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 noncompliance.
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 for developing 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. In fact, investors are increasingly evaluating organizations based on ESG factors.
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.
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.
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.