Supply Chain Sustainability Needs a Fresh Viewpoint

There are a number of recent examples of reputable organizations (Apple, Wal-Mart, Target, Primark and Tesco) facing the ire of customers, investors and governments due to unwarranted incidents in their supply chains. It is becoming increasingly clear that unsustainable supply chains can have negative impact on a company’s reputation and profitability.

As a result, the sustainability of supply chains is getting renewed attention from organizations worldwide. Part of the credit for this increased awareness also goes to organizations such as the Carbon Disclosure Project (CDP) and Global Reporting Initiatives (GRI) for sharpening focus on supply chain sustainability.

Unfortunately, the approach for achieving sustainable supply chains has become stereotyped, and most organizations end up only meeting compliance. Buying organizations go by the cliché “sustainable procurement guidelines” that list expectations from suppliers on common sustainability parameters and act as screeners at the time of on-boarding a supplier. This approach defeats the purpose, especially for the suppliers, because of its inherent limitations:

• A straitjacket approach for all suppliers results in a weak guideline, which primarily expects basic compliance to environmental, labor and human rights laws, etc.
• Once the guideline is met, there is little incentive for the suppliers to improve their performance.

This creates a situation in which neither the buying organization nor its supplier is focused on improving the sustainability performance of suppliers beyond basic certifications.

In order to derive maximum value out of a sustainable supply chain and avoid supply chain disruptions, responsible organizations need to take the ownership of their supply chain. Here is an alternative approach CPOs can adopt to ensure sustainable performance of critical suppliers:

• Assess existing critical suppliers through a comprehensive analysis of environmental, social and governance (ESG) performance based on industry and geography of operation. This assessment should include evaluating the strategy, policy and initiatives to tackle sustainability issues, checking compliance with industry and region-specific norms and benchmarking their performance with industry peers.
• Engage the supplier to discuss gaps in its sustainability performance and agree to a plan to mitigate any potential risk to the supplier relationship. Educate and collaborate with the supplier on improving its sustainability performance and reporting.
• Monitor the development of the supplier and its industry and geography on an on-going basis and conduct periodic assessments of the supplier, depending on their criticality and risk exposure to stay aware about their sustainability performance.
• Share the best sustainability practices adopted by leading suppliers with other suppliers so that it becomes a win-win situation for everyone (this effort will translate into goodwill and a stronger relationship with the supplier-base).

Having such a framework in place will give companies a deeper understanding of the functioning of their critical suppliers. They can spot early warning signals for sustainability-related risks in their supply chain and proactively take steps to mitigate those risks.

At the same time, they can uncover opportunities to work with suppliers to improve overall sustainability performance of the buying organizations (through initiatives to reduce the environmental footprint of supplier, using supplier innovation to develop sustainable products, etc.).

As a bonus, this approach would also bring in lessons in the form of best practices adopted by leading suppliers. These lessons can be shared with other suppliers to strengthen overall supplier relationships.

A good example to illustrate the benefits of such a system is British Telecom, which adopted a similar approach to create the Better Future Supplier Forum (BFSF) in 2012. The company invites its select suppliers to this forum, where they are assessed and rated. It then engages its suppliers and helps them improve their sustainability practices. In the first year of BFSF, one major supplier achieved 23,000 tonnes of carbon savings from changes implemented in manufacturing, packaging and logistics (which in turn lightens BT’s carbon footprint). It also educates the suppliers on innovative designs that are not only more sustainable but are also more cost-effective. The platform also facilitates on-going assessment and rating of suppliers’ sustainability performance. Best performing suppliers are awarded, boosting relationships with these suppliers and inspiring other suppliers to improve their sustainability performances.

If organizations start proactively managing the sustainability of their supply chains, they stand to benefit in the following ways:

• Compliance with regulations on responsible and sustainable procurement.
• Avoiding supply chain disruptions due to environmental, social, ethical and governance risks.
• Create sustainability roadmap by using suppliers to improve overall sustainability of the organization.
• Strengthen supplier relationships by helping them improve their sustainability.

More organizations should strive to think beyond the sustainable procurement guidelines approach to maximize the benefits of their supply chain and strengthen the march toward sustainability.