As supply chains become ever more complex and global, the spotlight on transparency and innovation around Sustainability and ESG (environment, social, and governance) criteria is shifting to the procurement teams who manage them. The landscape of regulations and laws demanding supplier due-diligence are expanding, from UK Modern Slavery Act, EU Conflict Minerals, France’s Devoir de Vigilance Bill and proposed EU directive. These trends are exposing even more potential risks to brand reputation, supply disruption and increased costs or volatility. This is creating a ‘triple-whammy’ of imperatives for procurement teams — and their trading partners — to monitor and manage risk, while at the same time exposing new sources of value that will be the key differentiators in the future.
But assessing and monitoring the CSR practices of suppliers worldwide poses tough challenges for procurement teams, across these dimensions:
Large multi-nationals’ supply bases often span 100 countries, each often with differing laws and regulations, in dozens of languages
Supply bases cover 100’s of purchasing categories, each posing a different mix of CSR risks and issues.
Depth of criteria
There is a deep spectrum sustainability assessment criteria to cover, including Environmental, human rights and social issues, ethics and fair business practices issues such as anti-corruption/anti-bribery, and how those business partners are monitoring their own supply chain.
Often when procurement teams implement these programs internally, they must acquire or develop new resources, tools, and expertise in CSR and supplier engagement.
This also poses challenges for suppliers, such as: Redundant surveys from each client; Questionnaires are often not adapted to their business category, size or location; The lack context for understanding their performance relative to others, or how to set expectations; An absence of feedback and guidance needed to drive improvements.
The solutions to these challenges are beginning to emerge, through a potent mix of expertise, and digital technology. Here are some areas of advancement that digitization will bring to bear:
- Scalability: internal supplier CSR monitoring initiatives are often focused on engaging a few hundred vendors. Technology will play a key role in scaling up this mission to engage the more than 40 million companies on the planet.
- Continuous improvements: traditional compliance approaches are often based on one-off audits. Digital technologies are enabling real-time monitoring of performance, and measure ongoing progress on key sustainability indicators.
- Dynamicity: supply chains are highly dynamic as vendors/contracts change constantly, and this is growing exponentially if you look at Tier 2 or further levels up the supply chain; Technology solutions are emerging to help maintain/map both the commercial relationships and the sustainability impacts as these relationships shift.
- Transparency & Traceability: new technologies, such as “Block Chain”, can track the provenance of goods throughout the supply chain from raw materials, to factories, laborers, logistics, and through branding and distribution. Additional data such as sustainability indicators, can be attached at each step in the chain.
- Big Data: the diversity and volume of sustainability information being made available on social media, labor unions, environmental watch groups and other NGO’s is also generating mountains of data. This creates a huge opportunity to mine this data, and as well to analyze and map it against spend data to derive real-time insights to guide better business decisions.
- Open Networks / supplier marketplace platforms and API integrations: These are connecting data (such as monitoring indicators from the supply chain) with apps to integrate into, and improve procurement functions. Examples include using sustainability scores in apps for supplier financing, sourcing and RFX functions, or having a “live sustainability KPI leaderboard” to stimulate improvements.
We are eager to see how these new trends in digitization will drive sustainable supply efforts forward and help procurement teams with real tangible benefits. Operational examples include reduced risk of supply chain disruption, protecting brand reputation and lowering costs (for example, collaboration on packaging reduction). At a strategic level, they can help build supplier relationships that give the purchasing organization a competitive advantage, by identifying the best suppliers to invest in and innovate with.