Incorporating Sustainability in Supplier Relationship Management

Why Is it Important for Your Business?

From raw materials sourcing to product manufacturing processes to end product recycling, supply chain management is the core of any business, whether it be in manufacturing or retail or the service industry.

Most businesses focus on supply chain management as part of their corporate responsibility commitments, recognizing that the environmental and human impacts of supply chains can affect the image of a brand if not properly investigated and made transparent.

However, good supply chain management is about more than just brand image. Businesses that take an interest in improving their supply chain sustainability are also committing to improving logistics, bargaining power, and in some cases, product quality. These factors empower businesses to better meet customer demands while maintaining control over the core of their supply chain.

What Is Sustainable Supply Chain Management?

Sustainability means the development of supply and demand infrastructure that is scalable. While the term has been cooped by environmental initiatives to be synonymous with practices that are in harmony with the ideals of environmentalism, the core of sustainability is, in fact, scalability for your business. If your supply chain can easily be adjusted to respond to changes in supply and demand, this is a sustainable model.

However, in terms of a sustainable supply chain, from the viewpoint of PR, the focus is on the environmental and human impact, meaning understanding what impact your source materials and assembled products are having on the planet and people. This focus has led to many innovations, such as startups focused on the sharing economy and product lines that donate or contribute portions of profits to the communities from which raw materials are produced. These creative and self-aware campaigns are used by brands to project an image to an engaged audience who are more informed about consumer choices than ever before. While the permeation of such community-focused supply chains has led to a shift in consumerism, there are other benefits that such awareness has had for businesses, big and small, in the B2B and B2C sectors.

Why Is Sustainability Important?

Innovation

A sustainable supply chain requires a creative and flexible approach to logistics. Some of the most important advances in supply chain management include the introduction of origin tracing and the adaptation of blockchain technology to answer consumer questions about source materials and human impact.

While these advances contribute to the improvement of communities and brand images, other innovations contribute directly to the improvement of businesses. During the pandemic, sales of private label brands have increased more than 5{735f2e4b65c3f1982e3012daf49d8651419bebdced28f8d40dc0564cadc91c3b}, which is double the projected figure for the 2018 – 2023 period. By removing a link in the supply chain, businesses and customers are reaping the benefits of direct-to-consumer sales. So what then is the benefit of using a retailer? Audience reach. Retailers offer brands a prominent space to be seen, while customer direct sellers must work harder to get attention. As part of that, influencers on social media have flourished and many people have established careers as mouthpieces for brands that offer private label products, as well as branded products.

Product Enhancement

Choosing to invest in sustainable practices that reduce waste and use ethically sourced materials can result in high quality of the product, and improved brand image. Consumers actively seek those brands that announced they are ‘vegan’ or ‘cruelty-free’ or ‘fair trade’ as it is seen as a way of lending support to a larger community effort, appeasing their guilt over how little they actually contribute or engage with causes that actively challenge deforestation, child labor, indentured servitude, and toxic waste mismanagement.

Cost Control

Large-scale firms are mostly in control of multi-tier supply chain management. For most smaller operators, their influence dwindles at the first tier, and they are pressured into complying with large-scale businesses’ supply chain management strategies. This can mean high costs for smaller businesses that often struggle to comply with the strict measures dictated by larger firms. This has often been seen by SMEs as a deliberate attempt to reduce the number of players in the market and control consumer options. Many large scale firms have a monopoly over the market, however, customers are now demanding greater levels of transparency.

Brands such as Apple have tight control over their market share. While many scandals exposing the treatment of factory workers has shocked and disgusted people around the world, the supply chain was simply redistributed to ensure that the direct link to the brand no longer exists. Just last year, the brand was again related to a child labor scandal as one of its contracted assembly companies was discovered employing teenaged interns at one of its China factories, an illegal practice that is said to happen often, and for which Apple said they had ‘reprimanded’ their supplier.

Supply Chain Sustainability for SMEs

Benefits of Sustainable Practices by SMEs

  • There is a strong correlation between economic indicators, sustainability practices, and performance. Lower staff turnover is positively associated with sustainable processes such as heightened health and safety protocols for workers.
  • SMEs that introduce sustainable supply chain management protocols are associated with stronger economic performance and higher financial growth.
  • SMEs enjoy an enhanced reputation and increased employee satisfaction when transparency is part of supply chain protocols.

Barriers Faced by SMEs

  • Costs, technology, lack of knowledge, and motivation are common barriers to the development of sustainable practices.

According to a 2019 study:

SMEs are proactive or reactive concerning their environmental activities. Stakeholders often encourage SMEs to shift from a reactive to a proactive process for environmental behavior (Walker & Preuss 2008). It has been estimated that SMEs have a more significant environmental impact than large firms and are the major contributors to pollution, emissions, and commercial waste (Baden et al. 2009).

Map Your Supply Chain

Creating a supply chain sustainability map means taking an inventory of all your suppliers. Identify the most significant environmental and social challenges each supplier represents and how you want to address those challenges in collaboration with their business expectations, which will help you to understand the flow of impact, and to find creative solutions to working with suppliers to answer your expectations.

Communication

You need to narrow down what your corporate values are before you can share them with your suppliers. Once you have a model, you can approach suppliers with your values and goals and discuss ways in which you want your expectations to be met. These expectations can be communicated through a supplier code of conduct. There are many resources and tools available to assist companies with developing a supplier code of conduct. A multitude of guidelines and tips for writing and adopting a successful supplier code of conduct can be found online.

Training

Improving sustainability and changing attitudes and approaches requires staff training and development. Starting with your own business, you need to model to suppliers how you have improved your sustainability management and leverage this change to pass on knowledge to your partners and suppliers. Some larger firms choose to incentivize their suppliers by rewarding those who prove measured improvements, such as reduced emissions or meeting recycling targets. However, such practices need to be monitored as less than scrupulous suppliers have been known to find ways to make targets on paper while passing along their problems to other suppliers, therefore not addressing issues but pushing them along to another link in the chain.

Supplier Performance

Once you have set compliance standards for your target suppliers, you should collect data from them through a simple benchmarking questionnaire or self-assessment to create a baseline. Baseline assessment of supplier performance is the starting point for understanding the improvements you want to see, setting short and long-term goals, and achieving ultimate success.

Performance Improvement

Once you have agreed with suppliers about the changes that need to be implemented and the timeframe for changes to be made, you also need to do a follow-up. This includes an assessment audit to ensure that the baseline expectations are being met, and follow through with more training, improved communication, or even contract termination if performance standards are not met. For this to be successful you will need to have set very clear expectations and agreed to guidelines. Changing suppliers is not a small move; it affects relationships and your reputation within your industry, so it is important that if you do shift, it is done with respect and fair warning to your suppliers.

Why Lean Supply Solutions Work

As a business, using suppliers that offer sustainable solutions improve the value of your chain. Your transparent business model allows suppliers, investors, and consumers to see your demonstrated commitment to sustainable practices, attracting customers and partners, and boosting your brand.

Product fulfillment, warehousing and distribution, eCommerce fulfillment, warehouse pick-and-pack, order fulfillment, delivery, and customer support services are all aspects of your supply chain network that need to be taken into consideration. Outsourcing solutions need to be carefully vetted before a commitment is made to ensure that your choice of provider meets with your company values.

Sustainability within a supply chain involves investigating environmental concerns, social, economic, and legal responsibility. Customers have indicated that knowledge of sustainability and responsibly sourced materials are a priority.

This extends to diversity in the workplace. While it might not initially present as a supply chain concern, the value of human interaction in the supply chain is becoming a more notable issue for many consumers who are increasingly aware of the conditions under which many people in the world work. For example, fast fashion is often manufactured in countries with very low minimum wages, and garment factory workers are often subjected to long hours, poor working conditions, and dangerous factories. While the appeal of cheap clothing modeled from the runway is appealing to many young consumers, 2020 has proven to be the year in which people cared less about image and more about comfort. The supply chain has been disrupted as more people engaged with the reality of fast fashion impacting not only the environment but human lives as well. Supply chains that avoid exploiting garment workers are set to become more attractive to consumers in coming years as transparency and respect for human life are valued over fleeting vanity.

Reputation damage can have a massive impact on business revenue. Consumers are able to easily discover key information regarding organizations, supply chains, and networks. It is important that your business is transparent, and that your stated corporate values align with your practices. It is those companies that ‘lie’ or deceive consumers that tend to be the hardest hit when it is revealed that their CSR is not matched by their practice.

Benefits of a Sustainable Supply Chain

  1. Reduced environmental impact – 90{735f2e4b65c3f1982e3012daf49d8651419bebdced28f8d40dc0564cadc91c3b} of companies’ impacts on the environment come from supply chains.
  2. Improve continuity of supply – By creating a collaborative network with suppliers, intermediates, or civil society, companies can help improve the industry.
  3. Protecting against reputational damage – It’s important to protect your reputation to enhance business growth.
  4. Potential for new partnerships – A business with a sustainable supply chain is an attractive investment.
  5. Win more business – A sustainable and transparent supply chain can boost your brand reputation.

 

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