Rethinking supply chain resilience from the first mile

As climate shocks intensify and new due diligence laws take effect, supply chain resilience is increasingly a business priority, but too often the focus remains on responding to disruption rather than addressing the conditions that create vulnerability in the first place. 

In this episode, Rachel Potter (ISEAL) sits down with Sheila Senathirajah, Head of Social Impact at ISEAL, to explore why resilience needs to be understood from the first mile and what that means for companies sourcing from complex global supply chains. 

They discuss how sustainability systems can build resilience through better producer engagement, improved visibility of first-mile risks, and longer-term investment in the people and landscapes that underpin global supply chains. From climate pressures and due diligence legislation to sourcing risk and investor expectations, the conversation makes the case for moving beyond short-term crisis response to building truly resilient supply chains. 

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Transcript

Rachel Potter: 0:01

Resilient supply chains are often discussed in terms of how they respond to disruption, but as climate shocks, price volatility and rising sustainability expectations put increasing pressure on global trade, true resilience also relies on the conditions that sustain production in the first place. So what does resilience in supply chains actually mean in practice? Hello and welcome to the ISIL sustainability Podcast. I'm Rachel Potter from ISEAL, and I'm joined today by Sheila Senathirajah, ISEAL's Head of Social Impact. In this episode, we'll look at how companies are rethinking supply security, why so much risk sits at the first mile, and the role sustainability systems play in making that risk visible and something that businesses can act on. Welcome. Sheila.

Sheila Senathirajah: 0:50

Thanks. Rachel,

Rachel Potter: 0:51

So resilience is often framed around responding to shocks in today's operating environment of climate, price and regulatory pressures. How are companies currently thinking about resilience in their supply chains?

Sheila Senathirajah: 1:04

I think this is a very critical question that's coming up more and more in our conversations. We see a lot of companies sort of shifting away from just purely cost efficiency, and, you know, making trade more efficient. They're really looking at supply security. They're looking at long term continuity, the relationships they have managing those in order to protect that supply security. There's also a growing recognition that in addition to environmental, social challenges, also part of those kind of operational risks that they need to address. It's no longer something external that they they work on at the side, but they need to address it. So we find that more and more companies are prioritising things like visibility, traceability, better planning on you know what's going to happen, addressing social risk alongside environmental risk, and ensuring the outcomes and the values get back to the suppliers, the entities that they work with, because they want to have this continuity.

Rachel Potter: 2:07

In a more fragmented and uncertain global trading environment. To what extent do you think that inward looking approaches strengthen supply chains, and where might they actually make them more vulnerable?

Sheila Senathirajah: 2:18

I suppose with depending on the context that you're operating as well, there's going to be some things that entities will have to do more inwardly to change the kind of practices they have to be able to thrive in this current environment. But ultimately, if you look at the global scheme of things, fragmentation is just going to increase cost. It's going to create new bottlenecks. Real resilience comes from strengthening global systems and not being overly protective about your area. For me, collaboration is key. Global supply chains are very interdependent, and they need to work together to ensure that, you know, we're addressing where are the weakest points. So if there is traceability issues in some areas. You know, working collaboratively to unplug these is really important. So again, collaboration is key. We want to cut down the cost. We want to break those bottlenecks. We want to work more efficiently together. And I think this is the trend that you see, more and more coalitions, more and more multi stakeholder initiatives coming on board to support these kind of efforts.

Rachel Potter: 3:25

How do you think investor expectations, due diligence, legislation and ESG linked finance are changing the way that companies think about supply chain resilience.

Sheila Senathirajah: 3:35

So investors are a very interesting community. They support companies. They also look at supply chain risk as a financial risk for them. They're investing in these companies, so it needs to they need to also be confident that there is no financial risk for companies. Now, there is due diligence legislations that are coming down the pipelines, you know, making human rights and environmental challenges and environmental negative outcomes, illegal liability. So this is also going to be a financial risk. So resilience now is moving from a nice to have corporate social responsibility to form of this is a risk, and we need to know how to manage this risk. There needs to be greater oversight in this space. So that's what investors are looking for. You know, how are companies putting in place better due diligence practices? How are they actually ensuring they have greater visibility over their supply chains? How are they working with their partners and suppliers to ensure that visibility is there and that they're able to address this risk, because these kind of risks translate into financial risk, and that's what they're looking out for.

Rachel Potter: 4:48

So we've been talking about global systems, but of course, supply chains start somewhere. Why do you think so much risk originates in what we call the first mile, the farms, the plantation? And forests where production begins, even though it's often the least visible but most critical point for business continuity.

Sheila Senathirajah: 5:09

Well, Rachel, you said it in that last line, it's the least visible part of the supply chain, but it determines where all supply comes from, and if farmers can't sustain production, then there's just no supply chain to protect. But the first mile is where a lot of the current issues around climate shocks, income instability, mismanagement of land or land degradation really happen at this point. And smallholders operate with just very thin margins. They have limited buffers because of the conditions that currently exist. There's also very low investment in some cases, not in all cases, but in some cases. And so it is difficult for farmers to really improve productivity, you know, to maintain their long term supply as well. So that's why, currently, you know, people are beginning to realise, you know, we can't just sort of ignore that area anymore, and we really need to think about not just what producers have to do, you know, what smallholders have to do, but just how can the rest of the supply chain take up that responsibility to support and invest in supply chains and ensure that that risk is equally distributed and shared and taken up by the different actors, because a supply chain is for everyone, and so even the risk and the rewards need to be equitably shared across the supply chain.

Rachel Potter: 6:34

So the word resilience is used a lot in sustainability circles. From the perspective of a cocoa or a coffee farmer. What does resilience actually mean in practice?

Sheila Senathirajah: 6:44

So I think if you look at a lot of the conversation around cocoa and coffee, you know, it does circulate around income, it does circulate around livelihoods, but it's not just about stable income and livelihoods. It's also the ability to invest. Do they have enough to be able to invest, think forwardly and put in place mitigations to manage shocks, to manage climate shocks, to manage low productivity. And do they have that buffer? So it is about, and we talk about resiliency, a stable income, the ability to invest, and the confidence, you know, they need to be empowered. There are a lot of systems currently being pushed down onto them, in terms of reporting requirements, in terms of accountability requirements, but they need to have the confidence to be able to produce for the long term. So it is a mixture of different things that builds that resilience, stable income, ability to invest in and also the confidence that empowerment to be able to operate in this climate,

Rachel Potter: 7:44

if so much risk starts at the first mile and it's also the least visible part of the chain, how can companies realistically see what's happening there and manage that risk?

Sheila Senathirajah: 7:55

So I think here you know sustainability systems play a very unique role. Companies are navigating a number of challenges themselves. Sustainability systems have the ability to be that interface for them, in navigating compliance requirements, in navigating positive outcomes back to the entities that they work with. So they have the ability to turn this sort of, you know, invisible first mile risk into verified data that companies can then take and act on early enough so sustainability systems generate verified, comparable data from the first mile so they are very close to the producers, and they're able to do that. They're able to identify risk through their systems, or the risk based approaches that they take within their systems, identifying risk like deforestation or labour issues, exploitation. We've heard many times that, you know, a lot of this resilience can only be built if we have good relationships. You hear that in so many conversations, and systems also have the ability to create this kind of structured feedback loop so that the feedback it's not just one direction, again, turning into insights that companies can act on. So this allows companies to move from being reactive in a crisis when, when things are, you know, detected, into having a more sort of proactive, sort of risk management approach. So sustainability systems are that interface and able

Rachel Potter: 9:30

to provide these kind of data that companies can act on quickly enough and identify, you know, here's where the risk is, and then act on it to remediate those risk if the soil, the water, forests, the natural capital underpinning a supply chain, are being depleted. Can businesses really achieve long term growth and how does sustainability systems help manage that risk?

Sheila Senathirajah: 9:50

So I think it is a big issue, right? Like it's not down to one company or one supply chain. And these are natural resources that are shared by all of us. And I think here, there are a couple of things that systems do in practice that actually help navigate this space. On one side, you know, working with sustainability systems is not all about collecting data and reporting, but they also are able to create within those schemes, incentive mechanisms for, you know, improve land management, for putting in place better sustainability practices. So these incentives actually encourage producers and suppliers within the supply chain to act on this. So what? What is that the incentive mechanisms? But two is also these systems, again, they're not there for just reporting purposes, but they also think about, what is the value it brings to enterprises on the ground. So what is the additional value? How can they use the data? How can they be empowered by that to make decision making? So they're slowly changing the structures that haven't been working so well. They're putting in place structures that actually empower, actually build that resilience for those producers in areas where there is these kind of natural resources and and I think the other bit is also, again, they help with the convening and the building of the relationship between supply chain actors as they go forth.

Rachel Potter: 11:21

Thinking about what this looks like in practice, especially in the higher risk regions and sectors, what makes credible sustainability systems and ISEAL's, code of good practice in particular stand out from other initiatives?

Sheila Senathirajah: 11:36

I think what's really important is, if you look at the codes of good practice. If you look at our credibility principles, as you've mentioned, they're foundations for how good systems good system governance is. It talks about transparent governance, it talks about independent assurance, it talks about continuous improvement. And these are the kind of elements that you want to see in systems, so that, again, they're going beyond just compliance, but really bringing that sort of positive value back to everyone, and ensuring that areas where there have been weaknesses are addressed so they provide sort of foundations for good, credible processes and systems to be in place.

Rachel Potter: 12:27

Could you share a practical example of how a sustainability system is working on the ground to address these first world challenges?

Sheila Senathirajah: 12:36

One of the things ISEAL does is we have an Innovations Fund, where we support sustainability systems to really test and innovate strategies, approaches, frameworks, all in collaboration with partners on the ground and supply partners as well, to really put in place mechanisms or frameworks that are able to address these kind of first mile realities and these challenges and those kind of examples range from addressing capacity building for producers or climate shocks or price volatility or engagement with producer networks or strengthening producer organisations. Yeah, so there are a number of examples that we can share via our innovation fund programme itself.

Rachel Potter: 13:27

What's the connection between smallholder economic agency and long term supply security, and why should businesses treat this as a core part of their risk management strategy?

Sheila Senathirajah: 13:40

Farmers who have economic agency, they're more stable. There is some predictability to their production levels, to how they operate. It's a lower risk supply chain. So again, like we said just now, you know this sort of risk mitigation helps, because, you know, companies are afraid of the financial risk they are worried about. What do shocks and vulnerabilities have on these kind of their financial risk, and so the more empowered and stronger producer organisations and producers are, this helps, in the long run, to reduce that sense of vulnerability on the supply side, and reduce that volatility in exposure.

Rachel Potter: 14:24

How do you see our upcoming Symposium on resilience in supply chains in Ghana complementing other global events, and where do you hope it will push the conversation further?

Sheila Senathirajah: 14:45

You know, there's still a lot of fragmentation in efforts that we see, and I think this is where, you know, these kind of events that we put in place help to sort of bridge that a little bit, help to bring decision makers on the downstream side with the producers on the upstream side to look at, you know, what are. Design of programmes, you know? How do we go from fragmented pilot projects to more system level alignment and CO investment? You know? How do we bring it together more efficiently, so, so it's really just pushing those conversations better, having that better collaboration between the downstream and the upstream actors. Also, because we are looking at systems. What are good systems? Looking at how voluntary systems complement national standards as well in these kind of spaces, is really critical so that we can reduce duplication, we can scale impact, we can really build resilient systems, moving forward.

Rachel Potter: 15:41

From a participant perspective, who is this symposium most relevant for? In other words, who needs to be in the room for resilient supply chain, sustainable trade and long term growth?

Sheila Senathirajah: 15:54

So if we want to build resilience, we need to connect global decision makers within supply chains with for small realities, we can't separate the two. The future of sustainable trade must be shaped with producers, not just about them or in exclusion from them. This event offers that opportunity to bring these different actors together to the table to really discuss, you know, what are the needs, what's important to producers on the ground? How do we design this collaboratively? What are the role of the different actors? And you know, how does this translate into real world action, and how can downstream actors then support and invest in supply chains to enable this?

Rachel Potter: 16:39

Sheila, thank you so much for joining us and for the conversation you've been listening to the ISEAL sustainability podcast to find out more about our work on credible sustainability systems and supply chain resilience, visit I seal alliance.org for more conversations like this. Follow us wherever you get your podcasts. Thank you for listening.