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5 reasons supply chains are the new sustainability hotspot

Verisk Maplecroft's James Allan argues creativity within procurement departments is being driven by external forces such as new environmental laws.

Let's face it: Procurement has never been a sexy job function.

But now that's changing, as companies realize the competitive advantages that effective purchasing and supply chain management can provide — and, perhaps more important, the impact an organization's supply chain can have on the sustainability of society as a whole.

Environmental and social impacts occurring within corporate supply chains — think greenhouse gas emissions, human rights abuses, deforestation — are difficult to identify and manage, but organizations increasingly are obliged to do so.

Meeting corporate and legislative requirements has demanded an upsurge in creativity within procurement departments, shaped by five key forces.

1. New and emerging legislation

Both climate change and human rights legislation has created a race to the top, as companies seek to improve their performance on these issues before their peers.

The Paris Agreement commits the world to a net zero carbon future, and governments are creating the necessary policy and legislative frameworks to deliver the ambitious mitigation targets. Similarly, international, national and business-specific standards have been established to help eliminate human rights violations, including modern slavery and child labor.

For example, the U.K. Modern Slavery Act, which came into force in 2015, aims to prevent modern slavery in part by mandating companies to be transparent about how they are tackling the problem within their business and their supply chains. Procurement teams are usually central to corporate compliance efforts as the primary link between head office and distant, disparate suppliers.

2. Limitations of the audit system

Supplier audits are the bedrock of many sustainable and ethical sourcing programs. However, company supply chains are becoming more extensive and complex, while the number of issues that need to be audited continues to expand — fire safety and structural integrity have assumed greater importance in garment sector audits following the Tazreen and Rana Plaza calamities in Bangladesh, for example.

It is increasingly clear that companies will not be able to 'audit their way to sustainability.'

Despite the temptation to simply expand the number and scope of audits, it is increasingly clear that companies will not be able to "audit their way to sustainability." Yes, supplier audits will continue to play a role in greener and more ethical supply chains as baseline diagnostics tools. But procurement professionals are finding new ways to address the root causes of intractable sustainability issues.

These range from data-driven risk assessments, collecting information directly from workers using mobile phones, to intensive, multi-stakeholder work that focuses on really thorny issues that won't go away within particular industries.

3. Collaboration

Just as companies recognize the limitations of the audit system, there is widespread acknowledgement that no single organization can drive meaningful, lasting change.

Collaboration is a key driver of both supply chain sustainability and of innovation. Some industries are reticent about collaborating on the supply side of their business, viewing it as a competitive space, but others — particularly food and beverage, electronics and garments companies — are more advanced.

These industries are establishing new models of working together, inclusive of suppliers, civil society, governments and communities. For example, the Bonsucro initiative is notable not just because it developed the first metric-based standard to measure the impact of the sustainable production of sugar cane, but also because it brings together incredibly diverse actors from across the entire supply chain.

4. Knowledge transfer

We all know that many professions work in silos — and procurement is no different. However, these barriers are eroding as procurement teams strive to meet the expectations of regulators and customers on sustainability.

An indirect benefit has been substantial levels of knowledge transfer as diverse sectors and individuals from different career backgrounds start working together.

It is increasingly clear that companies will not be able to 'audit their way to sustainability.'

In extractive industries, for example, environmental and social impact assessments (ESIA) are standard requirements for companies developing new mines or wells. Similar project-based impact and risk assessment methods are starting to be used by retailers, fast food and consumer goods companies to help them understand the environmental or socioeconomic impacts of their supply chains.

Similarly, as extractive companies begin to engage with modern slavery challenges around their supply chains, it is likely that they will draw on expertise from food and garment industries. Financial services and insurance firms are also taking notice of the risks and opportunities that companies are exposed to because of their supply chains.

Engagement with these sectors will create new opportunities for procurement teams to work with highly developed and quantitative analytical approaches.

5. Technology and Big Data

Corporate marketing has been fundamentally altered by social media, and the impacts of technological innovations on supply chain management could be equally profound.

Pressure on companies to tackle sustainability risks within supply chains is a key driver of digital capabilities — the "digitization" of supply chains. Broadly, this means moving all components of a company supply chain online, everything from real-time invoicing to supplier risk data.

For example, companies are exploring various technologies to tackle deforestation in their supply chains, ranging from DNA barcoding to drone and satellite monitoring. Blockchain technologies being developed give products a "digital passport" showing what they are really made of and where they originate, bringing full supply chain transparency closer to reality.

Finally, combining information held on suppliers and the movement of goods through the value chain with Big Data on the external operating environment — such as natural hazards or strikes — dramatically should improve supply chain optimization and corporate resilience.

New laws and technological changes are prompting more internal opportunities for innovation as new perspectives, skills and approaches are brought together.

Yes, sustainable procurement might not break the internet like Kim Kardashian. But the innovation and creativity being fostered in the sector will be of far greater benefit to the world at large.

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