Focus: Monitoring Sustainability in your Supply Chain

With sustainability now top of mind for supply chain professionals, Craft’s intelligence platform provides insights into companies’ biggest risks and opportunities.

Global consumer demands, increasing regulation, and an advancing economic argument are driving sustainability to the forefront of companies’ social responsibility agenda. And a sustainable supply chain is a prime objective for companies fighting to reduce their negative environmental impact and secure fair labor practices. At Craft, we believe we can meet our own needs without compromising the ability of future generations to do the same, and we are committed to helping other companies achieve their environmental, social and governance (ESG) objectives using our supplier intelligence platform.

Why Is Sustainability Becoming Increasingly Important?

Increasing public awareness about the environmental and ethical impact of large corporations is spurring the global sustainability initiative. But the mission makes sense from a business perspective as well. It can create big efficiency gains, mitigate supply risk, and create new partnerships – all while bolstering reputation.

According to a McKinsey study, businesses that focus on ESG outperform their competitors. Reducing energy use and emissions while recycling renewable resources leads to significant efficiency gains and, consequently, higher margins. Such shifts can also significantly improve investor valuation relative to peers.

Practicing sustainability can also boost supply chain resiliency and mitigate the risks of disruption. Introducing redundancy measures, prioritizing safe working conditions and creating adaptable supply strategies reduces vulnerability to natural disasters and unforeseen threats to supply continuity.

Also consider the reputational side, both in the public eye and as an internal competitive advantage. Revelations of overseas employees working in hazardous conditions, child labor, or suppliers dumping toxic waste into rivers have blighted the public image of companies like Apple, Dell, Nike and Adidas in recent years. And from an internal perspective, companies with a strong sustainability mission attract a more motivated and skilled workforce.

Governments are increasingly collaborating on global initiatives like the Paris Accord and implementing regulations around sustainability, such as Europe’s SFDR and Germany’s incoming Supply Chain Act which mandates that organizations monitor both their immediate, contracted suppliers alongside their tier 2, 3 and beyond. Organizations that can hit these requirements will secure their strategic position in the market, though doing so might be tricky.

Why Is It So Challenging?

A key difficulty for companies is gathering data across so many different areas of concern. There are often too many balls to juggle and there is a requirement for buyers to receive information from their suppliers or expect that those in procurement teams spend hours researching for relevant and verified information. There are a number of challenges including:

• Unreliable and/or limited data about sustainability and impact. Which information can you trust and how do you reconcile datasets that do not match; these are challenges for anyone that collects information from the open internet and its key to be able to determine which information is correct and what should be disregarded.
• Supplier fatigue from filling out multiple profiles. Due diligence is a cumbersome reality for suppliers, who are expected to share the same information on multiple occasions. Sustainability is the newest topic that suppliers must declare alongside financials, credit and often much more. Those working in procurement and supply chain will agree the shorter the supplier survey, the better the response rates; better still would be a trust but verify approach where some of the data is pre-populated which requires the supplier to confirm.
• Multiple and varying ESG benchmarks. It can be difficult to stack organizations side by side to gauge their sustainability efforts due to contradicting information, a lack of standardized datasets and much is still open to interpretation. It is therefore important to build in mechanisms that provide context and ongoing alerts. Transparency related to both the non-compliance of ESG measures and active participation to promote sustainable practices are equally important.
• Cost and logistics. Realigning existing practices to be more sustainable is often a transformational effort for organizations for whom this has not been a priority previously,  however it is not simply a case of funding initiatives. Sustainability in the supply chain is a nascent and rapidly evolving discipline so proponents need to determine what is the right approach for their company, people, industry and geographical base.

So much of this boils down to data – its accuracy, validity, bias, and ease of use. Frequently, the data available to companies falls short in every measure. Greenwashing is a major issue, as is non-transparency and a failure to follow through on promises, especially in the lower tiers of the supply chain.

Sustainability Principles and Actions

The Ten Principles of the UN Global Compact provide an excellent roadmap for sustainability. Each deals with how a company can implement strategies, policies, procedures, and also establish a culture of integrity as we advance into 2021 and beyond.

The principles deal with human rights, specifically how to protect them and avoid their abuse; labor, or the abolition of slave and child workers; the environment, promoting eco-friendly initiatives green technology; and anti-corruption, specifically combating extortion and bribery.

Practicing the Principles in the Real World

Begin with your key or strategic suppliers and the current hot spots of risk to your supply chain. It’s all about data – specifically good data. That will tell you what’s really going on and how you’re really doing.

Gather information on human rights, labor, environmental, and corruption issues across your entire supply chain to create a holistic picture of sustainability. And it is critical to look beyond your first-tier suppliers and delve deep – the Harvard Business Review recently identified the majority of social and financial risks to multinational corporations came from lower levels of the supply chain. Primary suppliers can be encouraged to provide information at the onboarding phase. However who your contracted supplier is buying from is often a blind spot. Understanding sub-tier suppliers will help with complete supply chain visibility. Considering an increased need to provide visibility to Scope 3 greenhouse gas emissions, understanding sub-tier suppliers is essential to understand the effect of an entire supply chain on the environment.

Doing this internally can often be prohibitively expensive, and many companies lack the resources to effectively acquire the right kind of data. So, consider a supplier intelligence platform that specializes in procuring actionable data for meaningful change. Companies can then invest in training for their procurement officers, establish best practices, and set long-term sustainability goals.

The Big Picture

Environmental issues operate independently of labor issues, as do many of the complex variables on which sustainability depends. It’s important, then, to find solutions that can provide deep, robust, and validated data that encompasses a holistic view of your operations.

Only with a detailed and comprehensive map of your supply chain – one that updates regularly and intelligently – will you fully understand the environmental, economic and social risks you face. In today’s rapidly reactive world of volatility and disruption, that requires leveraging technology. More than ever, advanced analytics enabled by big data and machine learning will provide critical insights into supply chain optimization.

Supplier Relationships

Proactively engaging with suppliers can help companies implement sustainable practices across the entire supply chain. This can be as simple as setting goals for suppliers and monitoring their success; it can be incentivizing the change you want to see; and it can go as deep as partnering with them to do root cause analysis and then provide training, resources, and assistance in hitting those goals. Whatever you do, as you measure your progress, always have independent data to validate supplier claims.

Craft’s Commitment to Sustainability

As companies pursue sustainability initiatives to mitigate risk and achieve business goals, they must acquire better data and then use it more intelligently. Craft is your ally in this process. As the leading supplier intelligence platform, we help procurement professionals discover, evaluate, and monitor suppliers to create more efficient and resilient supply chains by providing comprehensive, validated supplier data and straightforward, proactive insights and alerts – all in one easy-to-use platform.

To learn more about how Craft can help you along your sustainability journey, contact us today.