To demystify the supply chain, know the risks and costs

To demystify the supply chain, know the risks and costs

Paper clip chain image by Photopictures via Shutterstock.

For many companies, the vast majority of their impacts, risks and costs lie in the supply chain.

As a result, that’s where we can achieve the greatest improvements in sustainability and resiliency. With tools such as supplier scorecards, which can shine a light far back into the supply chain, companies often hold more power than they realize.

But why is it so difficult to implement corrective strategies? Well, it’s complicated.

Let’s say, for instance, a firm wants to manage 10 key supply chain data points, such as energy, water risk and greenhouse gas emissions. That firm has 100 Tier 1 suppliers. Each supplier has its own suppliers and so on down the supply chain. The data management needs grow exponentially.

At the third tier alone, the firm would be attempting to track 10 million data points, not to mention interpreting and influencing them. This example assumes the supply base is constant, has the required data and is willing to share it for comparative analysis. But in reality, it never is, it never does and there’s always confidential business information. How do we move forward?

Dig up the biggest treasures

Laying the groundwork for sustainable supply chain strategies involves understanding where the greatest costs and risks occur and what solutions should be prioritized for maximum return. The Sustainability Consortium (TSC) has been leading a global effort to do just that since 2009. TSC has brought together experts, mined available research on product life cycle impacts, and hosted collaborative stakeholder consultations to identify hotspots and opportunities for leveraging change -- research that its member companies are using as they devise their own supplier engagement strategies. Toy producer Radio Flyer took a different approach to identifying problematic chemicals in its supplier’s manufacturing processes by surveying its suppliers directly to learn more before taking action.

Once the problems and solutions are prioritized, we recommend devising a set of indicator-based supplier surveys to track change. Walmart, for example, uses the key performance indicators identified by TSC to survey suppliers across its vast supply chain and addresses more than 190 product categories to date. As the early Walmart supplier data reveals, a well-integrated scorecard process is a uniquely powerful instrument.

To be effective, it is important to craft the surveys carefully to provide context. For example, to determine the depth of a supplier’s commitment to reducing energy use, ask whether the supplier has an energy goal. Is it public and part of capital budgeting? What progress has been made?

Paper clip chain image by Photopictures via Shutterstock.

Framed in this manner, the questions themselves imply the direction and nature of the desired changes. Survey question scoring must be designed to allow for supplier differentiation through a range of scores. The easy identification of high performers and laggards will support a reward system that can promote further change.

The big issue in the supply chain is always leverage. The largest companies can drive change in ways that smaller firms can only dream about. But when companies pool their efforts, they can have a significantly greater impact. When footwear and apparel companies joined forces through the Sustainable Apparel Coalition to develop the Higg Index, for instance, they communicated their alignment on crucial supply chain issues to suppliers. Field to Market did the same for farmers through the FieldPrint Calculator. EPEAT provides a framework to transform electronics.  

When businesses within a given industry join together to send a signal to their suppliers that there is agreement on key hotspots and best practices, they drive greater action.

Operationalize the ‘work’ in the network

A great supplier survey is useless if it isn’t owned and used by the people making a firm’s purchasing decisions. For sustainability initiatives to effectively spread from the sustainability team and into supply chain business relationships, the scoring system must be effectively integrated into the procurement process. Clear, measurable results will make it easier for non-sustainability practitioners to embrace the use of survey tools. Again, Walmart deserves the spotlight for its work to train its buyers to integrate survey results into their business processes and their conversations with suppliers.

Start now and stay out of the weeds

The important thing to remember is supply chains don’t have to be micro-managed to achieve major improvements. Early in the game, the right knowledge, intention and communication can redirect the economic forces at work to avoid or redesign the most impactful links in the network. To drive real change, you’ll need to get not only the procurement side of your company involved, you also may need to work with competitors and trade groups to create leverage.

Building the change system isn’t easy, but the process is clear. There’s no reason -- or time -- to delay.

Paper clip chain image by Photopictures via Shutterstock.