Opinion & Analysis

Why building supply chain integrity is key to managing operational and reputational risks

To succeed in an increasingly resource-constrained and competitive wood products market, companies need to manage operational and reputational risk. That requires a transition from a short-term buying approach into a long-term system of building and managing the integrity of the value chain of wood products, says Angel Llavero Cruz, WWF Forest Product Markets and Supply Chain Coordinator, who reflects in this article on the importance for businesses to manage supply chain integrity and the role of FSC.

zoom (© FSC A.C.) © FSC A.C.The amount of wood we take from forests and plantations each year may need to triple by 2050, according to the WWF Living Forests Model. At the same time, forests are being converted for other more profitable land-uses, particularly in “deforestation fronts,” potentially exhausting 170 million hectares of forests between 2010 and 2030 (WWF Living Forests Report). This imbalance between demand and supply will further increase competition for securing reliable wood supplies, which, in turn, increases operational risk for businesses.

The scope of issues associated with the quality of wood goes far beyond its appearance, durability and mechanical properties. Legal, environmental and social considerations in forestry and trade of wood also come into play. This is a consequence of more stringent regulation in key consumer markets that prohibits trade of illegal wood products and a rise in company and government commitments on deforestation-free supply chains. For organizations, this translates into greater chances of reputational risk if a conflict with regulations or commitments occurs at any given point in the supply chain.

Given the costly consequences of these risks, managing them becomes very important. A key way companies can mitigate risk is by recognizing that their business model must evolve from a short-term buying approach into a long-term system of building and managing the integrity of the value chain of wood and wood-based products.

This said, guaranteeing supply chain integrity can be a challenging task because of wood products’ lack of traceability. Here are some of the main reasons why:

1. Weak legal and governance frameworks to assist with traceability

2. A wood and wood-based product industry that is highly fragmented and often lacks a long-term view of supply chain issues

3. Lack of, or limited use of, efficient and cost-effective standards and tools that help with traceability of wood and wood-based products across the entire supply chain

In this case, Forest Stewardship Council (FSC) certification serves as an important tool that can help overcome the issue of traceability. Traceability sits at the centre of FSC Chain of Custody certification, which verifies the transfer of forest products throughout the supply chain. Furthermore, FSC is exploring ways to bolster its Chain of Custody certifications with new forensic wood and fibre testing methods. For example, a global ‘master’ database that helps trace wood and wood-based products throughout the entire supply chain to improve accountability, as well as the addition of a new online portal “FSC Public Search” which enables buyers to verify the certification of suppliers.

Nevertheless, as part of FSC’s continual evolution of its existing systems to help improve managing supply chain integrity, it could ensure the development of FSC’s national risk assessments in all countries relevant to the forest industry to reduce the risk of potentially controversial sources getting into FSC-certified products. FSC could also help by using its considerable influence to draw the forestry industry’s attention to wider social issues, such as workers’ rights and health and safety regulations. These areas might seem to be outside of FSC’s remit but form an important part of its standards.

As FSC’s certification system becomes more robust, through efforts like “FSC Public Search”, the potential for improved supply chain integrity grows.

In an increasingly resource-constrained world, building and managing supply chain integrity is not an option; it’s a must. The short-term approach of simply buying wood will not be sustainable to meet the rising demand of a growing global population. To get ahead, companies must focus on the longer-term benefits that foster a more considered approach to managing supply chain integrity in the forest industry.