Last Friday was Earth Day, a natural time to reflect on the enormous impact that corporate supply chains have on people and the planet. As Gartner analysts, we increasingly hear from companies’ about their efforts to increase transparency and performance in running socially responsible supply chains.
A very high profile example of this was Unilever’s recent announcement that it sends zero waste to landfill from its global manufacturing facilities and is well on its way to being an overall zero waste to landfill company. Earlier this year, chipmaker Intel, announced that its entire supply chain will be certified as conflict-free to ensure that profits from metals sourced for its chips are not funding human rights atrocities in the Democratic Republic of the Congo (DRC). These are just two of many milestones accomplished by those committed to doing good, while doing well.
The companies we see as further along in developing mature corporate social responsibility (CSR) practices have moved beyond mere regulatory compliance and have figured out how link these efforts back to support for their underlying corporate strategies, whether that is part of a brand promise attracting more customers or identifying and mitigating environmental, social and governance risks that could cost their company dearly (see: Volkswagen).
As lead author of Gartner’s annual global Supply Chain Top 25 report, I’ve had the pleasure of hearing these types of transformation stories and the rising chorus of supply chain people asking for them to be reflected in our ranking methodology. We’re about a month away from revealing the 12th annual Supply Chain Top 25 at our Supply Chain Executive Conference in Phoenix and I’m thrilled to announce the introduction of a new CSR component as part of our broader 2016 scoring methodology.
This new measure leverages trusted third-party data to assess the commitment to and proficiency in running socially and environmentally responsible supply chains, for each of the roughly 300 companies in our annual study. More specifically, the new CSR component will represent 10% of each company’s total Supply Chain Top 25 score, which is the basis for the ranking. We are reducing the weighting for two of the financial components in the existing methodology by 5% each to make room for this new business metric: ROA will move from 25% to 20% of total and Inventory Turns will go from 15% to 10%. Revenue growth and the peer and analyst opinion components will remain constant at 10%, 25% and 25%, respectively.
The scoring of the CSR component will be based on the relative commitment, transparency and performance of each company toward running an ethical and sustainable supply chain. Points will be assigned based on whether a company is a signatory of the UN Global Compact, if they produce annual, publicly-available sustainability reports using widely accepted standards (GRI and Integrated Reporting) and if certain expert third parties (CDP and DJSI) recognize their exceptional performance in this space. For those with access to Gartner research, there is a more detailed description of this methodology change in a research note that I co-authored with my colleague, Pam Fitzpatrick.
At Gartner, we absolutely recognize that running an ethical and sustainable supply chain is a key aspect of leadership and we’re excited to add this new quantitative CSR measure to our existing request that all opinion poll voters consider CSR when ranking companies in their individual votes.
As always, when it comes to the Supply Chain Top 25 methodology, we value and seek your input as we refine our new CSR metric for future years. You can contact me at stan.aronow@gartner.com with any feedback or questions, you might have.
