To demystify the supply chain, know the risks and costs

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.

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