Why companies' top struggles lie in sustainable supply chains

Why companies' top struggles lie in sustainable supply chains

Editor's Note: To learn more about smart supply chains and hear from Elizabeth Fretheim, director of business strategy & sustainability with Walmart, don't miss VERGE@Greenbuild Nov. 12-13.

Despite a number of recent government-led and industry-specific initiatives to simplify the process, companies are still struggling to get a grip on their supply chains, according to a recent report by Business for Social Responsibility (BSR), a non-profit that promotes sustainability in business. The report, called the BSR/Globescan State of Sustainable Business Poll 2012, found that the top sustainability challenge for companies was achieving solutions throughout the supply chain.

Nearly 42 percent of the more than 550 professionals polled said ensuring their suppliers followed sustainable practices was the greatest obstacle to achieving their climate sustainability goals.

The results point toward the challenge faced by companies to boost their supplier engagement and bridge the gap between suppliers simply filling out disclosure forms to actively reducing their carbon footprint.

But companies often face a number of obstacles getting to that point. Many companies don’t have visibility beyond the first or second tier of their value chains, largely due to the so-called confidentiality of the supply chain. A big retailer like Walmart will buy product from a company, which in turn buys product from another company, which buys from a third or fourth company, and the entire sequence is seen as proprietary, said Jess Kraus, CEO of Source 44, a company that helps businesses improve the transparency of their suppliers.

“That nature and sense of confidentiality flows down the supply chain, and that’s the primary roadblock or challenge,” he said.

Sub-contracting is another big issue. In the apparel industry, for example, sub-contracting is standard practice, and many clothing companies therefore can’t see beyond the first tier of their value chains. One stitching factory, for instance, may use anywhere from 10 to 15 sub-contractors, without disclosing their identities.

“Getting visibility all the way out to the cotton fields is something that quite few companies actually have,” said BSR Vice-President Peder Pruzan-Jorgensen.

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Despite these challenges, companies are developing initiatives to combat the issue. Levi Strauss & Co., for example, recently deployed an information-management system that allows the apparel company to collect and track its suppliers’ energy use data, as well as simplify the data collection process. Using this new system, Levi's started in 2011 to collect annual water and energy consumption data from more than 60 of its high-volume suppliers. Each supplier received performance feedback and took energy reduction measures where relevant, such as installing energy-efficient lighting in offices or using direct drive sewing machines to improve efficiency. Many of the company’s suppliers have reduced their energy use by nearly 30 percent, said a company spokesperson.

Some companies have been spurred into action by the government to examine their supply chains. In August, the US Securities and Exchange Commission passed a ruling that requires public companies to investigate their supply chains and disclose if their products use tin, tungsten, tantalum or gold from war-stricken Democratic Republic of Congo and surrounding areas. Many leading automakers and electronics companies have created industry-wide coalitions and tools to help make the process easier, and ensure the minerals they use are conflict-free. Recent initiatives include a new web-based tool launched by more than two-dozen auto companies like Ford and Honda that allows companies to request information from each one of their suppliers, or a fund backed by companies such as HP and Intel that lowers the cost for smelters that wish to prove they are conflict-free.

There is no one-size-fits-all solution, said Pruzan-Jorgensen, and each industry requires a different approach. For example, BSR has for a number of years worked with luxury brands that manufacture exotic skin products, such as handbags made from crocodile skin. The industry’s supply chain is not organized around corporate lines and so it’s especially difficult to track – often, a farmer will catch some snakes and in an often haphazard way get the snakes into the hands of a middle man, who in turn sells them to a big brand name. These companies are now exploring the use of DNA testing to find out exactly where their raw materials have come from. But this solution will likely only be effective for certain industries, if any.

“It’s expensive and might be doable,” said Pruzan-Jorgensen. “It’s hard to do for products that have much lesser value.”

The first step to better understanding its supply chain is for a company to find out what makes up its chain– who are its suppliers, where are they based, and if possible, who they are sub-contracting to. Once a company gains a better grasp of its supply chain, solutions will start to emerge, said Pruzan-Jorgensen.

The BSR poll, which was conducted in September, surveyed companies from around the world, including in Africa, Latin America and the United States.

Other challenges cited by the respondents for achieving climate sustainability include establishing a strategy that will have the greatest impact and gaining resource commitments from senior management.

Pruzan-Jorgensen said companies need to accept that they would likely never fully achieve all the sustainability solutions they hope to through their supply chain.

“Maybe it will be too expensive to get the type of visibility and management of impact that you desire,” he said. “You’ll have to accept that it’s imperfect.”