Supply Chain Sustainability is in the spotlight, thanks to the influence of social media. Companies realise that they must lead the way in this area.
The supply chain function has evolved significantly over the past decade, becoming a key strategic pillar of business. Going beyond its core role of delivering goods on time, in full, it has a vital role to play in customer experience and brand perception.
Supply chain now has a seat in the boardroom in many organisations. Barely a week goes by without a supply chain issue – be it supplier failure or reputational risk – hitting the headlines and the share price.
The proliferation and influence of social media has put supply chain sustainability and risk firmly in the spotlight. Companies are publicly held to account for the actions of all tiers of their supply chain. This is why companies must lead the way on sustainability issues.
Supply Chain Sustainability
The sustainability discussion evolved from companies purely focusing on taking from society and wanting to give back, to realising there are risks to reputation from non-compliance.
Sustainability issues are often supply chain issues. For example, the introduction of the Modern Slavery Act aims to ensure that slavery and human trafficking is not taking place in businesses or supply chains.
Today, however, organisations are now seeing supply chain sustainability as a strategic opportunity that can increase competitive advantage.
Two main streams have emerged:
- The risk dimension: what do companies have to do to avoid risk of brand damage?
- The aspiration dimension: what is the strategy for the long-term survival of the business?
Creating a Positive Impact
Supply chain sustainability is increasingly seen among senior executives as essential to delivering long-term profitability. A sustainable supply chain captures value creation opportunities and offers significant competitive advantages for early adopters and process innovators.
At the same time, supply chain is one of the key components for organisations to create a positive impact in the world, with an estimated 80 per cent of global trade passing through supply chains. Many large corporations, such as Nestlé and Nike, want to do good business and do the right thing.
A recent study on the global supply chain community saw three current trends emerging on supply chain sustainability in 2015/2016:
- Industry collaboration is the biggest opportunity
- Eliminating supply chain risks is the main driver
- Traceability and environmental concerns are the biggest risks to watch out for
Starting with ethical and responsible sourcing, supply chain professionals have begun to understand the importance of building long term relationships with suppliers. Having a win-win partnership is crucial. Companies who are a valuable customer to their vendors will have a considerable competitive advantage.
Organisations are demanding more from their suppliers. Traceability and transparency are key requirements. Companies sharing their big picture vision with their suppliers, and their role in the long-term strategy, will get more from their partners. Too many businesses are still failing to achieve this. Partnering with suppliers empowers them to unlock innovation quickly.
Working on more collaborative partnerships helps to minimise the risk factors too. Companies are liable for all tiers of their supply chains. Increased collaboration with others is vital to be able to efficiently assess all layers of the supply base.
Organisations can never be too informed if they want to prevent risk. They also need to demonstrate they have acted responsibly when risks are exposed. Companies must start with themselves, and build open and transparent relationships with their suppliers.
Codes of Conduct and Audits
Some pharmaceutical organisations, like Takeda, have recently established a supplier code of conduct in line with their international business ethics. They proactively audit and monitor their vendors to review performance in line with this code. It helps Takeda to have a much stronger supplier selection process, as they are able to build stronger relationships and reduce risk exposure.
Collaboration with other industry leaders can be very valuable in sharing information when it comes to supplier audits. Takeda recently joined the Pharma Supply Chain Initiative, composed of 20 companies. It has a supplier audit program and engages with the suppliers on behalf the member companies to make sure they comply. It also raises awareness from an environmental and ethical point of view.
Collaborative Platforms and NGOs
However, collaboration between businesses from the same industry is not widespread. Many companies fear a loss of commercial control and competitive advantage by working closely with others. As a result, there is an emergence of collaborative platforms. One of these is EcoVadis, which works with many global brands to provide supplier sustainability ratings for global supply chains.
Collaboration can also take the form of partnering with NGOs. They can help and guide organisations on environmental or ethical issues. Greenpeace is one such organisation. In the past they have worked with Kimberly-Clark to practice responsible forestry management, as well as Unilever and others on palm-oil sourcing. In building those partnerships, the willingness to talk is key, particularly when there is a history of conflict.
Supply Chain Sustainability can also be a source of competitive advantage for organisations. Stay tuned for the second part of this article to find out more.