As human rights due diligence becomes increasingly important for businesses, Oxfam’s Private Sector Human Rights Advisor, Monica Romis looks at how purchasing practices have direct implications on the human rights of workers, shares some of Oxfam’s research and highlights concrete steps business can take for a more equitable distribution of rights and responsibilities through the supply chain.
Companies’ purchasing practices can have a profound impact on human rights. Businesses are under mounting pressure to take responsibility for the wellbeing of men and women workers in their supply chains, with mandatory human rights due diligence legislation approved or underway in several countries.
While CSR and sustainability teams are working hard to adopt more robust human rights due diligence processes, purchasing practices have the potential to undermine efforts to be responsible. Conventional purchasing practices tend to deflect risk to suppliers, squeezing their margins and putting them under pressure to deliver within short timescales.
The graphic below visualizes the problem: purchasing practices—including aggressive price negotiation, inaccurate forecasting, late orders, short lead times and last-minute changes—put suppliers under intense pressure. This often results in increased work intensity and excessive overtime for workers, which, in turn, lead to poor working conditions and low pay for workers, which directly relate to the basic human rights outlined in the Universal Declaration of Human Rights. It can also lead to unauthorized subcontracting to suppliers with poor labor standards.
The link between conventional purchasing practices and the impact on working conditions in production countries is well established. Oxfam published this diagram over ten years ago. Many companies have trained their buyers on the impact of purchasing practices on people in the supply chain. However, most companies have scarcely scratched the surface of adopting responsible purchasing practices and unfair practices are still the norm.
Oxfam Business Advisory Service (OBAS) and the Better BuyingTM Purchasing Practices Index
Better Buying Institute and Oxfam are here to help companies in their journey towards more responsible procurement practices. The Better BuyingTM Purchasing Practices Index provides companies with insights from their suppliers on how the suppliers experience the buying practices of their buyers. This information provides a key first step that can give companies a snapshot of the effect of buying practices on suppliers and point to particular areas that need improvement. Better Buying<sup><span style=”font-size:10px;”>TM</
The Oxfam Business Advisory Service provides tailored assistance to companies who want to assess the potential negative impact of their purchasing practices on respect for human rights in their supply chains. This includes conducting reviews of companies’ strategies, deep dive research on specific countries and supply chains, as well as human rights impacts assessments. The Oxfam Business Advisory Service also advises companies on what practical changes they can make to have the most positive impact for workers and producers in their supply chains, with a strong focus on gender inequalities and women’s economic empowerment.
Understanding the problem
Over the past few years, Oxfam’s work on supply chains put a spotlight on the food sector, where human rights violations are widespread. Research conducted for the Behind the Barcodes campaign revealed that supermarkets’ reliance on ‘unfair trading practices’ (see diagram) is one of the root causes of the human suffering behind the food we buy. The result of these practices is to depress the prices paid to suppliers and increase the risks that suppliers incur (e.g. of failed harvests or input price rises). The downward pressure that suppliers experience results in wage cuts, poor labor conditions and failure to respect workers’ human rights.
Spotlight on price negotiation
Aggressive price negotiations can have a direct impact on suppliers’ ability to pay workers decent wages and respect their human rights. To illustrate, a human rights impact assessment (HRIA) conducted by Oxfam of Finnish SOK Corporation’s Italian processed tomato supply chains showed how aggressive negotiation resulted in prices that were decoupled from cost of production. In the context of strong power imbalances, suppliers felt they had no choice but constantly lower their prices despite rising costs. Suppliers were initially invited to quote for given volumes of product (initial tender). Buyers then selected the suppliers with lowest initial quotes and invited them to lower bids against one another in short time-bound windows (reverse e-auction). In 90% of cases, the lowest bid won the contract. As a result, over a period of time of five years, while costs have gone up (8% increase in wages), prices paid have declined both for producers (by 10%) and for SOK private label suppliers (by 15-25%).
The HRIA highlights that these purchasing practices were at the root of serious violations of human rights for workers: health and safety risks on farms and in transport to work, unsafe and unsanitary housing, forced labor, low wages and excessive overtime, restrictions to freedom of association and lack to access to remedy.
Five concrete steps to make positive change
The risk and responsibility for human rights should be shared between buyers and suppliers. Yet predominant purchasing practices continue to transfer risk onto suppliers. It doesn’t need to be like this. There are five concrete steps that companies can take immediately to change this:
- Cultivate robust, long-term supplier relationships: reward suppliers with better human rights performance with more business, longer-term contracts and fewer audits, linked to better contracts for workers.
- Training: train commercial staff so they understand the human rights impacts of their purchasing decisions.
- Forecasting: use better purchasing and forecasting, smoothing out peaks and troughs in orders.
- Buyers’ incentives: give buyers the information and incentives to select suppliers who show respect of human rights and align bonuses with human rights performances of suppliers.
- Balanced scorecard: assess suppliers against commercial AND ethical criteria.
Deep Dive Report on Monthly Order Variability
Supplier Roundtable Report MOV
Oxfam HRIA on SOK Italian tomato supply chain: The people behind the prices
Oxfam Briefing Paper: Not in This Together: How supermarkets became pandemic winners while women workers are losing out
Oxfam Issue Paper: Better Jobs in Better Supply Chains