese legal situation. The Chinese legal system is comprehensive but new laws take many years to implement and are implemented inconsistently in different areas, and sometimes government campaigns are done with little warning to weed out manufacturers who don't measure up. Scandic Sourcing has practical experience of production management in China and knows what areas the government are promoting and what is common practice in the industry. We balance this with common sense from a western perspective in a double materiality analysis to give you an effective program.


Why is a third party inspection needed?

A third party inspection alerts higher management at suppliers and gives much better access to staff and confidential data. Scandic Sourcing sends in a team with HR, safety and environmental competence. We get access to employee files, training records, accident reporting, government reports, overtime, pension and benefit payment records.


Why is it important now?

No supplier, even in developed countries, do everything perfect. In China with rapid development, there is a generally very low awareness about sustainability, EHS and labor issues both at the management and worker levels. There is still a very wide gap between what is accepted in Europe and the daily reality in China. Thus it is necessary for foreign companies active in China to have a clear picture of their supplier base and eliminate any risky suppliers. With ISO 14000 certification it is also a requirement to have third party inspections of suppliers.

It should also be noted that there is a risk with suppliers that don't meet local regulations. Authorities have strong powers to immediately shut down a supplier they don't think comply and it takes time to replace and train a new supplier. 

For EU companies the Corporate Sustainability Reporting Directive (CSRD) starts to be implemented from 2024. Reporting directives are defined in the EU Sustainability Reporting Directive. Our clients who has their supplier cod ef conduct in place will have an easy time to meet the requirements in ESRS.


Why measure performance?

By periodically measuring performance and rating them on a wide scale of key criteria, the supplier gets clear records about their performance and the potential to improve. It is easy for them to see in which areas they can, with little relatively effort and cost, substantially improve their scores. It is important to give them a chance to show improvements and create early successes as engagement and encouragement are important factors to get results.


Does it work?

Scandic Sourcing has audited numerous suppliers. Our experience shows that with the right competence and attitude we get full information and a very good cooperation from the suppliers. Suppliers has generally welcomed our programs and see them as a way to get better information regarding what overseas clients actually require, increasing their competitiveness. Over time we have been able to measure rapid improvement for most suppliers and the suppliers are proud when recognized. Those suppliers that cannot respons to our program are always the ones that also has other quality, delivery and attitude problems. It is an effective way to weed out the ones that don't measure up.


What to do next?

Contact Scandic Sourcing and let us discuss your situation and how we can assist you or keep reading about Code of Conduct in China.