An industry-leading supply chain is a defining characteristic of a successful business. Moving forward, as consumers and shareholders both demand transparency and ask for more accountable businesses, sustainability within the supply chain will evolve from just “greenwashing” to become the foundation of great business.
“Today, sustainability has replaced cost, value and speed as the dominant topic of discussion among purchasing and supply professionals,” asserts the authors of one Oracle white paper. But according to a report from PricewaterhouseCoopers, EcoVadis and Insead, a lack of vision and strategy can deter these initiatives:
One of the main difficulties might be linked to the fact that few organisations have the necessary vision, organisation and budget to risk certain costs…for uncertain benefits.
In this article, I will discuss the five conversations I feel must occur within supply chain leadership for sustainability to become synonymous with reduced cost, risk mitigation and a socially-responsible business.
1. How Can We Better Measure Sustainability?
While most organizations plan to reduce their carbon-footprint, many lack the measurement capabilities to connect sustainability to supposed cost reduction. Richard Bank, Co-Director of the Sustainable Supply Chain Foundation, says that sustainability projects can be used to greatly reduce costs–if efforts are well-measured and patterns are identified.
For example, Bank explained how one materials transporter successfully reduced fuel consumption and truck wear-and-tear by becoming more scientific in its route planning and its truckload layouts. The project positively impacted the environment and saved the business hundreds of thousands per quarter.
In addition to using transportation management and route-optimization systems, sustainability scorecards (like CSRware’s Sustainability Supply Chain package) are necessary for success with these projects. These programs can help present the value to decision-makers–and assist strategists in directing future campaigns that are sustainable and reduce costs.
2. How Can We Instill Sustainability into Our Suppliers?
Though technology and logistics have improved throughout the supply chain, many buyer-supplier relationships have become stagnant. There’s been little reason to innovate among these suppliers, according to Monica Gelinas, strategic sourcing expert and Principal at GritWork LLC.
“We need to review grandfathered-product specifications,” says Gelinas. She proposes that buyers propose an olive branch to suppliers–by asking how the suppliers could make components more sustainable.
Insisting on accountability through scorecards can incentivize suppliers and encourage sustainability. Proctor and Gamble’s new Supplier Scorecard is a good example of a company demanding sustainable excellence of its partners.
“It’s this kind of pressure from the big buyers that’s impacting the entire eco-system,” believes Lisa Harrington, Co-Director of the Sustainable Supply Chain Foundation. Bank adds that accountability can lead to improved public perception, investor relations and supplier productivity.
“At the end of the day, companies can realize this efficiency through lower prices,” says Bank.
3. How Can We Design More Sustainable Products?
Addressing sustainability further upstream–at the level of product design–can lead to greater savings and decreased stress on logistics networks, as well as improved sustainability.
“Sit down with your team and and just ask, ‘What can we redesign?’” suggests Gelinas. However, Gelinas notes this discussion has to involve sales, research & development and other departments to realize benefits from these sustainability efforts. “It has to be built into the company’s DNA.”
Cleaning materials companies have done a great job integrating sustainability into their products, as well as marketing these initiatives. Concentrated-formulas detergents, for example, reduce the the cost of transporting materials (i.e., mitigating against the impact of rising gas prices), as well as produce a tentpole to use in marketing.
4. How Can We Avoid Socially-Negligent Suppliers?
Social responsibility is enveloped within a sustainable supply chain strategy, and a lack of oversight has shown to have both direct and indirect implications on an organization’s financials. In 2007, Mattel spent $110 million on product recalls and saw its share price drop 5.8 percent in just two months after its Tier 2 Suppliers used unsafe levels of lead paint in Mattel toys.
“Even though Mattel has excellent supply chain management, one slip-up cost them in terms of reputation loss,” says Diane Osgood, Ph.D. and founder of Osgood Sustainability Consulting. “Better transparency could have saved them.”
Social responsibility within the supply chain requires both public transparency and supplier accountability. In response to its own supply chain crisis, Nike has become a leader on both of these fronts. Its openly-disclosed factory list was a first in its industry when released in 2005. Likewise, Apple’s 2012 Supplier Progress Report mentions partnering with the Fair Labor Association for external auditing.
5. Who Can We Trust to Drive Sustainability?
While best-in-class supply chains have become more technology-dependent, they are still driven by effective people. According to Osgood, the key for many organizations is shifting their best employees to head sustainability projects.
“Companies need to figure out that it’s worth putting its ‘good people’ on these issues–to realize eco-efficiency, to figure out they’re not only compliant with new laws, but that they have meaningful policies in place,” says Osgood.
A shift in the perceived importance of sustainability is necessary for some companies–and employees, as well. Ron Ashkenas recently argued that such “horizontal moves" are necessary for both individual and company-wide progression in today’s environment. I believe this is especially true as the importance of sustainable supply chains continues to increase.
What kind of questions need to be asked in order to improve the sustainability of our supply chains? Please leave your thoughts in the comments below.
Thumbnail image created by photologue_np.