Race to the Bottom or Moment for Reform? Purchasing Practices in a Volatile Economy

By Ilse Heine

Historically, when businesses are facing economic uncertainty and volatility, like the current environment, businesses often turn to cost-cutting measures throughout various functions, including procurement. Tasked with driving down supplier costs even in stable times, the pressure on procurement teams often intensifies during global crises. However, this approach can have devastating consequences for both buyers and suppliers. During the pandemic, for instance, many brands abruptly cancelled or postponed orders, forcing suppliers to scale back or halt operations entirely. It also led to significant supply chain disruptions for buyers, highlighting that these strategies not only harm workers but ultimately backfire on business continuity and resilience. Today, companies face a critical choice: repeat the mistakes of the past, or apply lessons learned to ensure that procurement practices do not deepen human rights and environmental harms.

This blog outlines key actions businesses can take to ensure their responses to economic and political pressures do not inadvertently harm workers in their supply chains.

Shift from Transactional to Partnership-Based Procurement

Crises highlight the urgent need to shift buyer-supplier relationships away from a narrow focus on price and toward stronger partnerships built on trust and collaboration. During the pandemic, companies that prioritized immediate costsaving measures saw supply chain breakdowns, reputational damage, and delayed recoveries.

A relationship grounded in mutual responsibility and trust encourages suppliers to share risks and labor challenges openly—without fear of losing business—while enabling buyers to prevent their own purchasing practices from contributing to these challenges. Alternatively, when price is solely driving the decision making, the buyer may be more likely to deprioritize potential human rights issues, while suppliers face greater pressure to cut corners—whether by compromising health and safety standards, underpaying their workers, or relying on sub-contractors with little oversight. In a report co-authored by my Article One colleagues Nancy Mullins and Sanchita Saxena along with the IHRB’s Salil Tripathi, a key finding highlighted that the Covid-19 pandemic forced both suppliers and buyers to recognize the value and necessity of longer-term strategic partnerships.

While “trust” is often viewed as abstract and challenging to measure, a group of researchers developed an assessment tool to measure the health of a buyer-supplier relationship and identify behaviors that may inhibit trust. Their findings reveal that selecting the appropriate business model and assessing ‘cultural fit’ are critical foundations for trust-based partnerships. They also emphasize the importance of communication – without a proactive effort to understand cultural and social differences between buyers and suppliers, misunderstandings can easily arise, eroding trust over time. Communication is also one of the three C’s, along with collaboration and commitment, that underpins Article One’s Next Generation Supply Chain Strategy.

A practical example comes from Bellweather Coffee. When one of their suppliers had a quality defect in their green coffee, Bellweather didn’t walk away from the relationship. Instead, they contracted with the supplier for the following harvest and visited the producers in person in Mexico. Together, they aligned on a risk mitigation strategy and reaffirmed their commitment—demonstrating how trust and collaboration can turn challenges into opportunities for strong partnerships.

 Create Contingency Plans

Crises are inevitable, making it essential for companies to prepare and establish contingency plans—especially to protect workers’ livelihoods during economic shocks. There are several ways to do this. One approach is payment guarantees, where buyers can commit to paying a supplier for goods already ordered, even if circumstances change. For instance, in the first year of the pandemic, Inditex participated in a global action to support the garment industry, making a commitment to stable payment terms and to broader access to financing for suppliers in order to support their cash flow. Another strategy is the creation of shared risk funds. These pooled funds—often co-financed by the buyer and sometimes with supplier contributions—are designed to help suppliers manage unexpected disruptions without resorting to harmful cost-cutting measures like layoffs or wage reductions.

Strategies may vary depending on the industry. For instance, in coffee and cocoa supply chains, forward contracting—where a buyer and supplier agree in advance on the price, quantity, and delivery date of a product or commodity—is common to give suppliers more predictability, particularly smallholder farmers or manufacturers with tight margins.

Clean-sheet modeling, which involves mapping out all potential cost elements associated with producing a product or delivering a service, can also help buyers and suppliers prepare for future disruptions. Running “what-if” scenarios, such as an economic downturn or sudden price fluctuation, can help determine the overall impact on the total cost of a product or service. This approach enables greater transparency and encourages more collaborative contingency planning between both parties.

Across industries, businesses can draw lessons from these established practices and adapt them to meet their own unique challenges and needs.

Assess Purchasing Practices

As noted above, responsible purchasing practices can help companies, and their suppliers better withstand economic shocks. However, determining the most effective approaches requires a clear understanding of the specific challenges their suppliers face. Conducting a thorough risk assessment of purchasing practices—including direct consultations with suppliers—enables companies to understand how their buying behavior may create or exacerbate risks to workers in their supply chain, including in times of instability, and to identify the adjustments needed to support rights-respecting buying strategies. Additionally, companies should establish a formal governance structure to regularly evaluate purchasing practices and respond proactively during times of crises. According to a McKinsey report, for instance, many leading organizations have established supplier advisory boards as part of their risk management strategy, providing a neutral platform for buyers and their strategic suppliers to exchange ideas and address potential challenges to the supply chain.

Last year, my colleague Zoë Leeming wrote a blog on the impacts of purchasing practices on working hours, and the importance of responsible purchasing practices. She notes that this continues to be one of the foremost leadership opportunity in the business and human rights space for companies, but remains complex, given that it requires extensive buy-in and shifts to the cultural and business model. These challenges are even more heightened during periods of uncertainty.

That said, human rights and sustainability leads may find it challenging to advocate for responsible purchasing practices in the current climate, which is why it is more critical than ever to emphasize the business case. These practices support operational continuity—suppliers facing excessive pressure are more likely to experience strikes, bankruptcy, or quality issues; they protect reputation, as buyer-driven abuses can trigger public backlash, reduced sales, and declining customer loyalty; and they ensure legal compliance, with ESG- and human rights-related laws advancing globally, including in the EU, Thailand, Japan, and the UK, despite political resistance in some U.S. contexts.

Next Steps

Article One can support businesses in identifying and implementing concrete steps to advance responsible purchasing practices across procurement functions. Our support can include:  

• Developing a tailored guide on responsible purchasing practices to equip procurement team with practical tools and principles
• Assessing current procurement approaches—including forecasting, lead times, and pricing structures—and identifying how these impact human rights in the supply chain, informed by consultations with suppliers and workers
• Creating a strategy and actionable roadmap to build strong buyer-supplier relationships grounded in the 3 Cs: Collaboration, Communication, and Commitment
• Facilitating an industry-facing webinar or workshop to share best practices, learn from peers, and strengthen sector wide effort

To learn more and explore what steps you and your company can take to advance responsible purchasing practices, please reach out at hello@articleoneadvisors.com.