In the face of ongoing and unprecedented disruption, supply chains are increasingly vulnerable to a wide range of sustainability risks that, if not managed effectively, can expose your company to increased operational costs, significant financial penalties and long-term reputational damage. As highlighted in our latest Barometer Report, companies that not only manage these risks but proactively drive sustainability throughout their supply chain are boosting revenue, deepening employee and customer loyalty, and helping transform their industries.
Although well-intentioned, the siloed efforts of many companies are leading to important aspects of supply chain sustainability being overlooked, suppliers either being underengaged or overburdened with requests, and efforts being duplicated. Leading procurement teams are finding that an integrated, holistic approach can help address many of these problems. A centralized supplier sustainability monitoring program can not only proactively identify risks but also help suppliers embark or progress on their sustainability improvement journey. While a number of solutions for building a more effective sustainable procurement program have emerged in recent years, not all are created equal.
Here are five key factors to consider when choosing a supplier sustainability monitoring solution for your business:
Factor 1: Does it enable you to navigate risks across a broad range of industries and regions?
No matter your industry, you will likely source across dozens or even hundreds of purchasing categories -- including your indirect spend. Your company may know very little about the sustainability-related risks inherent to some of these industries and exposure can vary widely depending on their core business activities (e.g., labor risks in manufacturing, environmental risks in the chemical sector, ethical risks in extraction industries, etc.). Furthermore, each industry has its own regulatory landscape that can vary significantly by geography.
An effective solution should account for this complexity in how it assesses and monitors supplier sustainability performance. It should also offer tools that enable companies to prioritize supply chain risks and stay up to date with rapid regulatory changes impacting suppliers across a broad range of industries and countries. For example, EcoVadis IQ gives you the predictive intelligence you need to map ethical, social and environmental risks across your entire supply base, and prioritize where to focus engagement and monitoring efforts on higher-risk/higher-opportunity suppliers.
Factor 2: Does it cover a comprehensive range of sustainability topics in its assessment?
Although topics like carbon reduction have cemented their place atop the corporate agenda, the COVID-19 pandemic has reinforced the interconnectedness of sustainability issues and the need to tackle them holistically. While companies will inevitably focus on their most material issues, as defined by their business activities and operational locations, they must also consider the array of risks pervasive throughout their supply chains.
An effective sustainability monitoring solution will include criteria to assess these diverse risks – from modern slavery to anti-discrimination to product use and end-of-life practices. It should also align with the growing body of standards and initiatives that require or encourage companies to report on a broad spectrum of issues. For example, EcoVadis Ratings consider 21 sustainability criteria across four core themes – Environment, Labor & Human Rights, Ethics and Sustainable Procurement – to ensure that all risks are evaluated. It is aligned with leading standards, such as the Global Reporting Initiative, the United Nations Global Compact and ISO 26000 – and factors in over 500 sustainability-related regulations.
Factor 3: Does it facilitate universal comparison and provide actionable insights?
Supplier assessments alone are no longer enough. For assessment data to be useful for driving improvement on key sustainability topics, it must be organized in a way that makes it digestible, comparable and actionable for procurement teams and suppliers alike. To effectively manage risk and identify opportunities, procurement teams must be able to answer the following questions: How is a supplier performing on sustainability topics in comparison to their peers? What is the norm for the industry or geography they are in? Are they improving their performance over time?
Solutions that quantify and benchmark sustainability performance (e.g., through ratings or scores) enable procurement teams – and their suppliers – to escape the “compliance trap” of making tenuous and sporadic improvements and leverage insights to drive meaningful and lasting impact. With the insights gained from benchmarking, buyers can set targets and thresholds that can be used to engage suppliers and help them take ownership of their performance. For example, the EcoVadis solution enables buyers to develop Corrective Action Plans in collaboration with their suppliers, track progress on these plans and ultimately recognize and reward those making significant improvements.
Factor 4: How easily can you integrate the supplier sustainability monitoring solution into your existing procurement processes?
To make sustainability central to your organization’s procurement function, you must be able to embed it within all procurement processes, including sourcing, onboarding, tenders and requests for proposals, supplier relationship management, contracting and annual reviews.
As the digital transformation of supply chains accelerates, the key to achieving this will be to find a solution that enables you to integrate key metrics and insights into existing supply management software suites. Ideally, the solution you choose will have a platform that comes integrated with leading enterprise resource planning software – such as SAP Ariba Risk Aware, Coupa Spend Management, Synertrade and Jaggaer – and other applications traditionally used for risk management to save time and costs.
Factor 5: What kind of services are available/included for program and change management, onboarding, and facilitating supplier improvement?
Sustainable transformation is a journey. Even a world-class assessment and monitoring platform alone cannot singlehandedly transform most organizations’ approach to tackling sustainability risks throughout their supply chain. To deeply embed sustainability, organizations will also need to transform their management processes, integrate new strategies and build the capacity of their suppliers.
Look for a solution provider that not only offers in-house program management expertise but also provides access to a network of peers that you can engage to refine your strategies around sustainability and connect with like-minded trading partners. Ideally, the solution you choose should have a supplier capacity-building platform like the EcoVadis Academy, which offers comprehensive e-learning courses to help suppliers navigate a wide range of challenging sustainability topics. Tapping into resources like this is crucial if your company wants to scale impact and unlock value throughout the supply chain.
There are a wide variety of approaches to sustainability and risk management. However, the most effective solution will give you the metrics and actionable insights you need to monitor and engage suppliers across industries and global regions. In addition to a dedicated online platform that you can leverage to compare supplier performance, identify opportunities and connect with new trading partners, you should be able to integrate these metrics and insights directly into your existing procurement processes. Ultimately, a sustainable procurement program can only be effective if there is buy in and ownership around it – ensure you choose a solution that enables you to build this both within your organization and among your suppliers.
For more insight on how the EcoVadis solution can help you build an effective sustainable procurement program, contact us for a consultation.
This blog post is based on the white paper Five Essential Criteria For Selecting A Supplier Sustainability & Risk Monitoring Solution.
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