Supply Chain and the Macro Environment – Social Inequality

Global Supply Chains are subject to a number of external factors that they have little or no control over. But could they play more of a positive role fighting social inequality and poverty?

The Macro Environment has a significant and on-going impact on business and global supply chains. Over the past few years, this impact has grown further. With previously unseen factors creating unprecedented disruption and increasingly fragile supply chains for Procurement to manage. 

As part of a short series of articles on Procurious, we will be looking at the current impact of Macro Environmental factors on supply chains.

These will cover factors from the 6 key forces of the Macro Environment:

• Economic environment
• Political environment
• Demographic environment
• Social-cultural environment
• Technological environment
• Ecological environment

This article puts a focus on both the Demographic and Socio-cultural Environment in the form of social inequality and poverty. 

Global Inequality & Poverty

As of the end of 2022, by UN definitions nearly 8 percent of the global population was considered to still be living in extreme poverty, meaning they live on less than US $2.15 per day.

Of this total (approximately 640 million people), 62 percent live in sub-Saharan Africa, highlighting that there is a significant imbalance in living conditions and wages to this day.

In light of this, many organisations have stated their intention to work towards the UN Sustainable Development Goals, which include ‘No Poverty’ (Goal 1) and ‘Gender Equality’ (Goal 5). All of the goals are aimed at a collective effort to reduce, and hopefully end, global social inequality.

Businesses know they need to do a better job at balancing their need to deliver for their owners and/or shareholders, or on objectives and growth plans, and their moral duty to operate and manage their operations in a more sustainable fashion. Organisations such as Oxfam are working with the UN and global businesses in order to promote global change. They are focused on putting workers at the core of business and instilling business practices that respect human rights

Organisations need to show that they are willing to make changes and play their part in the move for changes. Over the past decade consumers have made their feelings clear that they want to buy goods and services from organisations who are able to show their ESG and CSR credentials, and prove that they are abiding by them. Businesses who fail to do that can end up with unwanted notoriety, subject to protests and even boycotts.

Why is this Important for Supply Chains?

Both social inequality and poverty represent major risks for business. These issues, combined with unstable business environments (likely as a result of factors such as geopolitical conflicts and pandemics, to name but two), can limit companies’ abilities to compete and grow, restrict the spending power of target markets and further disrupt already fragile supply chains. 

The changing nature of work also gives organisations legal obligations to consider and fulfil when it comes to the reporting of CSR and ESG. Failure to do this, or failure to report this as part of an annual review, can lead to penalties for the business and even punishments for senior executives. This will also have a knock-on effect on the organisation’s reputation and the potential for long-term harm to investments, sales and recruitment.

There are a number of options available to organisations to provide accreditation in this area, such as gain B Corp Certification, similar to organisations such as The Body Shop, Innocent Drinks and Patagonia. This certification shows an organisation’s commitment to high social and environmental performance and accountability and transparency in business structure and performance.

When it comes to global supply chains, there needs to be an element of caution, however. Those organisations in a position to create Global Value Chains (GVCs) must do so carefully, and ensure that good practice is embedded at each level and with each sub-tier supplier. 

GVCs have come under considerable scrutiny and are considered by many researchers and academics to actually create a greater likelihood of poverty and inequality by placing too great an emphasis on cost over people. There are natural imbalances in power in GVCs already which can exacerbate poor conditions in regions where social inequalities and poverty are already rife, such as in supply chains with links to sub-Saharan Africa and the Subcontinent.

How Can Supply Chains Work for Good?

There are a number of things organisations and supply chains can consider and implement to reduce social inequalities and poverty both in their regions and around the world. 

Make Work More People-Centric

Where the focus is entirely on cost, then supply chains will end up in a race to the bottom, reducing margins, and potentially harming wages being paid to workers in low-wage regions. By ensuring that people are the focus, or at least an equal focus, this should help to reduce the inequalities seen in global supply chains, in particular those that rely on labour or crops grown in low cost economies.

The role of supply chains in the rural economy is crucial for economic development and the promotion of decent work, particularly as rural workers are often found at the base of the chain.

Putting Cost, People and the Environment on an Equal Footing

It’s not just putting equal emphasis on people and cost, but also in putting the environment into this equation too. Many organisations who put a greater focus on developing the people and local communities are seeing benefits in the area of ESG and sustainability outcomes. 

As with the focus on people, there needs to be a greater focus on sustainability in supply chains, in particular where climate change is causing many raw materials producers to be facing an increasingly uncertain future. Without these producers or small organisations, there isn’t a supply chain.

Considering Age Equality

The average age of populations is on the rise and many countries are choosing to increase the age where people can claim state pensions upon retirement. Add to this, older people are staying in roles longer and choosing to retire later, either due to personal choice or the cost of living. 

What this means is that younger people are missing out on opportunities, either through a lack of availability of roles, or a lack of experience when trying to move up. This can lead to higher levels of unemployment, which is a risk to the economy. People who are out of work spend less, reducing consumption, which leads to a reduction in investment.

Supply chains need to continue this investment, creating new opportunities to expand workforces, and actively bring through the younger generation, or leave themselves exposed to brain drain as people retire or move on.