Sustainability Strategies to Rethink and Rebuild the Supply Chain for Enduring Risk Mitigation
Procurement organizations know that sustainability initiatives have far-reaching impacts on risk-management, cost and innovation. This is why most procurement teams historically invest in supplier compliance according to environment, social and governance (ESG) and sustainability risk-related issues.
But in a year where entire health systems and economies were disrupted due to supply chain failures, procurement teams need to move beyond a compliance-only mindset – where they only tick off the boxes of regulatory compliance – and strategically rethink how to approach, value, build and optimize supply chains.
CEOs are awakening to this urgency, with the latest sign of action coming from WBCSD’s Vision 2050. Even President Biden signed an Executive Order on Supply Chain Resilience to assess vulnerabilities and strengthen the capacity to respond to international disasters and emergencies. These are clear indications that while risk identification will always be a key part of procurement strategy, driving improvements that will mitigate these risks over the long term – and help preemptively avert future risks – requires deeper engagement with suppliers.
A more holistic approach to sustainable procurement is needed: An approach that embraces a performance mindset and engages suppliers in a long-term sustainable journey that creates value. Let’s discuss how organizations can rethink and rebuild their supply chain risk management strategies to create a more sustainable business that is not only resilient in pandemics, but also within the looming climate crisis, and extends corporate values of diversity and antidiscrimination throughout the value chain.
Align the Strategy
Embracing a performance mindset starts with the executive team aligning the company strategy with its mission. This starts with leadership considering which goals will have the biggest impact on the company to achieve success – boosting ROI, amplifying customer relations, building investment opportunities, etc.
Once identified, leadership should clearly communicate across the company how those goals align with environment, labor and human rights, ethics, and sustainable sourcing and supply strategies. This sets a foundation for procurement and supply chain leaders to build and execute their strategies to support the mission. It also creates an environment where leadership is driving the transformation with initiatives led, and accountability shouldered, by top management.
Upgrade Tools to Benchmark and Engage Trading Partners
Many compliance programs use a narrow range of “pass/fail” criteria, but this is limited to avoiding risk. These systems cannot identify or incentivize trading partners to strive for great performance. Thus, trading partners aim for only the minimum required to comply.
Integrating new tools for measuring and monitoring trading partner sustainability performance is needed to truly assure compliance. It enables trading partners to seamlessly share their sustainability performance to engage teams in risk and performance goals. Not only does a “rich” scoring system push trading partners to adopt a performance mindset, it also gives teams a way to rank and benchmark the top performers they want to work with.
Push Ownership Upstream to Suppliers and Buyers
Companies should encourage their trading partners to take ownership of their own share of the goals and mission. They can do this by incentivizing trading partners to achieve the highest performance possible and reward those with the best performance through awards, recognition events and more.
The goal is to get trading partners to continuously make sustainability improvements. And for those that rank low, it’s up to the company to help their trading partner develop an action plan to improve its performance.
Integration in the Procurement Process
Driving results beyond compliance also requires connecting the dots from the trading partner’s performance ranking system to the procurement decisions and behavior. This includes setting targets and business rules linked to performance as well as technical integration by connecting software systems to drive internal adoption.
The connection of business decisions to sustainability performance drives behavior change and higher performance from both buyers and suppliers alike.
Collaborate to Drive Improvements and Innovation
Collaboration with firms and stakeholders is vital. This can be achieved by proactively designing out problems in the supply chain in both products and processes. For example, incorporating Lean principles aligned with sustainability best practices such as reducing resource use and waste, valuing the workforce and reducing downtime can become part of the continuous improvement program.
Companies can also go beyond performance targets and empower workers through education by making direct investments in their suppliers’ employee development. The result is a supplier base with a better-educated workforce who are prepared to use their own voice to ensure fair labor and human rights practices are present and implemented in trading partners.
Pressures around sustainability and transparency are growing. The supply chain is the largest risk but also the largest lever of opportunity for building a more sustainable and resilient business. Rethinking and rebuilding supply chain strategy around resilience and sustainable value creation enables organizations to respond faster to changing business conditions and seize opportunities so they can continue to thrive.
Want to learn how EcoVadis empowers sustainable procurement and climate change leaders with insights on supplier GHG/carbon management practices? Check out the upcoming SIG Solution Deep Dive Webinar: The EcoVadis Carbon Action Module. Everyone registered will receive the on-demand recording.