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Recent history has presented many examples of reputed 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 increasingly becoming clear that unsustainable supply chains can have negative reputational as well as financial implications.
As a result, sustainability of supply chains is getting renewed attention from organizations world-wide. A 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 sustainability of supply chains.
A stereotyped approach to supply chain sustainability has its limitations
Unfortunately, the approach for achieving sustainable supply chains has become stereotyped, and most organizations end up only meeting compliance. Buying organizations go by the cliched “sustainable procurement guidelines” that list expectations from suppliers on common sustainability parameters, and act as a screener at the time of on-boarding a supplier. This approach defeats the purpose especially for the critical suppliers because of its inherent limitations:
- A straitjacket approach for all suppliers results in a weak guideline, which mostly 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.
Therefore, it creates a situation where neither the buying organization nor its supplier are focused on improving the sustainability performance of suppliers beyond those basic certifications.
CPO’s need to adopt a proactive and ongoing approach towards sustainable sourcing
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 CPO’s can adopt to ensure sustainable performance of critical suppliers:
- Assess existing critical suppliers through a comprehensive analysis of Environmental, Social, and Governance (ESG) performance basis its 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 its 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. Also, 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 ongoing basis and conduct periodic assessments of the suppliers, 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 better and deeper visibility into the functioning of their critical suppliers. They can spot early warning signals on sustainability related risks in their supply chain and pro-actively take steps to mitigate those risks.
At the same time they can uncover opportunities to work with a given supplier to improve overall sustainability performance of the buying organizations, (through initiatives to reduce environmental footprint of supplier, using supplier innovation to develop sustainable products, etc.).
A sustainable supply chain also boosts supplier relationships
As a bonus, this approach would also bring-in learnings in the form of best practices adopted by leading suppliers. These learnings can be shared with other suppliers, to strengthen overall supplier relationships.
A very good example to illustrate the benefits of such a system is British Telecom, which adopted a similar approach to create 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 and best performing suppliers are also awarded, boosting relationships with these suppliers and inspiring other suppliers to improve their sustainability performances.
I believe that if organizations start proactively managing the sustainability of their supply chains. They stand to benefit in the following ways multiple 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.
In the end, I believe more and more organizations should try to think beyond the sustainable procurement guidelines approach to maximize the benefits of their supply chain and strengthen the march towards sustainability.
Sumit Kumar is the Head of Sustainability Research at Pure Research Private Limited, a procurement intelligence firm. Sumit helps buying organizations build sustainable supply chains by understanding the sustainability performance of their suppliers, and recommending corrective action based on category specific best practices.