How Sony strengthened its supply chain and added value
How Sony strengthened its supply chain and added value
[Editor's note: This is the final part of a four-part series covering the state of sustainable supply chain management in the IT sector. Previous pieces can be found here.]
A previous post, “How the largest IT companies view sustainable supply chain issues,” discussed matters that survey respondents identified as most pertinent in addressing sustainable supply chain management, or SSCM, strategies. Stakeholder interest was identified as an influential driver of social and environmental SSCM issues. This final part of the series will discuss how IT organizations are currently addressing and communicating SSCM issues, with a specific focus on how industry collaboration and supply chain transparency can help companies by driving value creation.
To recap, Malk Sustainability Partners, a specialty management consultancy that guides businesses in developing profitable corporate sustainability strategies, engaged global IT companies and industry experts to investigate the key drivers, important issues and popular strategies behind the sector’s adoption of SSCM. MSP then synthesized this information into a study describing the state of SSCM in IT, available for download here.
So why do businesses choose to pursue SSCM strategies? We found the four main drivers of SSCM to be:
- Stakeholder interest.
- Risk and cost management.
- Regulatory pressure and compliance.
Every supplier or customer within a supply chain will, at some point, be faced with the task of effectively addressing common challenges that arise from each of these four areas of concern. So the big question to answer is:
How can businesses address these issues effectively through SSCM?
Fortunately, information collected in this study provides valuable insight into how emerging SSCM strategies are making it easier for businesses to address these issues and pursue successful SSCM.
Opportunities and Challenges
Can pursuing SSCM strategies help business? Absolutely. Nearly 70 percent of respondents see value from dedicating resources to SSCM. Many of these are consumer electronics brands and OEMs that source from component manufacturers and are exposed to risk from unsustainable supplier operations, such as the recent episode in which one of Apple’s suppliers in China was found to be employing underage workers. While the majority of companies in the industry have adopted SSCM policies, each company defines its level of commitment and engagement differently, depending on the type of challenges faced. This study identified several common challenges in adopting SSCM:
- Supplier transparency.
- Communicating with stakeholders.
- Managing regulatory requirements.
What do these challenges have in common? The need for better communication! Specifically, we found that this communication challenge in terms of supplier engagement to be managed in three primary ways: customer inquiries, compliance audits and industry collaboration. Out of these, industrywide coalitions were explained to be particularly beneficial.
Respondents identified industrywide coalitions, like the Electronic Industry Citizenship Coalition, or EICC, and the Global e-Sustainability Initiative, or GeSI, as particularly valuable resources in helping their companies address the challenges associated with SSCM policies. This is because collaborating within a shared supplier network can make identifying and managing these challenges and risks more effective.
In the complex IT value chain, many key suppliers sell to multiple customers. When customers who share an interest in improving SSCM and reducing risk pool their resources within a coalition, each customer is in a better position to identify and manage significant SSCM risks specific to the industry and the company’s own circumstances -- all while using fewer resources than would have been required without collaborating. From this, it is easy to see how collaboration may benefit companies that wish to improve their communication and SSCM.
Coalitions develop engagement processes that facilitate efficient SSCM by formalizing consistent modes of communication across the supply chain. For example, the EICC has developed the Validated Audit Process as a standardized engagement process for its members. The VAP and similar EICC tools help members meet requirements and catalyze supplier action necessary to comply with the EICC Code of Conduct. Because this occurs within the coalition context, respondents noted how much of the redundancy and overlap in SSCM communication is eliminated, making the whole process more efficient.
Supplier transparency is also improved through industry coalitions. For example, the EICC and GeSI have developed the Electronics - Tool for Accountable Supply Chains, or E-TASC, which seeks to improve supplier transparency by providing a consistent process for gathering and analyzing supplier information. Another coalition tool is the Conflict-Free Smelter program, which reviews smelters’ operations to evaluate compliance with conflict mineral legislation.
Sony’s PlayStation Crisis: Cadmium in the Supply Chain
In October 2001 a major crisis occurred in Sony’s supply chain when a shipment valued at $160 million was stopped from being sent to retailers because the products contained concentrations of cadmium in excess of the European Commission’s legal threshold. Sony’s response was frustrated by a lack of supply chain transparency, which required Sony to spend 18 months investigating 6,000 factories to identify the source. The cost of this investigation process only worsened Sony’s already staggering losses.
This call for transparency is changing the playing field, even for those businesses not pursuing SSCM programs. As successful businesses adopt these programs, others will naturally need to keep up. Supply chain transparency is also being driven by regulations like the California Transparency in Supply Chains Act and Dodd-Frank Section 1502, influential customers and coalitions that require GHG disclosure from suppliers, and the increased exposure that comes with the Internet, social media and camera phones. The consequence is that SSCM issues are increasingly becoming a part of contract negotiations and bid processes.
With this increased scrutiny, those companies that do not pursue SSCM policies, enhance communication and proactively address transparency issues end up putting themselves at risk, just like Sony did in 2001. It is no surprise then that our study respondents believe that companies that effectively pursue SSCM programs are often rewarded with business. Indeed, Sony learned from its cadmium episode and has since improved its supply chain vetting process by adopting supplier selection criteria. These criteria include the Green Partner Standards, in which each supplier must pass the Green Partner audit, and Sony’s own Supplier Code of Conduct, which is based on the EICC Code of Conduct. In addition, Sony has implemented supplier questionnaires and has established a catalog of approved green office supplies. This clearly articulates to suppliers what Sony expects in terms of operational sustainability and supports what is known as the business scorecard.
The business scorecard works as an incentive by providing a clear evaluation model and supplier code of conduct to inform the supplier that if they do not meet these expectations, they could lose their business. With these programs in place, it becomes far less likely that incidents like Sony’s 2001 cadmium crisis will happen again. Through adopting a serious approach to SSCM, Sony strengthened the resiliency of its supply chain, avoided costs incurred from business disruption, and generated business value in the process.
This four-part series has demonstrated that companies can effectively pursue SSCM policies by using methods and tools that effectively address current and future concerns in business. Key issues were identified, as well as some practical approaches being used to address issues like e-waste recycling requirements and conflict minerals compliance. As the need for effective SSCM policies grows, you will hopefully find this information and guidance increasingly valuable. The study is available for download at no charge here.
Photocollage by GreenBiz Group