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Supply Chain Sustainability Needs a Fresh Viewpoint


By Sumit Kumar

Recent history has presented many examples of reputed organizations, such as Apple, Walmart, 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 worldwide. A part of the credit for this increased awareness also goes to organizations such as the CDP (formerly Carbon Disclosure Project) and Global Reporting Initiative (GRI) for sharpening focus on the sustainability of supply chains.

Unfortunately, the approach for achieving sustainable supply chains has become stereotyped, and most organizations end up only meeting compliance. Buying organizations go by the clichéd “sustainable procurement guidelines” that list expectations from suppliers on common sustainability parameters. They also 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.

  • Once the guideline is met, there is little incentive for the suppliers to improve their performance.

Therefore, the system creates a situation where neither the buying organization nor its supplier are focused on improving the sustainability performance of suppliers beyond those 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 your critical suppliers by doing a comprehensive analysis of their performance on environmental, social and governance (ESG) parameters. The assessment should be customized for each supplier, based on their industry and geography of operation, and should include: evaluating the strategy, policy and initiatives to tackle sustainability issues; analysis of data reported on key sustainability performance indicators; 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 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 environmental footprint of suppliers, using supplier innovation to develop sustainable products, etc.).

As a bonus, this approach would also bring in learnings in the form of best practices adopted by leading suppliers. These lessons can then 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 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 of British Telecom's major suppliers achieved 23,000 tons of carbon savings from changes implemented in manufacturing, packaging and logistics (which, in turn, lightens BT’s carbon footprint). The company also educates its suppliers on innovative designs that are not only more sustainable but are also more cost-effective. The platform also facilitates ongoing assessment and rating of suppliers’ sustainability performance, and best performing suppliers are 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:

  • Compliance with regulations on responsible and sustainable procurement.

  • Avoiding supply chain disruptions due to environmental, social, ethical and governance risks.

  • Create a 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 toward sustainability.

Image credit: Flickr/Adrian Scottow

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.

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