The COVID-19 pandemic demonstrated the imperative for businesses to look beyond simple profit considerations when developing their supply chain management plans, to consider supply chain sustainability factors as well.
Narrow procurement goals of cost, quality, and technology left many chief supply chain officers (CSCOs) ill-prepared for the fractured global supply chains and costly disruptions triggered by the international health crisis. Now procurement officers are shifting their focus from relying on a frail and opaque supply chain to constructing a resilient and transparent value chain.
Building a value chain — essentially, creating a plan for supply chain sustainability — entails assessing vendor risks. These risks can encompass many issues, from human rights and environmental violations to poor cyber hygiene and non-compliance.
To implement that idea of a value chain, CSCOs must be able to monitor how vendors mitigate those risks; that provides the intelligence you need to diversify your vendor base as necessary. Then CSCOs can build a truly sustainable supply chain, insulating your business from future pandemics, geopolitical unrest, natural disasters, and other unexpected and chaotic events.
Avoiding supply chain disruptions, however, is just one benefit of constructing a sustainable supply chain. Read on for additional advantages and best practices to develop and optimize your supply chain sustainability strategy.
Why Is Supply Chain Sustainability Important?
Supply chain sustainability is supply chain risk management. Just as organizations create governance, risk, and compliance (GRC) plans, so too should their CSCOs consider environmental, social, and governance (ESG) criteria.
ESG considerations include measuring your organization’s carbon footprint and the environmental impact of domestic operations and global supply chains. Organizations should institute success metrics for their corporate social responsibility programs and those of their suppliers. Supply chain sustainability initiatives should be continuously driven and evaluated until sustainability goals are achieved.
ESG planning is crucial to business growth. Investors are increasingly evaluating organizations based on ESG factors. Retailers are ever more concerned with their carbon footprint, creating sustainable practices and investing in renewable energy sources to improve cost savings over the long run.
Four Benefits of Building a Sustainable Supply Chain
Prevent Expensive Supply Chain Disruptions
Pandemic-related shutdowns may be over for now, but that doesn’t mean your organization’s supply chain management team can stop worrying about disruptions.
ESG transparency issues, cyber breaches, and financial risks continue to jeopardize procurement operations and business revenue year-round. Bloomberg reports that the cost of such disruptions to enterprises average $184 million every year.
Moreover, organizations are typically least prepared for the most foreseeable threat: software supply chain attacks. The SolarWinds attack is a lesson in the importance of vendor risk management.
Assure Supply Chain Sustainability and Business Growth
Implementing a program of sustainability practices and evaluating it according to global supply chain sustainability metrics can safeguard the operational viability of your organization. These efforts will also secure continued investment from ESG-minded stakeholders.
Establish Your Reputation for Corporate Social Responsibility
High carbon emissions, human rights violations, civil unrest — such issues can arise when your enterprise’s supply chain management program lacks sustainability goals and metrics, and can tarnish your reputation on the global stage. Constructing a sustainable supply chain is the cornerstone of corporate social responsibility.
Stay Compliant With Government Regulations
Your own organization might be able to comply with ever-changing government regulations, but what about the vendors in your supply chain? Active third-party vendor management can help prevent noncompliance issues among your suppliers by assessing and monitoring their compliance programs — or lack thereof — and requesting improvements.
How Can Supply Chains Be Sustainable?
“Companies don’t become green or committed to sustainability as a consequence of pressure from the outside or because of a new CEO who decides to put sustainability on an annual report. Organizations need to embed sustainability into their DNA.” — Chief Supply Chain Officer, Consumer Goods Industry
How can CSCOs make supply chain sustainability integral to their organizations’ operations? Let’s consider several steps.
- Assess Barriers to Supply Chain Sustainability
If sustainability initiatives are currently absent from your company’s supply chain and sourcing program, you’re not alone:
30 percent of CSCOs say they have no or low-maturity supply chain sustainability practices, according to research firm Gartner.
Source: Gartner – Supply Chain Sustainability Management & Strategy
What are the obstacles to building a sustainable supply chain within your enterprise?
- Conflicting priorities across sourcing and procurement departments and stakeholders.
- Limited resources for implementing, measuring, and reiterating a supply chain sustainability program to see continuous improvement.
- A lack of understanding about supply chain versus value chain and supply chain sustainability.
- All are common barriers to adoption. Start by educating key stakeholders (senior executives, middle managers, team leaders in operating units of the business, and even investors) on the importance of supply chain sustainability, so you can get buy-in to create a program to minimize risk across the company’s supply chain.
Next, evaluate the risks that might undermine your organization’s sustainability performance. Analyze issues across your entire supply chain: carbon emissions and climate change; pollution and practices that harm the environment; human rights violations; third-party vendor cybersecurity and compliance hygiene; and so on.
- Create a Strategy for Supply Chain Sustainability
After you develop a comprehensive understanding of the risks within your organization’s supply chain, you can create a strategy for supply chain sustainability with long-term sustainability goals.
Your plan for building a sustainable supply chain may include setting and monitoring ESG metrics for your suppliers and their suppliers. This initiative effectively cascades your program down through your supply chain.
Automation can help. For example, GRC software can track compliance programs across suppliers with questionnaires. Your database is updated continuously, and the compliance staff is alerted of violations immediately.
Still not sure where to start? Check the supply chain sustainability guides and scorecards of the United Nations Global Compact, the world’s largest corporate sustainability initiative.
If you want to reduce your carbon footprint, consider joining the Caring for Climate initiative. It offers a framework for fighting climate change informed by the World Resources Institute (WRI), the Carbon Disclosure Project (CDP), the World Wildlife Fund (WWF), Ceres, and The Climate Group.
- Support Vendor Supply Chain Sustainability Practices
Collaboration is key to sustainability performance. Consider how your decisions affect the entire supply-chain ecosystem. Keep sourcing and procurement processes congruent with your sustainability initiatives. For example, consider the effect of increasing order quantities or decreasing production timelines on a vendor’s supply chain sustainability plan.
Support the sustainability goals of suppliers through education, training, and incentives to assure they have the knowledge and resources to adhere to your supply chain sustainability requirements. Supplier sustainability awards, long-term contracts, and preferred vendor status are just some examples of incentives you might offer to encourage compliance.
The goal is to set up lower-tier suppliers — which often lack the knowledge and resources for such programs — for success with their sustainability efforts.
Best Practices for Sustainable Supply Chain Management
In today’s global economy, sustainable supply chain management is not just a moral imperative but a business necessity. Companies are increasingly held accountable for their environmental and social impact, stretching across their entire supply chain. To foster a sustainable supply chain, businesses must adopt certain best practices:
- Supplier Selection and Engagement: Choose suppliers who demonstrate commitment to sustainability through their practices. Engage with them regularly to ensure ongoing compliance and improvement.
- Transparency and Traceability: Implement systems to track the origin of materials and products. Transparency helps identify areas for improvement and builds trust with consumers and stakeholders.
- Environmental Impact Assessment: Regularly assess the environmental impact of supply chain operations, including carbon footprint, water usage, and waste management.
- Collaboration for Innovation: Work collaboratively with suppliers, NGOs, and industry partners to innovate and find sustainable solutions to shared challenges.
- Employee and Community Involvement: Encourage employee participation in sustainability initiatives and invest in the communities where the supply chain operates.
Adopting these practices not only contributes to a healthier planet and society but also enhances brand reputation, customer loyalty, and, ultimately, the bottom line.
5 Pillars of Sustainability in a Supply Chain
Sustainability in supply chain management rests on several key pillars that, when collectively addressed, can lead to a more ethical, environmentally friendly, and socially responsible business. Here are the crucial pillars:
- Environmental Responsibility: Minimizing environmental damage and resource depletion at every stage of the supply chain, from sourcing raw materials to product delivery.
- Social Equity: Ensuring fair labor practices, human rights, and community development throughout the supply chain. This includes everything from fair wages to safe working conditions.
- Economic Viability: Operating in a manner that is not only environmentally and socially responsible but also economically feasible, ensuring long-term business sustainability.
- Ethical Business Practices: Conducting business with integrity, transparency, and respect for all stakeholders, including suppliers, customers, employees, and communities.
- Innovation and Adaptation: Continually seeking and implementing innovative solutions for sustainable products, processes, and technologies.
By focusing on these pillars, organizations can create a supply chain that not only meets today’s needs but also ensures the well-being of future generations.
How to Build a Sustainable Supply Chain for Your Organization
Building a sustainable supply chain is a strategic process that involves a commitment to change and continuous improvement. Here’s how you can start this journey:
- Set Clear Objectives: Define what sustainability means for your organization. Set clear, measurable goals related to environmental, social, and economic aspects.
- Understand Your Supply Chain: Map out your entire supply chain to identify key areas of impact, risks, and opportunities for sustainability improvements.
- Engage Suppliers: Communicate your sustainability goals to your suppliers and work with them to meet these objectives. Consider implementing a supplier code of conduct that outlines your expectations.
- Implement Standards and Certifications: Adopt recognized sustainability standards and certifications relevant to your industry to guide your practices and provide external validation of your efforts.
- Invest in Technology and Innovation: Utilize technology for better transparency and efficiency. Innovate to find more sustainable materials, processes, and products.
- Monitor, Report, and Improve: Regularly monitor your supply chain for sustainability performance. Report these findings to stakeholders and use the insights gained to drive continuous improvement.
Building a sustainable supply chain is an ongoing journey of improvement and adaptation. It requires a willingness to invest time and resources, but the benefits of a more resilient, ethical, and sustainable supply chain are immense, ranging from reduced costs and risks to enhanced reputation and customer loyalty.
Manage Your Vendors Easily With ZenGRC
“Sustainability is not a function of making sure that nothing bad will ever happen (that’s not a realistic goal); rather, it’s a function of designing and implementing processes for understanding, anticipating, and managing risk when it materializes.” — Olivier Jan, Partner, Deloitte France Sustainability Services
Deloitte’s Extended Enterprise Risk Management Survey 2020 found that the cost of third-party vendor risks and failures has doubled over the past five years. This statistic reinforces that third-party vendor risk management is a crucial element of any plan for supply chain sustainability.
Designing and implementing your sustainable supply chain strategy can be easier with automation. With ZenGRC, your compliance department can monitor and manage risk across third-party vendors from one integrated platform, addressing issues before they become costly failures.
Schedule a demo today to see how ZenGRC can streamline your third-party vendor risk management program.