Make the Circle Bigger
Supply chain sustainability takes effort and collaboration, as many companies are learning
Some companies are leveraging a reputational high ground as a result of certain meaningful interventions and policies in their supply chains.Others are haemorrhaging brand value in the wake of nonsustainablerevelations – scandals which could in many instances have been easily avoided. According to those that are getting it right, supply chain sustainability is only achieved with massive levels of collaboration.
Companies should be engaging properly with key stakeholders and forging partnerships in the supply chain (and even across multiple networks) to make the supplier engagement circle bigger. With up to 60% of a company’s carbon footprint residing in its supply chain, the pressure from large firms for suppliers to act more responsibly is not surprising. However, the threat of reputation damage is seriously intensifying this pressure.There have been a few local examples of ‘breakdowns in the supply chain’ in recent years. South African consumers reacted strongly to meat industry revelations during this last year, and the
sector has been forced to introduce much more control.
Large and multinational retail firms are conducting formal interviews with suppliers that may have an impact on risk and reputation. Similarly, the more
progressive firms are looking for suppliers that can add positively to reputation by identifying areas of leadership that can be used in association or in
collaborative marketing initiatives.Supply chain pressure is coming from all four corners it would seem. “Resource scarcity, investor and consumer demand and reputation management are driving the pressure firms are placing on their supply chains to adopt responsible sustainability approaches,” says Judith Lütz, procurement specialist and owner of Kitherley Consulting “Media scandals have also led to greater consumer awareness – a factor which
escalates the risk to businesses with supply chains that have poor social or environmental standards.” Social media in particular is amplifying issues that were previously swept under the carpet and this is leading to an increase in activism by the consumer.
So what about the business case for supply chain sustainability? In 2012, Deloitte reported that a few major retailers, working with a shipping supplier to
pilot a “slow steaming” project, achieved fuel reductions of some 3,500 tons. Savings are an obvious business benefit of supply chain sustainability; however
product development and innovation can also result from a collaborative approach. Procter and Gamble, in working through its sustainability scorecard, recently received innovative ideas from nearly 40% of its responding suppliers. The business case for sustainability in the supply chain must be made and must become ‘best practice’. The separation of doing good and doing well is no longer possible in the integrated supply chain. “The pressure on organisations
to gain or retain competitive advantage means that sustainability is no longer about the good of society and the environment.” Says Lütz, “It is about commercial success cost savings associated with wholelife- costing procurement methods, waste reduction and innovation. It’s also about a robust supply base through ethical sourcing and supplier management, and it’s about reducing risk.”
The Larger Circle
Risk mitigation and, value creation in the supply chain count among the key benefits of more, and more extensive collaboration between stakeholders. In an interview with the Harvard Business Review, Peter Senge (founder of the Society for Organisational Learning and an MIT Sloan School of Management faculty member), touched on collaboration as he underlined two steps for achieving change across supply chains:
“First, you focus on the nature of the relationships. In most supply chains, 90% of them are still transactional. If I’m a big manufacturer or retailer, I pressure my upstream suppliers…”. Such “pressure” usually takes the form of influence through policies, incentives and reward-based approaches, many of which are becoming mainstream and part of a universal template of best practice. Senge describes his second step as follows: “… you work with NGOs and other non-business entities for access to expertise that you can’t grow fast internally. Coca-Cola cut the water used to make a liter of Coke from over 3 liters to 2.5 liters.
But it was overlooking the 200-plus litres it took to grow the sugar that went into that Coke. It found that out because it partnered with the World Wildlife Fund (WWF), which knew how to analyse the water footprint of the value chain. No business knows what Oxfam does about the plight of farmers, or
what the WWF knows about biodiversity and watersheds. The best businesses don’t just hire the sharpest people; they also keep expanding their expertise by (for example) partnering with NGOs that have deeper and broader knowledge.”
The Balancing Act
Senge later expands on the importance of the right people by adding. “If people (employees) are stuck in the mind-set that a company exists to maximise ROI,
with an emphasis on short-term financial performance, they won’t get far. Lütz agrees with this and comments that on the one hand stakeholders are demanding results that benefit the bottom line, and on the other there is pressure to generate benefits for society and the environment.
“To successfully achieve supply chain sustainability, procurement and supply chain professionals need to balance these demands” says Lutz. In order to give effect to this ‘balancing act’ and in order to see the successful application of great policies in the supply chain we will need the involvement of employees with specific attributes – real supply chain professionals. Such professionals would have, among other skills, exceptional networking and communications capabilities and an integral understanding of the business context and the business case. On whether there is sufficient focus on supply chain sustainability
training in South Africa, Lütz says: “There is still a lack of knowledge on how to integrate sustainability with other priorities such as cost, service and quality.
There are a number of platforms, questionnaires and reporting initiatives that encourage sustainability in the supply chain. There is, however, a lack of effective training resources to enable companies to implement and improve on sustainability via meaningful programs that integrate with business strategies.” However, it would appear that even the most skilled professionals would battle to achieve their goals in the absence of collaboration.
It is encouraging to picture a future where broad, inclusive and responsive relationships across stakeholder groups in the supply chain are leveraged for collective benefit.. At the heart of these relationships will be an appreciation of social and environmental impacts, but this will not be the focus. The business landscape will change because of a much greater force which is based in the fundamental notion that most businesses must evolve to avoid risk and to compete