Historically, supply chain management used to be about getting the right product to the right customer at the right time. However, today it's all about delivering on that promise with the right information. This includes data about where a product's materials come from, how it's made and how it's delivered. By sharing this information, retailers enable customers to recognize which products are more environmentally friendly or socially conscious.
The companies with the most transparent supply chains tend to win in this highly competitive market, driving a sustainable shift in how supply chains are managed. This emerging trend makes it increasingly challenging for companies to manage issues individually, thus driving the industry towards collaboration.
Today, retailers, nonprofits and government agencies alike realize the challenges inherent in integrating sustainability into company operations and supply chains, so they are starting to work in partnership with each other to make positive changes that can benefit all groups involved.
The idea of collaborating may be perceived by many corporate executives as a massive challenge. At the same time, pressure from customers continues to be a major driver for the industry, especially as consumers are able to access more product information through the internet and social media. With this 24/7 access, scrutiny can grow, as well as the possibility of negative publicity. As a result, it is critical for companies' to truly understand their supply chain, and work towards collaboration.
The "comply or you die" ethic is still an overarching issue and very common in what many brands or retailers will refer to as supply chain sustainability. This refers to the common consequence of corporate buyers terminating trading relationships when certain standards or corrective action plans are not fulfilled.
Successful sustainable supply chains are generally collaborative ones, wherein both parties in a trading relationship work towards shared values and collaborative solutions. For example, a number of British clothing retailers have been utilizing this approach, moving away from traditional ethical audit programs to employing dedicated teams that permanently develop and manage supplier outreach and collaboration programs.
More and more organizations are embarking on collaborative sustainability initiatives to reduce the carbon footprint and energy consumption of their supply chain infrastructure. And, suppliers that are able to easily respond to their customers' need for this information are becoming suppliers of choice.
Take Environmental, Social Sustainability in Equal Measure
It is important to define and consider what supply chain sustainability means. Companies should recognize that this is about managing their impact on both the natural and social environment in which they operate.
Indexes and reporting frameworks that are dedicated to supply chain sustainability are continuously being developed and, increasingly, combine both social and environmental issues within integrated frameworks.
Specific, niche reporting and management frameworks, such as the Carbon Disclosure Project (CDP), an independent non-profit organization that provides a transformative global system for organizations to measure, disclose, manage and share climate change information, and the Ethical Trading Initiative, continue to provide the necessary depth to reporting and auditing. Nevertheless, these issues were traditionally dealt with as separate business functions; increasingly, these are managed as integrated processes.
Why Supply Chain Sustainability Is So Important
In recent years, there have been several significant trends occurring globally that, when combined, are fundamentally impacting supply chain risks: the rapid changes and redistribution of labor rates throughout Asia-Pacific; substantial, global environmental concerns; the lack of supply availability; and, the increasing momentum of green, ethical consumerism.
The need for businesses to work with their supply chains to mitigate these risks and combined effects (which are often greater in their supply chains than the businesses' direct activities), has become a principal issue.
The way retailers are engaging suppliers is also becoming more important. Historically, retailers did not consider themselves responsible for the actions of their supply chain partners. It was not until 1996, when human rights group, the National Labor Committee, reported that sweatshop labor was being used to make clothes for the Kathie Lee line (sold at Walmart), the debate about responsibility into the supply chain appeared in the global spotlight.
With today's customers, shareholders and other stakeholders now demanding carbon-reporting transparency, businesses need to actively examine the green credentials of their existing and potential suppliers. Consumers want to know a company is doing the right thing, and companies want to know their suppliers are doing the right thing.
Customers increasingly recognize the value of supply chain service and quality, and are less likely today to select products and services based only on price. For example, companies like Procter & Gamble and Apple increasingly outperform others in supply chain excellence. It is now becoming standard that not only companies but rather, whole supply chains, are in competition.
Industry Collaboration Will Eventually Become The Standard
The industry is already starting to come together to address social and environmental issues, such as human rights and managing product lifecycle impacts.
Working with nonprofits and government entities to improve labor conditions in supplier companies, especially in developing countries, has been an industry priority for many years. For example, individual companies have teamed up with nonprofits and government organizations, and programs for the prevention of human trafficking to assess supply chain issues and develop ways to address social and environmental challenges.
Collaborative groups now bring the business, government and nonprofit sectors together to share their expertise and resources. With this approach, both parties have the opportunity to develop and share supply chain goals, align common priorities and track progress. Partnership models between companies and nonprofit organizations will continue to evolve, as nonprofits increasingly seek to partner with businesses to develop on shared solutions.
Sustainable Supply Chain Management Is A Continuous Process
Whether executives are considering social or environmental issues, there are two reasons that the process of managing the impacts and working with suppliers should be a continuous one.
The first reason is due to the reality that many buyers will experience high rates of supplier turnover. For example, in the fashion and apparel industry, it is not uncommon for large retailers to experience 35-percent to 40-percent annual supplier turnover. The speed at which these new trading relationships form means there has to be an efficient, ongoing process for suppliers and retailers engaging with one another, sharing sustainability data and working towards shared goals.
The second reason is one of continuous improvement. Accepting that "continuous improvement" is sometimes an overused term, it is nevertheless an important one in this context, provided that the "improvement" aspects are also considered against minimum or a basic set of standards that are agreed between the buyer and the supplier from the start. Good, sustainable supply-chain management should not be confused with one-off supplier audits.
Sustainable Supply Chains Are Profitable Ones
Organizations focusing collaborative efforts in social and environmental sustainability show major competitive advantages, particularly with regard to operational efficiency. Because sustainability will often go hand-in-hand with resource efficiency, reduced costs, increased profitability and increased shareholder value, this will naturally occur as a by-product and lead to the following benefits:
"¢ Risks are generally better planned for and anticipated, such as supply risk and potential for increased production costs.
"¢ Innovative processes, product research and development emerge.
"¢ Improvements to working conditions and operational efficiency which will often, in turn, become a driver for higher quality and more reliable products and services.
How Technology Can Help With Sustainable Supply Chain Management
In order to have sustainable improvement in supply chain performance, a business must have the right balance of investments in people, processes and technology. Lack of investment, collaboration and focus in any one of these areas will reduce a company's ability to achieve fundamental, sustainable improvement.
As supply chain networks have become more complex, the need for greater and improved supply chain technology solutions is critical. These technologies have helped retailers and suppliers innovate, drive cost reductions, improve service and meet customer expectations better than ever before.
By utilizing the latest in lifecycle assessment services, network design, optimization and planning systems - which incorporate environmental footprint considerations - executives can integrate environmental practices within their supply chain, while at the same time provide consumers with a transparent view of their entire supply chain.
These solutions ensure that companies have very precise and granular data right at their fingertips on a product-by-product, process-by-process basis; from raw materials to the loading dock to the retailers' doors.
The sustainable supply chain landscape is quickly changing and organizations that do not hop on board, risk being left behind. Worse, executives may miss the opportunity to create long-lasting partnerships and new value for their business.
Corporate leaders who effectively position themselves to take advantage of collaborating with the wider aspects of their supply chain will uncover many untapped opportunities. As a result, they eventually learn how to strike the right balance as they optimize their supply chain operations, collaborate with suppliers, and eventually reduce their supply chain's environmental footprint.
Both at FirstCarbon Solutions, Chet Chaffee is Vice President, Life Cycle Assessment, and Ben Wilde is a director.
Source: FirstCarbon Solutions
Keywords: supply chain management, supply chain management IT, value chain, value chain IT, sourcing solutions, green supply chains, supply chain risk management, sustainable supply chains, Chet Chaffee, Ben Wilde, FirstCarbon Solutions, Supply Chain Management: Collaboration & Integration
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