Sustainable supply chain management
Supply chains represent up to 70% of the sustainability footprint. What is your company’s role in that, and what are the tactics to better assess and choose the suppliers based on sustainability criteria?
Pressures around sustainability and transparency are growing, and companies are beginning to respond as we see that their sustainability strategies move from compliance or cost focus to more holistic approaches and even pioneering.
Let’s start with the definition of a supply chain.
- A supply chain is a network between a company and its suppliers to produce and distribute a specific product or service.
- The entities in the supply chain include producers, vendors, warehouses, transportation companies, distribution centers, and retailers.
- The functions in a supply chain include product development, marketing, operations, distribution, finance, and customer service.
Why are supply chains ever so important
They represent 50% to 70% of the sustainability footprint of most major global companies. Footprint comprises of environmental, labor & human rights, and ethics. The ratio between company’s sustainability footprint and their supply chain footprint differs according to the industry.
Examples of sustainability footprint
Company < Supply chain: services
Company > Supply chain: oil and gas, chemical industry, construction, etc.
What is your sphere of influence?
If you work for a company with a significant sphere of influence, it is dead serious when it comes to sustainability criteria. It is both a brand’s and personal responsibility from who we buy. Just think about bad practices such as child labour used, especially in fashion or electronic industry, environmental law violations in the transportation industry, factory crashes, or toxic materials used in toys. Even though it may not be the direct responsibility, it sure is a responsibility because we should have some criteria, processes, and standards in place to prevent it and extinguish such practices. Based on some white papers and talking to executives, I prepared a summary of practices, guidelines or at least food for thought for everyone who struggles with how to incorporate sustainability criteria into the decision-making process when deciding about the suppliers.
Don’t forget your customers’ demands?
They are prepared to pay more for a more sustainable product, but they need a proof. They most probably want to have as much transparency as possible. For example, it is trendy for consumers to trace where materials are originated. Ask them what they think, test new sustainable, innovative products, communicate and see the response.
Do you monitor competitors’ supply chain practices?
If you are not monitoring them, your competitor is undoubtedly at least preparing for the big move.
Do you have a business case?
World Economic Forum published a valuable document Beyond Beyond Supply Chains – Empowering Supply Chain. It is from 2015 but still very much relevant. On pages 12 – 16 you’ll find 31 supply chain practices and their potential to create triple advantage. There are case studies and concrete data on results. Practices are found in product design, sourcing, production, distribution, end of life, and cross-functional area.
Source: World Economic Forum, Beyond Supply Chains
The outcome of these practices are encouraging,
- Profitabilityt: Revenue uplift of 5% – 20%; supply chain cost reduction of 9% – 16%, a brand value increase of 15% – 30%, significant company risk reduction.
- Local development and societies: : Improved customer health, local welfare, and labour standards (wages, working conditions).
- Environment: Carbon gas reduction of 13% – 22% on overall footprint.
Although the model uses consumer goods companies as a reference, it can be applied or modified for other industries. After you have studied options, you can choose the most appropriate practices according to value creation potential.
How to set rules for suppliers?
- The usual first step is that a buyer develops a Code of conduct for their suppliers There are numerous examples, such as Lidl.
- Then there is a question: How to get info on sustainability from suppliers?
- There are many ways to do it? An old method is questionnaires. Here is an example from Unicef.
- Some consulting firms are offering benchmarksthat are more reliable as you are not left with the results of self-assessment. The downside is that it is available for more significant markets and more prominent players.
- Some rely on sustainability reports of suppliers, and certifications also play an important role, especially in some industries.
- Some more influential multinational companies are doing assessments of their suppliers. Apple is conducting rigorous assessments which consists of:
- extensive document reviews,
- a thorough site walk-through,
- and interviews with the supplier’s employees and management.
Supplier employee interviews are conducted in the employees’ native language and without their managers present. They follow up with the supplier employees -they interview to ensure that they have not experienced any retaliation due to speaking with auditors.
They work with independent, third-party auditors to evaluate suppliers against more than 500 criteria, verify compliance, and identify areas for improvement. Each assessed facility is ranked on a 100-point scale in each of three assessment categories (labour and human rights, health and safety, and environment). The average of those scores comprises the facility’s composite score for the year. They also conduct unannounced assessments every year, unannounced visits in response to allegations, or verify that remediation of violations has been completed.
- Worthwhile seeing is also responsible supplier program from Marsov where you can see that helping their suppliers in certain issues is embedded in their program.
- Namely collaboration model supports the suppliers of their 10 raw materials, and other strategic suppliers, as they activate plans in their workplaces to address the root causes of targeted issues, using expert guidance and worker voices to drive real change.
I used the opportunity to talk to Dr. Zuzana Brjiova, Supplier relationship manager at IESA international company providing outsourced Procurement, Inventory Management, Stores Management, Transactional Processing and Cloud-Based Systems. They deal with over 200,000 stocked products sourced from more than 500 suppliers.
Interview with Dr. Brijova from IESA
As an outsoursed procurement company you have great infuence on your suppliers. What is the role of ESG in that regard?
We strictly take Environmental, Social and Governance criteria into account. Our ESG ambition is to inspire a more sustainable world through education and innovative solutions that improve lives. This is underpinned by strong governance, ethics, and compliance practices to ensure we have high ethical and business standards. Strogo upoštevamo okoljska, družbena in upravljavska merila. Naša ambicija ESG je spodbuditi bolj trajnosten svet z izobraževanjem in inovativnimi rešitvami, ki izboljšujejo življenje. To je podkrepljeno z močnim upravljanjem, etiko in praksami skladnosti, da se zagotovijo visoki etični in poslovni standardi.
IESA has four ESG pillars aligned to our Destination 2025 strategy: Environment, Customers and Suppliers, People Health and Safety, and Community.
Do you use ESG criteria when organizing a tender for a new supplier?
We organized tenders for new suppliers, especially for Preferred Vendors, where we strictly consider ESG criteria. Our criteria and their weight differ according to the industry. We are providing Pharma, Food, Metal, Automotive, and other sectors and tenders criteria depending on particular sectors.
What are your significant sustainability commitments?
During the year, we continued to strengthen our ESG approach. We have further embedded our commitments into our Destination 2025 strategy and enhanced our purpose of ‘making amazing happen for a better world’.
We use a series of key performance indicators (KPIs) to help measure the progress of our commitment to reducing the intensity of our emissions, packaging, waste, and water by 50% by 2024/25.
Climate change is one of the most significant challenges facing our world. Our industry plays a key role in supporting the technological and engineering solutions that will help tackle this and speed up the low-carbon transition. We are committed to playing our part, both by offering our customers innovative and sustainable product and service solutions which help to reduce emissions by 65% by 2024/25.
Our commitment to responsible and sustainable business extends across our global value chain. With over 200,000 stocked products sourced from more than 500 suppliers, we have a key role to play in helping our suppliers access global markets.
Our code of conduct sets out our business standards and practices for both our people and suppliers, and we continue to extend these standards to other business partners.
Ljudje IESA se prostovoljno javijo, da imajo pozitiven učinek v svojih skupnostih, večinoma pri projektih s hrano.
I hope you found some inspiration in the contents of this article. Should you need any help in setting principles of a responsible and sustainable supply chain, let us know.