Regulation is another key driver for closer control of supply chains. For example, the 2010 U.S. Dodd-Frank Act aims to address conflict minerals, while in Australia, health and safety legislation is increasingly placing obligations on company supply chains. Within the EU, timber and chemical regulations are in force and conflict minerals are being considered. Companies in every industry therefore need to step up their efforts to engage with their suppliers and increase supply chain sustainability. But with many organizations having hundreds or even thousands of suppliers, how can they manage this daunting task?
Managing supplier risk effectively will only become more important as consumer interest in provenance increases, regulatory pressure to disclose indirect emissions grows, and suppliers grapple with such challenges as more extreme weather, water scarcity and soil degradation. So, how can you increase visibility of suppliers beyond the first tier? Here are five top best practice tips.
Keep business aims front of mind
Any supplier sustainability strategy should be clearly aligned with business and sustainability aims. At a tactical level, plan exactly what you want to achieve by measuring supplier performance. This could range from ensuring suppliers are following your new code of conduct to working with a particular sub-set of suppliers to achieve specific environmental or social targets.
Take it step by step
Getting started can be daunting. This is particularly true for organizations with tens or hundreds of thousands of suppliers. Making the process manageable is all important. Decide on a first tranche of suppliers to engage with, based on how important they are to your business. Consider which suppliers are likely to pose the most risk and where you stand to make major gains by improving their performance.
What influence do you have over these suppliers and how much of their turnover do you represent? Also, is there anyone who requires urgent attention? Are they located in a country known for corruption or dubious labor standards, for example? This type of interrogation will help to determine the level of detail you require.
A transport company wanted to improve the sustainability of its supply chain and ensure that its suppliers were committed to respecting its code of conduct. By asking a series of structured questions aimed at understanding exactly how critical certain suppliers were to its business and how much power it had to influence these suppliers, it collected a more detailed picture of its supply chain. It then gave suppliers a risk score and branded them as low-, medium- or high-risk.
So, in this way, companies can build questionnaires to suit their needs (or simply use a standard questionnaire), identify “hotspots” and plan the next stages of how to tackle key issues.
Track and manage performance across key environmental and social indicators but also keep a sharp eye on suppliers’ plans for improvement. For example, ask suppliers about their environmental policies, through high-level questions about how they work and their strategies for sustainability. This allows you to really get to the heart of what your suppliers are doing to improve, the specific issues they’re tackling and what they’re doing on key topics such as health and safety and labor conditions.
Engage with suppliers
Once you have all the relevant supplier data in place, get going and be patient. There may be some inertia to start with, but with persistence you will make progress, as suppliers realize the business benefits of becoming more sustainable. Be clear about your expectations, encourage transparency and adopt a collaborative approach, running training or workshops, if appropriate, or recruiting an in-country representative to build relationships with suppliers on the ground.
Of course, suppliers further down the chain may be less willing to engage, particularly if your business is not integral to their own profitability, but with time and determination, you can build stronger relationships that benefit the whole supply chain.
The Rainforest Alliance is using technology to trace companies’ supply chains per product all the way back to how the raw materials were sourced and extracted. They also check performance against PEFC and FSC sourcing criteria. This has been instrumental in helping the organization to go well beyond monitoring first-tier suppliers and examine the performance of many more distant suppliers, while maintaining accuracy of data throughout. From there, the organization can set education programs in motion and work with suppliers to resolve the issues identified.
Promote best practice
It doesn’t all have to be doom and gloom – use positive examples of best practice to motivate suppliers and help educate them. A major food company, for example, invites its suppliers to submit robust case studies annually demonstrating tangible progress on sustainability. These best practice examples can then be used to educate its wider supply base.
With the ever increasing length and complexity of global supply chains building in sustainable practices can seem like an insurmountable challenge. However the risk of inaction to a business can be profound – reputations and balance sheets can be destroyed. By taking a step-by-step approach, and ensuring you engage with your suppliers along the way, you can start building sustainable best practices into your supply chain. The impact can be transformative – not only do you reduce the risk of a potential PR disaster or regulatory fines, but the increased visibility can bring its own benefits.