How to Progress through Supply Chain Sustainability Management

July 3, 2014 EcoVadis

Dell Inc recently announced its advance in green packing and closed-loop recycling, which are heralded as industry “firsts”, a result from collaborating with its strategic suppliers. Dell’s goal is to include up to 50 million pounds of recycled content in products by 2020, and the company has already saved $18 million dollars in material costs. This is the holy grail of supply chain sustainability management. But how does your company get there? EcoVadis sees 3 progressive stages of Supply chain sustainability management:

  • stage 1 – Risk Management: protecting your brand, preventing disruptions and potential litigations
  • stage 2 – Cost Reduction: simplifying specifications, lowering compliance costs, using more efficient materials
  • stage 3 – Innovation: creating value and accessing new markets

One would remember the tragedies of the Rana Plaza building collapse in 2013, Bangladesh, where the victims were manufacturing clothes to be supplied to top fashion retail companies. Even when these top retail fashion companies did not own these suppliers, they were implicated in the investigations and suffered a negative association with their brands. At stage 1, your company prevents suppliers from engaging in illegal environment, labour and social, and business ethics practices. This may be done through Supplier Charters, Supplier Self-Assessments or On-Site Audits among others. But without a dedicated and trained team of CSR specialists, it may be challenging to identify risky suppliers among the many others in your supply chain.

Supply chain regulations around the world are also getting stricter. The 2010 Dodd-Frank Act legislates that US-listed companies must disclose a specific section in their annual reports about Conflict Minerals in their products and supply chain. The California Supply Chains Act in 2010 is another example. In the EU, the CSR reporting Directive passed recently in April 2014, mandating EU-listed companies to disclose material non-financial information, including from supply chain. China is legislating tougher environmental regulations towards their 12th 5-Year Plan, which will definitely impact suppliers in China. Regulations have compliance costs for businesses, but the cost of compliance is lower if your company anticipates stricter regulations and proactively prepares for it, rather than reacting to the regulation the instant the law passes. Therefore, at stage 2, you are gathering material information from your suppliers about their products. For example, you would know what is the CO2equivalent, or the amount of water which is used for production in your suppliers’ manufacturing process, or how much energy is used during product operation. You would also know if your suppliers’ employees are being paid fairly and if they work in a safe environment. With that information, your company knows what needs to be improved. You start to question why this amount of water was used and not lesser or why a product consumes more energy than it should. Specifications get streamlined and your suppliers’ materials savings are passed onto you.

Finally, at stage 3 of supply chain sustainability management, you are collaborating with your identified suppliers to innovate products, such as Dell’s plastics that are made from greenhouse gases, decoupling your company’s revenue growth from resource consumption. You know who your sustainable suppliers are because of the information you gathered and acted on through stage 2. You invite these suppliers for joint R&D projects, or you know that they are proactively working on newer products that reduce material consumption and seek to incorporate those products into your own design. You might access new markets because of lower supply cost and therefore lower but profitable market prices for your own products.

One of the critical challenges in supply chain sustainability management is to assess accurately, classify and identify suppliers across the sustainability risk profile. EcoVadis works with you to identify what suppliers are risking your brand or litigation costs, or if they are treating their employees fairly, or if they are improving their product specifications/material efficiencies. You would know their strengths and areas of improvements, so that your company can engage with them to improve their processes through the Corrective Action Plan on EcoVadis platform.

EcoVadis assess, score and produce a scorecard for each supplier that is evaluated and your company will also see an aggregated risk profile of all your suppliers. For those suppliers who score below benchmark, the Corrective Action Plan tool will inform those suppliers the specific steps to take for improvement based on your company’s preferences. At the other end, you can identify high scoring suppliers and what they are doing in their sustainability management. Through identification of innovative practices by your suppliers using EcoVadis, you are equipped with the information on what to incorporate into your own design and how to do it.

At what stage of supply chain sustainability management is your company at? Are you taking steps to ensure your supply chain continuity or are you facing potential litigation because of risky suppliers? In the age of the information economy, knowledge is critical to value creation and corporate survival. At EcoVadis, we work to provide you with that specialised and in-depth knowledge, so that you too can create value for the world.

This article was written by Sheng Ou Yong, CSR Analyst @ EcoVadis

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