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Can suppliers meet retailers' rising sustainability expectations?

In Part 1 of this two-part series, Marc Major provided an overview of retailers' efforts to embrace sustainability. This is Part 2.

As retailers lay out their sustainability expectations, supplier reactions vary. We’ve seen the full range of emotions famously described by Elizabeth Kubler-Ross’ five stages of grief — from denial and anger through bargaining and depression and finally to acceptance of the inevitable. In our experience, nimble and adaptable companies move through these stages relatively quickly, and the best transcend a negative mindset altogether to embrace the upside of sustainability.

This pattern does not surprise John Fojut. Vice President of Corporate Sustainability at Kohl's Corporation, Fojut sees a clear segmentation among suppliers and their approach to sustainability. "Our vendors fall into 3 buckets. They either consider [sustainability] part of their core values, they see it as something that gives them competitive advantage, or they just see it as something they have to comply with.”

A positive attitude — rooted in the realization that improved environmental and social performance can help make any business smarter, stronger, and more profitable — is an excellent foundation for future growth. Why? Because long-term viability depends on continuous improvement and innovation, which includes enhanced sustainability.

Fojut observes that vendors who adopt a positive, proactive mindset are well-rewarded. "Instead of having to react and adapt to someone else's priorities — like when some companies got surprised by the rising tide of consumer concern about social responsibility — [we’re all discovering it’s better to] get ahead of the curve and come together to agree on what's important and what progress we want to drive."

Overall, he reports, Kohl’s suppliers are making progress. “We've been talking about this for 5 years and we see some good movement. Suppliers are shifting from thinking it's all about compliance to seeing that it can add value to their businesses." Perhaps most significantly, suppliers are also starting to cascade sustainability upstream into the rest of the supply chain. “We have a sizeable group now asking their own suppliers sustainability questions. This is where we wanted it to go."

Target Corporation is also holding itself and its suppliers accountable, according to Scott Lercel, Director of Social Responsibility & Sustainability. The company applies "a very robust vendor scorecard that provides our sourcing leadership with talking points with the vendors as they meet annually to review their performance, speak to their strengths and discuss how to elevate opportunities," Lercel explains. "Our vendors take the scorecard very seriously." Target currently measures vendors against their peers in the industry on metrics like quality, on-time shipping, and social compliance. Beginning next year the retailer will start rating vendors and factories on how they answered the scorecard’s sustainability questions.

Walmart is also working to engage suppliers, both through the company's Sustainable Value Networks, which bring together experts for strategic planning purposes, and through the retailer’s new Live Better supplier scorecard. This scorecard, designed to measure supplier sustainability performance and let Walmart and Sam’s Club buyers integrate it into buying decisions, is something Walmart has been talking about since the 2009 announcement of a Sustainability Index and the launch of a Supplier Sustainability Assessment — a set of 15 simple sustainability questions Walmart sent to all suppliers.

Many suppliers who answered the 15 questions and heard little back from Walmart interpreted the non-response as a sign that the effort had died or been shelved, but in reality the public silence merely marked a prolonged gestation period. Knowing they couldn’t hold buyers and suppliers accountable until they had decent metrics, Walmart dived into deep development work with the Sustainability Consortium (TSC) to create something that had never been done before: create a robust system to measure the sustainability of hundreds of key products across the store.

Doubters of Walmart’s commitment to sustainability would be wise to note the retailer’s latest Sustainability Milestone Meeting on September 13 – in which SVP of Sustainability Andrea Thomas pledged, “Both at Walmart and at Sam’s Club we’re integrating the Index [and scorecard] into major product categories this year, continuing on next year.” Shawn Baldwin, a SVP of merchandising at Sam’s Club, describes his enthusiasm for the new Live Better scorecard as a way to facilitate merchant-supplier communication and “get to the heart of the issue quicker.” He also pointed out a fact that no supplier should miss: “What we measure at Walmart and Sam’s gets done … what we recognize and incent for becomes part of our culture … and … starting the next fiscal year, every single merchant at Sam’s will have a component for sustainability on their performance review.

Despite mounting evidence that commitment to sustainability is deepening and accelerating in the retail world, many suppliers have been slow to shift out of neutral gear. Some adopted "wait-and-see" holding patterns while the dust settled, reasoning that “once our customers sort out all these requests, initiatives and standards, then we’ll start moving.” Others made no secret of their plans to do as little as possible, because they assumed sustainability would fade in importance. The effective logic of this group was, "This is just another fad; retailers won't care about this next year" and, "We get a different buyer every few years; the next one probably won't care about this."

If you are a retail supplier, a simple test will reveal whether the wait-and-see approach is right for you. We pose this question to all our clients who are on the fence about how seriously they should commit to sustainability: "Are you willing to bet the future of your business on the chance that retailers will suddenly stop caring about sustainability?”

To assess the likelihood that retailers will stop caring, we ask these three simple questions:

  • Is the customer of tomorrow likely to care more or care less about sustainability than the customer of today?
  • ·Are product contents and manufacturing locations likely to be more visible or less visible to retailers and the public 10 years from now?
  • Are costs of essential inputs like energy, clean water, and raw materials likely to increase or decrease for the foreseeable future?

If you're a wait-and-see company, your future viability may depend on a perfect storm of unlikely events—that retail buyers and the consumers to whom they respond will suddenly stop learning and caring about resource costs, the health of people and the planet, and the future of their children. We urge you to ask just one more question: Is that a risk you’re willing to take?

Image by Dusit via Shutterstock

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