By definition, a supply chain is a sequence of processes by which products are created and distributed; however, many supply chain leaders focus so much on the product or service that they forget they are in the people business as well. This is evidenced when they approach environmental, social and governance (ESG) investments, and often overlook the social aspect of ESG, which can significantly impact their operations and profitability.
Each facet of the social piece of ESG ties back to people — employee satisfaction, equity and community. In my experience working with clients in the supply chain business, workforce dissatisfaction often comes as a surprise and escalates quickly. A key reason for the surprise is a failure to gather data directly from employees before making investments or taking other actions. A recent example from working with a client was assuming compensation or benefits changes were needed without considering readily available employee data like exit interviews. Making these decisions without supporting data erodes profitability and produces minimal positive impact on recruitment and retention. In short, investing in humanity, community and data is essential when addressing your company's ESG protocols to drive long-term success in the supply chain industry.
Investing in humanity simply means ensuring your processes are people-centered. While the last several years have brought increased freight costs, material shortages and elevated prices of goods, employees and their associated costs are often the most significant expense and investment for companies.
The foremost issue is that many companies struggle to attract and retain the right workforce for their business. When companies experience this issue, they are often tempted to ask the wrong questions, thus obtaining the wrong answers. For example, I worked with a client experiencing a high turnover level, much higher than the industry average, and their initial solution was increased compensation. The senior leaders assumed that more compensation would lead to higher retention. Management granted bonuses after incremental employment of one, three and six months; however, this adjustment didn't solve their problem, only increased operating costs and reduced profitability.
After this setback, company leaders surveyed employees and found that most employees prioritized schedule flexibility and work-life balance. Instead of assuming the issue was financial, the company could have offered naturalization services, family services, flexible work schedules and extended sick leave; the survey data showed that employees would have been happy (and retained) with those options.
Another emerging practice among successful organizations is elevating your company's reputation within the communities where you source your workforce. While this may seem intuitive, few organizations seize this opportunity.
You can elevate recruitment and retention rates by connecting supply chain executives with their prospective workforce's community leaders, such as a city council or advocacy group. Nurturing relationships with these leaders opens the door to discussing how the company affects the community, what your company can do to assist local neighborhoods, how they perceive your company and what they say about your company publicly.
The reason that this outreach makes an impact is that it addresses real needs, not perceived ones. Financial donations are helpful; however, connecting with local decision-makers, and exploring each demographic's priorities shows the community you are interested in an authentic and mutually beneficial relationship.
A key connection between community, humanity and effective change is data. One of the greatest mistakes I have witnessed as companies attempt to implement ESG solutions is the failure to utilize data.
Simply employing a trial-and-error mindset — "If we try X, we might be successful!" — is not the most effective way to approach an ESG issue. Supply chain leaders prioritize streamlined processes and innovation; they should use this approach to improve their social integrations and solutions.
When deciding which social investments to make, companies need to utilize the same disciplines applied to business decisions. What challenge am I trying to solve for my client, have I gathered the voice of the customer, what available data supports my theory, what other data needs to be collected and how will we measure the results of the change? Once these pertinent questions have been answered, leaders can pursue a solution. A recent example is a client who was dissatisfied with the diversity of their college hire candidate pool and re-evaluated their recruiting sources. They discovered that most of the primary sources were the alma mater of the executive team. They reached out to the placement offices of several HBCUs (Historically Black Colleges and Universities) and established relationships that have improved the quality and diversity of their candidates, and established new relationships with faculty that teach subjects related to their industry.
When a mis-alignment is identified between employee and community needs and executive assumptions, an outside perspective can be immensely beneficial. Consulting firms with transformation process expertise examine these situations and provide insight from a broad range of previous cases and adjacent industries. Transformation process experts are knowledgeable about the success rates of a variety of strategies and the current state of many industries and the struggles they face.
When working with an outside expert to improve your ESG results, consider the human impact of your decisions on your workforce. Implementing thoughtful social investments will benefit your employees and bolster your company's future by allowing you to retain talent and establish your company as an integral part of the community. It puts the company’s “money where its mouth is.”
ESG is a complex topic that can feel like an overwhelming challenge to leaders. However, by measuring the actual needs of the enterprise and its workforce, and then implementing the proper changes to address those needs, companies will experience improved profitability, turnaround time and customer satisfaction in the supply chain industry — while fostering a little more focus on the humanity in all of us.
Kevin Cowherd is a senior managing director at Ankura's Strategy and Performance practice.
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