How digitalization is improving sustainability in the supply chain
Acting with entrepreneurial spirit inevitably involves risk, and it is essential to identify this risk early on and to act at all times in a way that ideally prevents it from arising or at least keeps it to a minimum. Audi has made risk-conscious conduct an integral part of its corporate philosophy and regularly reviews its in-house monitoring and inspection mechanisms. The company also considers sustainability risks in its global supply chain. The goal is to respond quickly in the event that a supplier is unable to ensure compliance with the Code of Conduct for Business Partners agreed upon.
In its Code of Conduct for Business Partners, Audi has defined sustainability requirements for more than 14,000 direct suppliers in more than 60 countries and tasked them with passing these requirements on to their upstream partners as well. The environmental, social and compliance guidelines that the Code of Conduct contains are a basis for collaboration and an established element of the risk assessment process. One example of this is the Sustainability-Rating. Audi uses this procedure to check whether its contractual partners are complying with the Code of Conduct and to determine its suppliers’ performance in terms of sustainability. Audi will only consider working with the companies that receive a positive outcome.
“Knowing the sustainability risks in your supply chain is essential if you want to counter them effectively.”
― Lukas Petersik, specialist in sustainability risks at Audi
We can’t be everywhere at once
“Knowing the sustainability risks in your supply chain is essential if you want to counter them effectively,” says Lukas Petersik, specialist in sustainability risks at Audi. Complaints and reports of possible violations of these sustainability requirements are taken very seriously at the company. The speak-up mailbox plays an important role in this. “The mailbox is used to report potential violations. We address the issue and work with a group of specialists and the relevant company to work quickly to eliminate any violations that have been identified by means of our complaint mechanisms,” says Petersik.
Monitoring supply chains is an extremely complex undertaking. Constant change is the rule. The status quo with regard to suppliers and their upstream partners is changing all the time, with some companies departing and others joining. That means that complete control is impossible. That makes it all the more important to understand the potential risks and make connections early on.
“When it comes to tackling the complexity in our supply chains in a responsible manner, digital solutions are important enablers for sustainability.”
― Susanne Lenz, strategist for sustainability in the supply chain at Audi
Audi therefore operates a comprehensive risk monitoring that combines various methods and systems. “We are a big company that works with a wide range of partners. With great power comes great responsibility,” says Susanne Lenz, strategist for sustainability in the supply chain at Audi. “When it comes to tackling this complexity in a responsible manner, digital solutions are important enablers for sustainability.”
In addition to more traditional and reactive channels such as the speak-up mailbox, Audi is increasingly using digital tools for automated, proactive monitoring. For example, together with Porsche and Volkswagen Audi is using technology from Austrian start-up Prewave. This system aggregates publicly accessible news in more than 50 languages from around 150 countries. Artificial Intelligence then semantically analyzes the information and consolidates the various sources. The AI understands the content of the reports and classifies them based on any suspicion of potential sustainability violations. And because the AI is constantly learning, the system is constantly improving its ability to recognize emerging risks in reports.
Knowing what’s going on
The algorithm uses publicly accessible social media channels such as Twitter and YouTube and analyzes local news media. Emerging developments are generally discussed in the relevant local channels before the information spreads and those placing orders are informed. Starting at the source helps in getting ahead in terms of information.
The Volkswagen Group is already using Artificial Intelligence to analyze texts for semantic relevance in more than 50 local and wider-ranging risk categories. This covers a broad spectrum. In the case of criteria from the “Social” category, for example, the focus is on labor law developments, unrest among the workforce, child labor and discrimination in the workplace. Relevant criteria from the “Environment” category use public data for aspects such as air pollution, water pollution and consumption or waste problems. With regard to issues such as cyber risks, the AI analyzes reports indicating suspected cyber attacks, computer fraud or data theft. Audi is automatically informed whenever a potential sustainability risk begins to develop. The matter is scrutinized in detail within the company, and action is taken as appropriate.
“Another crucial benefit of smart and automated monitoring for us is the speed at which we are informed. Receiving reports earlier means that we can assess potential sustainability risks to our supply chain promptly and respond quickly,” says Lenz. “Analyzing large quantities of data with the aid of Artificial Intelligence shows how digitalization can reveal risks in our supply chain. Prewave gives us a clever tool that is capable of learning as it goes and creates more transparency and enables efficient monitoring of sustainability agreements.”
Prewave has been deployed since last October in a pilot project run by Audi, Porsche and Volkswagen. Its reliability and ability to make forecasts is currently being examined on the basis of 5,000 keywords for more than 4,000 suppliers. The initial findings indicate that it has been successful in establishing a smart early warning system for responding quickly to day-by-day changes in dynamic risks in the supply chains.
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