- Business & Industry ,
- Supply chain ,
Companies need to take a long-term, impact-based approach when transitioning to a sustainable supply chain, says Anuj Saush
The era of responsible business is now upon us, with more and more companies embracing sustainability – including in their supply chains. Most companies tend to start their sustainable procurement programme by focusing on environmental issues, but recent legislation (such as the California Transparency in Supply Chains Act , the UK's Modern Slavery Act  and France's Corporate Duty of Vigilance Law ) has provided fresh impetus for companies to manage social dimensions of the supply chain, such as child labour, human rights, slavery and working conditions. Increased media interest, evolving expectations of what's acceptable in relation to environmental and social practices, and consumer activism have also pressured companies into adopting a more holistic approach to sustainable supply chain management.
Embracing sustainable procurement practices can help companies manage business risks, achieve cost savings through material efficiency gains, enhance brand reputation, and manage suppliers more effectively.
Sustainable supply chain: drivers
However, while some companies are pioneering sustainable procurement initiatives to drive impact and create value, many do not have the resources or in house knowledge to go beyond a tick-box approach. A review of the sustainable supply chain-related KPIs of about 60 large global companies indicated that most use process-based indicators, such as sustainable procurement programme spend coverage, number of suppliers who have signed the code of conduct, number of supplier assessments undertaken, number of supplier workshops organised, and number of suppliers responding to sustainability survey. Process indicators may have a role to play, but they aren't themselves a measure of success. It can also be inferred that most of these companies are locked into a risk-based approach and aren't realising the full value of a beyond-compliance approach.
What is impact and why is it important?
Impact is the longer-term effect of an outcome, broadly based on the Theory of Change model. While it is important to know the input and outputs, companies should see these as a means to an end, rather than as an end goal.
To take the example of an audit within a supply chain context: most companies measure and report the number of audits undertaken and the incidences of noncompliance found year-on-year. Although these metrics might play important roles, they are process oriented and may say little about actual performance. Only a handful of companies talk quantitatively about how supplier performance has changed over time due to the audits – which is the reason audits are initiated in the first place. A risk-based approach is likely to be resource intensive and will reap limited success.
Focusing on outcomes and impact allows companies to better assess the effectiveness of their inputs and activities, and thus to refine their approach. Outcomes and impact orientation typically lend themselves to a long-term perspective and can help create an environment that incentivises suppliers to address root causes of unsustainable practices, so that they change their behaviour over time.
Steps towards change
It can take time to transition to sustainable supply chains and build a base of sustainable suppliers. Understanding the current reality and the outcomes you would like to achieve will help you to define the transition pathway. You are likely to find suppliers all along the sustainable-unsustainable continuum, and ranging from those who are willing to collaborate to those unwilling to engage. You will likely have to balance cost versus sustainability priorities. There will always be cases where a cheaper alternative exists, but this amounts to a false economy. The value derived in the long term through improved environmental and social performance proves more cost effective than short-term cost savings.
While the approach and specifics may vary by industry, region and culture, the principle elements in achieving impact are consistent. Companies can start by articulating how sustainable procurement can help them realise strategic company objectives. This focus reinforces the case for sustainable procurement and helps create a programme with a long-term orientation.
Shift the focus of your programme from what you do to what you would like to achieve: Companies delivering against targeted sustainability outcomes have clarity on the impact they would like to achieve. Either at the outset or at some point during their sustainable procurement journey, both BT Group and Metro asked, “What are we trying to achieve, and what does that change look like?“ In BT Group's case, it was achieving quantifiable emissions reduction during the life cycle of a contract, whereas for Metro it was to build customer trust through transparency. Having clear goals enabled these companies to work backward to define the outcomes that had to be achieved. It also allowed them to assess the effectiveness of their approach.
Promote cross-functional shared accountability: Companies that see sustainable procurement as a core part of realising their strategic objectives take a long-term view, allocate resources, and treat sustainability as an enterprise-wide responsibility. Key individuals have a clear understanding of the added value from sustainable procurement initiatives and see it as a shared objective where everyone has a role to play. CNH Industrial, Huawei and Metro all use this approach. Strong active support from board-level executives can help facilitate this transition.
Build alliances and partnerships with external parties to catalyse and scale your programme: Collaborative partnerships with external organisations such as industry associations, nongovernment organisations and supply chain audit specialists can play a key role in achieving success. Working with external parties provides an independent perspective and can help generate momentum. Cross-industry partnership is particularly beneficial for non-competitive issues; companies can come together to improve performance where the supply chain overlaps. Responsible Business Alliance, IPC-Association Connecting Electronics Industries, Pharmaceutical Supply Chain Initiative and Together for Sustainability are a few such initiatives.
Tap into the collective experience of your suppliers to drive impact: Suppliers are specialists in their respective fields and tapping into their skills and knowledge offers additional research and development capability. Collaborating and building strategic partnerships with suppliers is a no-brainer, but only a few companies are really doing it well. For example, BT Group has adopted an outcome-based performance clause to drive pragmatic supplier-led product innovation suggestions. Huawei has introduced a learning-by-benchmarking approach for suppliers to learn from their peers.
Harness digital technology's potential: Leading companies are recognising that supply chains are becoming more and more digitised, and have thus started tapping into the potential of new technologies. For example, Metro has been able to achieve end-to-end transparency for some of its food products by using a cloud-based technology platform. CNH Industrial is also leveraging digital tools to communicate, engage and collaborate with its suppliers. Procurement functions need to proactively identify disruptive technologies and explore how these can be integrated to improve supply chain sustainability. Companies can start by piloting small projects to assess the potential benefits and resource requirements.
Embedding sustainability into the supply chain is likely to gain more momentum over the coming years. Some business leaders already recognise the need to embrace an impact-based approach and have started to evolve their sustainable procurement efforts. Furthermore, as companies integrate and align their strategies with the UN Sustainable Development Goals (SDGs), we are likely to see a trend in which companies start looking toward their supply chain to realise SDGs.
Where are you on your journey towards impact?
The Conference Board has developed an assessment framework that offers a simplified model to appraise a sustainable procurement programme's orientation toward outcomes and impact. The assessment consists of 20 questions and takes about 10 minutes to complete. The tool provides a snapshot, as opposed to a detailed sustainable procurement assessment. It is free to use and can be accessed at bit.ly/2Ub6zkc
Anuj Saush, MIEMA CEnv, leads the sustainability research practice for The Conference Board in Europe
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