What is a sustainable supply chain strategy?
A supply chain is the network of which your business operates, including different activities, people, entities, information and resources, all in order to achieve the goals set out by your business. In essence, a sustainable supply chain ensures that all of those operations are developed in ways which are ethical and produce positive outcomes outside of just profits.
There is no ‘one size fits all’ sustainable supply chain strategy, as every business in every sector will have its own different needs, and the size and scale of your operation will also come with it’s own unique challenges. But, there are some core principles that will apply to every business along a value chain, especially as we move into a future where regulation is beginning to adapt to the needs of society at large.
The past year has been hit with major supply chain disruptions and changes, as well as exposing risks to businesses who lacked oversight when it came to examining their chains, for example;
- COVID-19 displayed the lack of diversity across supply chains of companies across Europe and North America when China closed their borders to stem the outbreak.
- Businesses falling short of their commitment to eliminate deforestation by sourcing unsustainable palm oil.
- Reevaluating suppliers based on reactions to the BLM movement, with the likes of PepsiCo committing to double its spending with black-owned suppliers.
Considering that your supply chain is essentially an extension of your own business, it makes sense that the core values of your business are also instilled across your extended business activities. SMEs without a sustainable supply chain strategy are put at constant risk until the work has not only been done to create one, but to also see it through to completion.
When and where to begin?
The sooner you can implement a successful supply chain strategy into your business, the sooner you can provide value to all your stakeholders.
It is vital that your supply chain provides not only financial value, but also considers environmental, social and governance factors, so that the planet and society is able to reap the benefits. This is also something that customers are becoming more keenly aware of, as we’ve seen with recent reports from the Harvard Business Review, with their financial support (or lack thereof) dictating the whims of business actions and pushing more transparent sustainable solutions.
Failure to implement a successful supply chain strategy is of particular concern to stakeholders according to BIAS (Government) materiality research. While the European Commission Action Plan on Financing Sustainable Growth mandates working with relevant stakeholders to assess the possible need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain, and measurable sustainability targets.
If your business sells consumer goods, one of the key areas of your supply chain strategy should be focusing on the environmental impact that your suppliers are creating. Comprehensive reporting on carbon emissions is already mandatory for large businesses through the SECR, with tracking of Scope 3 emissions being strongly encouraged
Scope 3 being the indirect emissions that occur in the value chain (waste disposal, transportation and distribution, employee commuting, etc) with them accounting for 90% of a businesses emissions in some cases.
Although there are currently no explicit restrictions on carbon emissions at this time, the sooner your business can publicly report emissions and ESG commitments, the better your reputation shall be with customers, employees, communities and your value chain.
Speaking of time, not only is it harder to make these changes as your business grows, you have the potential to lower costs through local suppliers, improve reputation with customers, employees and the community, and mitigate the risks of making the transition suddenly under new regulations.
So, let's look at the 5 steps for creating a sustainable supply chain strategy.
Step 1: Develop a Policy Statement
It’s important to have a plan for your supply chain strategy, and this is why you need to develop a cohesive and transparent statement that aligns with your business goals and values, while highlighting what your objectives are and how you will report on them.
For example, at Profit Impact we believe strongly in the protection of the planet and so we have given ourselves the ambitious goal of going carbon neutral across all business activities including our supply chain.
In order to achieve this, we are also committed to 80% of our spending being within the UK, not only reducing our environmental impact through long distance transportation, but it also allows us to closely monitor our suppliers and their own sustainability strategy.
Step 2: Communication
Once you have created and considered your policy, you now need to plan for how you’re going to communicate it. Not only to your customers, but also internally and when bidding on public and private contracts.
If you’re asked for a request for proposal (RFP) by a company seeking to outsource work, proof of highlighted sustainable actions will only benefit your proposal. This proposal should cover the background and history of your business, how you expect to deliver a proposed product or service, and how long you expect it to take and more.
With the growing acknowledgement of legislation like the Social Value Act, which dictates that social value will be evaluated based on qualitative responses from bidders, and not on volumes. The act determines that larger suppliers are not able to win on scale alone; all bidders must set out what they will deliver and how they will deliver it and it is this information that will be scored in bid evaluations. The minimum weighting that should be applied to social value is 10%.
Even in the private sector, larger businesses are looking to improve their supply chains in line with the Paris Agreement and setting net zero carbon goals with the SBTi (Science Based Targets Initiative). The most notable feature of this initiative is the mandatory requirement for a lot of companies to set Scope 3 goals, which account for at least 40% of your total emissions which come from suppliers, primarily SMEs.
To learn more about the changes happening in the private and public sectors, read our previous blog here.
Step 3: Negotiation and Contracts
When going into negotiations with suppliers, it is important to have a supplier screening assessment to be able to make informed decisions regarding potential new suppliers.
At Profit Impact, we have a free supplier assessment for SMEs to make use of, and it is available on request.
It’s important to screen existing suppliers and ensure their standards are maintained going forward. While it is easier to screen suppliers before signing a contract, you will need to continue screening and assessing suppliers with your new goals in mind, otherwise they will continue to fall short of the expectations that you’ve set.
In order to provide maximum transparency and authenticity to your supply chain sustainability, getting your assessment verified by a third party/supplier director will provide weight and value to their performance.
An alternative way of verifying is going to the supplier and handling it yourself, River Island purchases clothing from suppliers after checking their ethical standards and tour the factories to examine their working conditions. They also check workers pay and hours, ensuring 100% traceability and auditing of their Tier 1 suppliers with hopes to have full visibility up to Tier 4 by 2023.
During the B Corp process, they recommend verifying 80% of spending on suppliers in order to provide transparency. This involves going back through your existing supply chain and verifying them, meaning that startups and SMEs continue to be in a unique position in handling this sooner than later, and being able to benefit from a sustainable supply chain before going global.
Step 4: Collaborate
When regularly assessing the sustainability of your supply chain, it’s vital to build and maintain a productive relationship with them. Working collaboratively and building a mutually beneficial relationship will allow you to work together in achieving scenarios in which you can both benefit.
Gauge progress together in regular meetings, share learnings and work towards resolving problems together and you’ll both be able to achieve the best outcomes possible.
A great example of this type of collaboration between suppliers and businesses is Unmade, a London tech start up who are providing clothing companies with technology that allows customers to customise their clothing orders before production, avoiding immense amounts of textile waste and the need to recycle altogether.
This allows clothing companies to cater to the diverse needs of customers in addition to developing a more sustainable value chain as customers are less likely to throw away clothing that they've designed, with them also being more likely to pay a premium for higher quality materials. This successful collaborative process has allowed Unmade to supply many retailers, the latest being New Balance!
Step 5: Data and Monitoring
If you’ve followed the previous 4 steps, you should be proud of the comprehensive performance of your business. You're now going to want to communicate your efforts to stakeholders by reporting on your strategy and the data of your supply chain.
While it’s difficult to create direct comparisons between businesses due to the difficulty in obtaining current supplier data and the nuances of sustainability each industry faces, a great starting point is to look at the key areas that impact your industry and report on those you think are most significant (e.g. environmental for manufacturing, worker rights and protections within factories).
This can begin as small as explaining, communicating and understanding the main 5 metrics for sustainable success in your supply chain, or setting a specific overarching goal like trying to achieve a net zero impact.
Alternatively, you can request that your suppliers complete a sustainability report which you can then publish. Typically, you’d share this information on your websites, through press releases, formal corporate social responsibility reports and external reporting to organisations such as CDP.
One of the better examples of a polished report is the 2020 report from SUSI Partners which adequately breaks down the individual aspects SDGs they’re able to tackle, what they’re committed to, as well as a roadmap to success.
Organisations like EcoVadis also offer an incredible amount of support when it comes to supplier screening in particular, while also having a large library of resources which can be incredibly useful to those starting their journey.
Regardless of how solid your supply chain already is, or how small it may be, a sustainable supply chain strategy is something that every business should adopt as a priority.
Stories of bad supply chains will always take the spotlight over positive supply chains, just looking at recent stories such as Boohoo’s share value halving after ‘significant issues’ in their supply chain. While they’re attempting to fix the issue with non-exec and independent directors overseeing changes, the damage done has already massively impacted the future of the business going forward.
But, this doesn't mean that successful sustainable supply chains are ignored. When looking at the success of businesses like Gymshark, they have been celebrated for their commitment to transparency and publicly listing every supplier they use.
By being proactive with your supply chain management, you will be creating a ripple effect in which your advocacy and hard work will then be echoed onto your supply chain, creating change as your business grows and progresses into the future.
If you'd like assistance in planning or developing your strategy, Profit Impact can help today. #ConsciousBusinessPerformance