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The idea that companies ought to take responsibility for their supply chains was initially a radical idea. How could a company possibly take responsibility for the actions of other companies who assembled their products or provided the parts they used? Weren’t those companies independent economic actors? Few companies allowed anyone else to know much about their operations. Those were trade secrets. Nonetheless, within 40 years the notion that a company has a responsibility for how its products are made, how parts and services it uses are made, and even how raw materials it uses are sourced has become routine. Today, a whole industry has developed to vet, evaluate and report on the behavior of supply chain partners. The history of supply chain responsibility begins with the chemical industry in the 1970s. The Occupational Safety and Health Act (OSHA) of 1970 had set in motion a regulatory process of protecting workers from chemical exposures and other hazards. That was strengthened in 1976 with the passage of the Toxic Substances Control Act (TSCA) which tightened standards but also required public disclosure of certain chemical risks. Several major disasters—including Allied Chemical’s spinning off dangerous chemical processes to independent subcontractors, and Union Carbide’s subcontracting production of a particularly dangerous compound to a joint venture in Bhopal, India, which killed thousands in 1984—dramatized the responsibility of chemical companies to be concerned with their supply chains. In the late 1970s, Levi Strauss & Co., headquartered in San Francisco, arguably ignited the modern supply chain responsibility movement. Levi’s made the decision to move most of its manufacturing of blue jeans and other products outside the U.S., contracting out the production of its clothes to other companies. Levi’s reputation as a responsible company was important both to the Haas family, majority owners whose ancestor had founded the firm, and to its marketing appeal. Bob Dunn, then Levi’s Vice President for Corporate Affairs, alerted senior management to the real risk that the companies contracted to make its clothes would not have the same employment practices and environmental standards Levi’s practiced in the U.S. Dunn was also aware some of the countries they proposed to operate in had poor human rights records, a fact that might draw attention given the contemporary debate over corporate operations in Apartheid South Africa. In 1979, Levi’s management authorized Dunn to create standards to address both of these risks. One document, Standards for Country Selection, committed the company to avoid suppliers in countries where employees did not enjoy basic human rights protections. A second document committed the company to hold suppliers to standards of employee rights and environmental concern. Levi’s decisions did not initially motivate many other companies to follow their lead. That changed abruptly in 1980 when a popular U.S. television show, 60 Minutes, broadcast an “ambush interview” with the CEO of the retail giant Walmart. While 60 Minutes cameras rolled, they showed him a video of young children making Walmart shirts in Asia and asked, “Is that how you want Walmart shirts to be made?” Caught with nothing to say, the next morning the CEO ordered the company to consider Levi’s supply chain standards, accelerating adoption of supply chain responsibility throughout the entire apparel industry. In the 1980s, the growing corporate practice of outsourcing (or offshoring) encouraged the broader adoption of supply chain responsibility. While outsourcing was not a new phenomenon, it accelerated rapidly in the 1980s to capture the economic advantages of lower labor costs abroad. The logic of outsourcing even spread to include the development of contractors who handled the many “non-core” functions of companies. Accounting, management of employee benefits, building maintenance, and later software development and information technology, were outsourced to both domestic and overseas companies. Some critics argued companies were deliberately outsourcing pollution and poor treatment of employees to save money. Companies rushed to create industry-wide supplier standards. Distrustful critics countered by demanding auditing whether the standards were actually being implemented. In 1992, the growing concern for supply chain responsibility focused on U.S. athletic shoe manufacturer Nike. The company was an early model of extreme outsourcing, designing shoes and marketing them, but outsourcing all other functions in countries with the lowest labor costs. Nike’s dismissal of demands that the company adopt supplier standards became a major national issue leading to a national boycott of Nike products. After several years of stiff resistance by the company and its founder Phil Knight, the boycott spread until Nike changed its policies dramatically, agreeing to adopt a labor code for suppliers, and later to permit external auditors to monitor compliance with the code. In 1996, Nike went even further and set out to become a model of responsible supply chain practices. The firm created one of the first departments specifically charged with managing the performance of a company’s supply chain. In the 1990s there was a proliferation of supply chain organizations, started either by activists seeking to change corporate practices, by specific industries seeking to create common standards all could follow, or even by companies who offered consulting, design and auditing supply chain service. Supply chain management emerged as a critical corporate function, monitoring not just the quality of products, subassemblies and services outsourced, but also the treatment of workers and the environment practices throughout the supply chain. During the 1990s in Europe, concern for the welfare of workers in supply chains led to the creation of the “fair trade movement.” Whereas the movement in the U.S. on behalf of third world workers focused on complex supply chains, in the U.K. it focused predominately on the working conditions and prices paid to farmers and other rural workers for their commodity products and raw materials. Food companies and other general retailers were pressed to offer “Fair Trade products” and to adopt “Fair Trade Principles.” Several U.K. companies, including the niche cosmetic firm, The Body Shop, pioneered the use and sale of Fair Trade goods from the late 1980s. Two other supply chain developments in the 2000s are notable. First, mechanisms developed for companies to share information on subcontractors who already followed good practices. In the U.S., this began with companies sharing their “reliable” supplier lists. In the U.K. in 2004, the Supplier Ethical Data Exchange (SEDEX), was created to offer an online system for companies to manage and share data on the ethical and responsible practices of their suppliers. This data was available to companies and their customers, enhancing confidence in responsible supply chain performance. By 2024 SEDEX had data on 65,000 business members, with 86,000 worksites in 170 countries and 45 industries. The second development was growing concern for human rights violations in supply chains, an issue Levi’s had identified 20 years earlier. In 1995, Royal Dutch Shell, a joint British/Dutch energy firm, had faced significant human rights criticism over its operations in Nigeria where it sourced some of its oil. Shell was blamed by some for the case of Ken Sarowiva, an activist who was jailed for protesting government support for oil drilling and its environmental damage. Sarowiva died in jail and it led international organizations and activist groups to clamor for human rights standards for corporate operations and supply chains worldwide. In response to this and other cases, UN General Secretary Kofi Annan in 2005 appointed John Ruggie, a Harvard University professor, as special representative for human rights and transnational corporations, to study human rights issues and transnational corporations, and establish principles for company action. Published in 2011 by the UN, Ruggie’s report established the UN Guiding Principles on Business and Human Rights and included 31 principles implementing a business responsibility for human rights in both company operations and supply chains. The Ruggie report ignited widespread activity to define and implement human rights standards across supply chains. Even after 40 years, there are still points of debate over how far supply chain responsibility should extend. How far back in the economic value chain can a company be responsible for? Even subassemblies integrated into a company’s product may be made up of several levels of subassemblies. The global supply chain is just so complex. And what about services? If a company outsources its IT services, its billing services, the cleaning of its offices—is it responsible for the behaviors of all those independent firms? Is it even possible for a company to know the origins of the most basic of is raw materials which may pass through many brokers? A company’s responsibility for the entire economic value chain has even extended to how its customers use its products. Is a maker of chemicals responsible for damages which result from another company’s negligence in handling those chemicals? Can a company really be responsible for the misuse of its products by the final users of a product? Has the growing complexity of global supply chains simply outrun any company’s ability to monitor and insure responsible behavior throughout the supply chain?
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