Now more than ever, consumers and investors alike are evaluating how companies behave on environmental, social and governance (ESG) issues, making it increasingly important to build and communicate a sustainable business strategy into an organization’s Corporate Social Responsibility (CSR) program.
This visibility represents both an opportunity for those who perform well in sustainability and a risk for those whose social or environmental malpractices could be exposed; consequences can quickly impact revenue and/or stock price.
While some organizations have become more vocal in their intentions to be more sustainable, many are still not equipped to deliver a sustainability program, and it can become an overwhelming task with no clear roadmap. We propose a 5-step approach to get started and maximize the impact in your supply chain.
The 5 steps to improve supply chain sustainability performance
1. Determine your sustainability strategy
- Your sustainability strategy needs to be in line with your organization’s objectives. To develop and prioritize them, consider your customer base, your investors and your corporate and brand strategies. This will maximize the impact of your strategy as you ensure it is properly tailored to your key stakeholders.
- Top organizations set clear, achievable and measurable objectives. Commit to objectives you can fulfil, and track and develop the roles, processes and tools to do so.
2. Involve your procurement function from the strategy development stage
- Because your sustainability performance depends on ‘the part of the iceberg that is not directly visible’ – your supply chain – it is key to involve your procurement function from the start. It has a unique position to inform your sustainability strategy and will be essential to develop a tangible roadmap and realistic objectives.
- Involving your procurement function in setting the strategy will also maximize the effectiveness of its delivery. Not only will its involvement be critical in setting a strategy that has a pragmatic execution plan, but the function’s goals can then more easily align to it. Motivation in delivery will also be greater from having been involved in developing a plan that procurement was actively consulted on, as opposed to delivering on someone else’s plan.
3. Equip your procurement team with the knowledge and tools to deliver on your sustainability strategy
- Ensure that your procurement team is trained to drive sustainability from and into the supply chain. Your team must be trained to use their procurement skills, such as sourcing, supplier collaboration, category management, to drive sustainability as well as cost reduction. Organizations that will best perform in the long run are those that focus on both cost and value-added objectives.
- Increasing the knowledge of the full supply chain is critical to the sustainability agenda. Empower your procurement team to build an in-depth understanding of its extended supply chain such that you ‘know your suppliers and their suppliers.’
- Provide your team with the right set of tools: clarity on KPIs measured to deliver sustainability goals, the right datasets, scorecards, templates and emissions calculators. The tools do not need to be sophisticated, but they do need to be comprehensive.
4. Segment your suppliers
- Segment your suppliers in line with their potential impact on your sustainability performance:
- Top suppliers: Develop joint success stories with the strategic suppliers that have the most direct impact on your operations and/or with whom you spend the most. Ensure that these case studies will be measurable and memorable to your customer base. Effective collaboration frequently yields significant positive impact.
- Other suppliers: Ensure that they comply to your sustainability standards by qualifying them in line with the ones you have set. Social or environmental malpractices from any of your suppliers can have a significant effect on your reputation. Many prominent organizations have suffered damaging consequences by being unaware of modern slavery presence in their supply chain. That could have been avoided by asking the right questions. You need to mitigate these types of risks and rapidly flag any opacity in the supply chain. For example, if a supplier procures goods from higher risk geographies but has limited transparency on how these goods are produced, it is important to flag and mitigate this risk and increase the visibility on how those goods are produced. By enabling transparency, you can readily correct malpractices in your supply chain.
5. Measure and communicate your results
- Use Supplier Relationship Management (SRM) tools to identify risks and monitor cost, quality and sustainability performance against the contract. These tools should be used to foster a positive, collaborative relationship with your suppliers.
- Once you implement your strategy, don’t lose track of its performance and regularly track the KPIs set to measure it.
- Work closely with your communication and investor relations teams to ensure the positive results of your strategy are effectively communicated and you reap the benefits from a well-executed sustainability strategy with measurable results.
- Joint communication campaigns with strategic suppliers can give these success stories even more impact and capture a broader audience.
Sustainability objectives agreed in the Boardroom are largely delivered through the organization’s operations, so an emphasis on the supply chain is essential to deliver on those in a holistic manner. If your procurement function is not effectively involved, sustainability outcomes will be limited and only address the ‘tip of the iceberg.’ Get the most impact on your sustainability performance by effectively using these five important procurement steps to influence and evolve your organization’s supply chain.