With the Sustainable Supply Chain Summit having taken place last week, it seems particularly apt to turn our attention back to the matter this week. In Part I, we looked at how organisations will often shy away from assuming ownership over the activities of their suppliers and why that might be understandable. We also looked at the existence of a strong business case for your organisation to engage with its supply chain as a means of minimising business risks and external impacts and generating savings and value.
In this entry, we hope to offer aspiring organisations a few pointers on achieving a sustainable supply chain. We’ll be providing you with the basic ingredients to add to your organisation’s sustainability mix, if they aren’t there already. Note: not to be taken with a pinch of salt.
It’s a group effort
A webinar on sustainable supply chains hosted by the 2 degrees network with a discussion led by representatives from the likes of Sedex, the Carbon Disclosure Project, SAP and other big players in the field highlighted the importance of collaboration. The supply chain needs to be seen as more than just a series of transactions – it’s a “collaborative value web”. Thus, it is not merely about vertical engagement with suppliers, but also about horizontal data-sharing. Effective supply chain management requires suppliers, purchasers, and competitors to become equal partners and be jointly involved in setting standards, as well as identifying and mitigating risks, for a given industry. Communication makes the seemingly insurmountable challenges involved that bit more practicable.
Data is multi-faceted
Accurate, real-time data is essential for effective decision-making, troubleshooting and determining impact. And it’s essential if an organisation is going to scale up supply chain engagement. There is no denying that adequate technology and speed help data be less dubious. There are endless applications on the market to help provide sustainable sourcing solutions, assist with resource management, or ensure safer management of hazardous materials, to name a few examples. Finally, participating in web-hosted platforms and networks facilitates the aforementioned collaboration and information exchange prerequisite.
But there is more to data than that. The act of data sharing is hugely important because it builds trust in a strategic relationship and cements commitment to a common objective. The flow of information is two-way. From climate change to fraud, disclosure, transparency, and, on the other hand, confidentiality are core. Producers not only need to know their information is secure but feel that they are part of an enabling environment where they can access information on how their performance is ranked and know exactly what they need to do in order to achieve a more sustainable business. The existence of trust and mutual benefit will help make data more credible.
Finally, to ensure greater comparability, performance indicators need to be established and communicated. There need to be clear rules on data collecting and sharing. Language is one significant barrier for supply chains which span several countries, for example, and systems which engage or capture metrics must be globally accessible.
Categorisation is key
Before even thinking about the process of information gathering and sharing, there is the question of which suppliers to engage with. How does an organisation prioritise which suppliers to interact with more profoundly on any issues, let alone non-financial performance? One factor to consider is spend: focus on those suppliers on which a more significant percentage of the budget goes. Organisations must also give those suppliers who they procure from on an on-going basis more special attention.
However, spend analytics are only part of the equation and perhaps an oversimplification. According to Lutz Peichert from Forrester Research Inc., effective management of suppliers requires their arrangement into a hierarchy. Those suppliers where IP sharing exists are placed at the top of the pyramid, followed by those suppliers who are not easily replaced and, finally, those suppliers who are easily replaced and therefore less “indispensable”, so to speak. Evidently where IP sharing exists there ought to be a full-fledged engagement. In terms of the bottom tiers, Peichert suggests that a further in-category management is required. Even within each of those categories there may be suppliers that are either preferred or more strategically important to the core of the business.
Identifying suppliers for more in-depth engagement at each level can then be further informed with the assistance of spend analytics.
Systematic risk assessment
An effective procurement policy mitigates risks. This includes those peskier to deal with, involving an environmental or social dimension. The past couple of weeks CLT envirolaw has been busy with a client developing a tool incorporating a systematic risk assessment process of non-financial factors into purchasing decisions. It’s not just about solid contractual precautions, but also about assuming responsibility, asking suppliers the right questions, and adopting a consistent and fully accountable thought process.
Chef’s Tip: if your batter remains too thin then add an extra heaped tablespoon of Leadership and you can’t go wrong.
Something for the future:
We hope to supplement this entry in the near future with the challenges raised and addressed during the Sustainable Supply Chains Summit and will be returning to the topic by looking at specific issues over the coming months. In particular, keep reading for an upcoming Focus: Africa series which will look at conflict minerals and unethical cotton production.
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