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By Nancy Mancilla
Ten years ago, supply chain activity was a function of the logistics department. It has since come to the forefront of decision making across many groups at all types of organizations. Socio-economic conditions, civil unrest and climate change risks are just a few issues that cause interconnected organizations to grapple with complex questions, particularly when revenue-generating sources are at risk. Fundamental concepts of Economics 101 have taught us that supply and demand are the backbone of market economics.
What happens when the allocation and even disparity of resources threatens the delivery of products we are basing our markets on? How do we maintain and prepare for a sustainable competitive advantage to lead through the next 100 years? Have we even thought that far ahead in our projections and strategic planning processes? We can be sure that these questions are ever increasingly shared by key decision makers across organizations who are charged with ensuring business continuity, as well as their shareholders and stakeholders.
A strong commitment to dedicating time and resources to implementing strategic solutions is always a good starting point for reducing supply chain risk. Microsoft, influenced by a shareholder resolution late in 2011, announced intent to pilot a project in 2013, requiring a dozen suppliers to issue GRI-based reports.
The move was introduced as an effort to engage others in the value of collective action for reducing negative impacts to the world around, but also helps to drive consistent and comparable sustainability reporting. Over the last few years, Microsoft has worked diligently to lay out its guidelines for how suppliers are to adhere to the company’s existing Code of Conduct that sets standards for legal compliance, business ethics, labor and human rights standards, environmental protection and respect for intellectual property.
More recently, Intel strengthened their commitment by explicitly laying out goals in their 2011 Corporate Responsibility Report which sets expectations for top Tier 1 suppliers to report greenhouse gas emissions, water, and waste metrics. This request will be demonstrated this year through the release of GRI-based Sustainability Reports by 75 top suppliers. Intel recognizes that education and hands-on guidance and support throughout the process is vital. Training was provided, in partnership with the Global Reporting Initiative, to help suppliers get started or make improvements to their reporting practices.
As many know, releasing a report is only the end product; management processes are strengthened, reputation is enhanced, risk management is optimized, innovation encouraged, and often times, licenses to operate are reinforced or enhanced. GRI’s Business Transparency Program, which includes 16 hours of training and guidance through to publication of a GRI Report, is one such way to bring small-to-medium-sized suppliers through the process.
Setting a protocol for which to influence takes time. Unfortunately, one negative issue in the press is what it takes to speed up the process. Many government agencies are already taking a proactive stance to become more responsible consumers while assessing and reducing the risks of supply chain disruptions. In 2010, Obama’s Executive Order 13514 took effect. It required all government agencies to develop Strategic Sustainability Performance Plans and to quickly begin reporting progress in the areas of greenhouse gases, energy, waste and water reductions.
What was the reason for this? The U.S. government employs more than 1.8 million civilian employees, includes 500,000 buildings and $500 billion in purchasing power – simply said, it has the power to influence change through procurement. “Green Procurement Strategies” tie back to the alleviation of potential risks from suppliers and as such, the U.S. government is leading the pack by implementing auditable policies and generating value for those who comply.
In turn, the government gains trust from the public and minimizes hasty public spending. The General Services Administration (GSA) is one key example of a procurement body determined to lead the way. It has already received training in GRI-based Sustainability Reporting and is already assessing supplier sustainability performance. The U.S. Army, the U.S. Postal Service and NREL are other government agencies that have chosen to communicate progress via a GRI-based report and they’ve already begun to be more transparent on their own respective supplier responsibilities.
Furthermore, sustainability accounting can serve as a tool for projecting production and supply chain losses. Forward-thinking organizations are already starting to equate their profit and loss with inherent risks that a fragile environment presents. Through their groundbreaking economic valuation model, PUMA determined that they were responsible for an “impact of € 51 million resulting from land use, air pollution and waste along the value chain added to previously announced € 94 million for GHG emissions and water consumption,” as reported from their headquarters in Munich, November 2011. What was alarming was that “only € 8 million of the € 145 million total derived from PUMA’s core operations such as offices, warehouses, stores and logistics while the remaining € 137 million fall upon PUMA’s supply chain.”
Results like this would cause any organization to take swift measures towards setting standards for suppliers, educating them on what is expected, and deploying strict mechanisms for monitoring compliance. Long before issuing these results, PUMA took notice of potential supply chain risks and acted. As one of the first companies to take advantage of GRI’s Supply Chain Programs, they were able to support greater accountability and transparency by educating suppliers in GRI-based Sustainability Reporting.
A wide range of different approaches can be taken for improved production techniques, better planning, supplier standards and auditing, yet one thing is clear: using a trusted framework for critically addressing relevant impacts is essential. We all depend on others to achieve our mission and regular attention to course, equipment and careful planning for the unexpected will help smooth the journey ahead.
Rather than perpetuating survey fatigue, sending out never-ending questionnaires and creating more work for all involved, might it not be more effective to use the markets to help us all address our collective sustainability challenges? Engaging, supporting and calling for suppliers – large, small, public and private – to be transparent on their sustainability performance gives the markets – and all stakeholders – more information. And as the markets engage more directly themselves, and increasingly rate, rank and analyze sustainability performance – market mechanisms begin to monitor and enforce performance. Back to Economics 101 – seeking greater, more standardized and comparable disclosure from all market participants is good for all involved.