There are a number of recent examples of reputable organizations (Apple, Wal-Mart, Target, Primark and Tesco) facing the ire of customers, investors and governments due to unwarranted incidents in their supply chains. It is becoming increasingly clear that unsustainable supply chains can have negative impact on a company’s reputation and profitability.
As a result, the sustainability of supply chains is getting renewed attention from organizations worldwide. Part of the credit for this increased awareness also goes to organizations such as the Carbon Disclosure Project (CDP) and Global Reporting Initiatives (GRI) for sharpening focus on supply chain sustainability.
Unfortunately, the approach for achieving sustainable supply chains has become stereotyped, and most organizations end up only meeting compliance. Buying organizations go by the cliché “sustainable procurement guidelines” that list expectations from suppliers on common sustainability parameters and act as screeners at the time of on-boarding a supplier. This approach defeats the purpose, especially for the suppliers, because of its inherent limitations:
- A straitjacket approach for all suppliers results in a weak guideline, which primarily expects basic compliance to environmental, labor and human rights laws, etc.
- Once the guideline is met, there is little incentive for the suppliers to improve their performance.
This creates a situation in which neither the buying organization nor its supplier is focused on improving the sustainability performance of suppliers beyond basic certifications.
In order to derive maximum value out of a sustainable supply chain and avoid supply chain disruptions, responsible organizations need to take the ownership of their supply chain. Here is an alternative approach CPOs can adopt to ensure sustainable performance of critical suppliers:
- Assess existing critical suppliers through a comprehensive analysis of environmental, social and governance (ESG) performance based on industry and geography of operation. This assessment should include evaluating the strategy, policy and initiatives to tackle sustainability issues, checking compliance with industry and region-specific norms and benchmarking their performance with industry peers.
- Engage the supplier to discuss gaps in its sustainability performance and agree to a plan to mitigate any potential risk to the supplier relationship. Educate and collaborate with the supplier on improving its sustainability performance and reporting.
- Monitor the development of the supplier and its industry and geography on an on-going basis and conduct periodic assessments of the supplier, depending on their criticality and risk exposure to stay aware about their sustainability performance.
- Share the best sustainability practices adopted by leading suppliers with other suppliers so that it becomes a win-win situation for everyone (this effort will translate into goodwill and a stronger relationship with the supplier-base).
Having such a framework in place will give companies a deeper understanding of the functioning of their critical suppliers. They can spot early warning signals for sustainability-related risks in their supply chain and proactively take steps to mitigate those risks.