In October 2010, Steve New wrote in the Harvard Business Review on consumers becoming more interested in the ethics behind companies’ supply chains. Fast-forward to today, and these ideals have transferred from consumer demand to corporate considerations.
From one Oracle white paper: “Today, sustainability has replaced cost, value and speed as the dominant topic of discussion among purchasing and supply professionals.”
But according to a report co-authored by EcoVadis, PricewaterhouseCoopers and Insead, strategies to improve sustainability and corporate social responsibility can be hindered by a lack of vision:
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.
How can organizations ensure that they have this vision in place? These are the five questions leaders need to ask its supply chain managers, its suppliers and its employees.
#1 How can we improve sustainability measurement?
Proper measurement is important for two reasons: (1) It can help show leadership the progress of sustainability initiatives; and (2) It can help sustainability teams find the projects that are the most successful to build around.
There are a number of software providers that are assisting this today. For example many transportation management systems include route optimization and measurement technology to help logistics providers reduce their fuel consumption. Others, like EcoVadis, provide an application platform to measure the environmental risk and sustainability efforts of suppliers.
#2 How can we ask our suppliers to focus on sustainability?
Unless pushed by larger buyers, downstream suppliers often have little incentive to innovate. Scorecards are a popular way to show suppliers how important sustainability is–and eventually lead to improved efficiency and cost-savings for both suppliers and buyers.
Proctor and Gamble’s Supplier Scorecard is a prime example of a large company demanding sustainability initiatives from its suppliers–and being very clear on what’s necessary to work with the company.
#3 How can our products be more sustainable?
Innovating at the product level can impact downstream partners and lead to increased cost savings. But leadership has to ask how they can create more environmentally-friendly products–and reduce the footprint needed to produce them.
A prime example of companies innovating at the product level can be seen with cleaning product companies. Detergents are now commonly produced in high-concentration formulas to reduce the cost of transportation for its logistics team.
#4 How can we avoid conversing with socially-negligent suppliers?
In 2007, Mattel’s Tier 2 Suppliers were found to be using dangerous levels of lead paints in components of its toys. The product recalls cost $110 million alone, and the company’s stock dropped over 5 percent in the two months following the recalls.
Both internal and consumer-facing transparency is necessary to reduce risk inherent in these events. Companies have to move beyond the PR-speak and ask the hard questions of their suppliers. Apple seems to be working to do this–partnering with the Fair Labor Association to externally audit its facilities.
#5 Who can we charge with CSR and sustainability initiatives?
Companies have to seek out individuals to spearhead sustainability projects–and show that there is value in these initiatives that can both indirectly and directly impact the entire company. As the importance of sustainability increases–and it begins to be the defining characteristic of many supply chains — businesses will have to move its best people into sustainability roles. This will provide companies the leadership to reduce cost, lead socially-responsible production and eliminate extraneous waste throughout the supply chain.
Michael Koploy is an ERP Analyst at Software Advice–a website that provides reviews and demos of transportation management systems. You can find him on Twitter at @SCMAdvice.
Photo by Logan Brumm via flickr creative commons