Supply chain sustainability: Lessons from the past, ideas for the future
This article was originally published in BSR Insight and is reprinted with permission.
The number of standards also has multiplied, reflecting a broader set of topics and participants. In the early 2000s, priorities were wages, working hours, and health and safety. Today, issues also include environmental performance and anti-corruption. Product certifications and labels have also exploded. An entire index exists just to catalogue the number of new eco-labels launched every year.
But what progress have we made toward improving the lives of workers in supply chains and protecting the ecosystems that support industry and commerce as well as human survival on this planet?
Although supply chain sustainability management practices have evolved significantly, we have an opportunity to re-examine traditional approaches and achieve measurable, dramatic improvements. Here, I suggest four lessons we can take from supply chain sustainability efforts to date, and four ideas we can apply to achieve greater impact going forward.
The Road We’ve Traveled
It’s hard to capture all of the lessons learned during two decades of work on supply chain sustainability challenges, but four stand out as most important.
1. We must go well beyond monitoring. Social compliance monitoring was initiated to hold multinational companies accountable for maintaining good labor practices at supplier facilities. While this did illuminate working conditions and violations, it also spurred unintended consequences, including duplicative and burdensome audits, bribery and phony records, and a pass/fail mentality that drove problems underground. A retailer once told me that his company fired all the in-house social compliance staff in order to root out rampant bribe-taking, which suppliers had come to expect as a condition of doing business with that company. Third-party audit firms also faced challenges to combat bribery in their relationships with suppliers and brands and retailers.
Perhaps the biggest problem was that the monitoring approach failed to motivate suppliers to own the sustainability agenda. Among other problems, monitoring didn’t revamp management systems to sustain compliance and encourage improvement over time.
The increasingly prescribed remedy to this is a “beyond monitoring” approach that includes management-systems assessments and supplier-development programs that address root causes, provide training, set milestones and incentives, and otherwise encourage suppliers to improve their management practices and performance.
2. We need a comprehensive approach to social, environmental, and ethical practices. The range of topics making their way into strategies, policies, assessment and improvement practices, and multistakeholder collaboration has broadened over time, and, happily, there are also a growing number of tools available to help.
Energy and greenhouse gas management is now a mainstream part of sustainable supply chain management, with the WBCSD/WRI’s Scope 3 emissions standard, the Carbon Disclosure Project’s reporting requirements, and the Electronic Industry Citizenship Coalition’s Carbon Reporting System representing just a few of the tools for companies to work with suppliers on energy issues.
Other supply chain environmental topics include air pollution, waste management, water usage and wastewater management, and impacts on land and biodiversity. Walmart and Procter and Gamble have created supplier scorecards to collaboratively manage a range of environmental impact metrics (in addition to their labor standards programs). H&M, adidas, C&A, Nike, and others have committed to gradually phasing out hazardous chemicals, which follows Greenpeace’s high-profile detox campaign. Puma, which also committed to managing chemicals in 2011, released an environmental profit and loss statement this year that quantified and monetized supply chain impacts on greenhouse gas emissions, air pollution, water use, land use, and waste.
Over the past few years, due to new standards and legal requirements such as the UN Guiding Principles on Business and Human Rights and the U.K. Bribery Act, many companies have prioritized human rights and ethics. The concept of human rights due diligence and responsibility for managing impacts, no matter where they occur in supply chains, has also found its way into standards such as the OECD Guidelines for Multinational Enterprises (and OECD guidance on conflict minerals specifically), the ISO 26000 CSR Guideline, and the forthcoming update to the Global Reporting Initiative Guidelines.
3. It’s important to look beyond the first tier of suppliers for the most significant impacts. The standards described above require companies to better understand their supply chains beyond the first tier.
The Guiding Principles, for example, require companies to “prevent or mitigate adverse human rights impacts that are directly linked to their operations, products, or services by their business relationships, even if they have not contributed to those impacts.” In practice, this means that poor social and environmental management is now a concern both up and down the supply chain.
Specific industries have also launched efforts to move beyond the first tier of suppliers. In 2009, BSR’s Mills & Sundries Working Group started developing standards and tools covering labor, health and safety, and environmental impacts of textile mills and button, zipper, tag, and label suppliers. In 2011, the Sustainable Trade Initiative, a multistakeholder process funded by the Dutch government, launched a program in the electronics sector to focus on the second-tier suppliers in Southern China.
In addition, some of the most significant impacts from a lifecycle perspective often occur several tiers removed in the materials extraction and processing phases. In the realm of conflict minerals, BSR has discovered the imperative and challenges of working at multiple levels of the supply chain, from raw materials, to processing, to manufacturing, to retailing.
4. Integrating supply chain sustainability into core business practices remains the Holy Grail. The concept of “internal alignment” has become shorthand for ensuring that supply chain sustainability is built into core business strategy-setting and implementation across all departments and functions.
In BSR’s Beyond Monitoring Working Group, we approached this on the practical level by sharing lessons across industries–for example, how to manage internal deadlines without causing overtime on the factory floor, and which information to review during supplier selection processes. We examined how e-learning and workshops can be used to educate and engage procurement staff, and we heard how companies were building supplier performance metrics into procurement staff evaluation and bonuses. Through our recently launched Center for Sustainable Procurement, we are looking at how to integrate product and supplier sustainability considerations and information into procurement decisions.
The Road Ahead
We now know there is no silver-bullet solution to the complex and deep-rooted challenges in supply chain sustainability. So what does the future look like?
At BSR, we encourage companies to focus on four things.
1. Set a vision for achieving positive impact. With both a business case and a morale case driving supply chain sustainability strategies, it is important for companies to evaluate (or re-evaluate) what they hope to achieve. Is it to do no harm? Increase market share of more sustainable products? Protect against business disruption while improving workers’ livelihoods?
In our experience, companies typically travel through three main phases in their supply chain sustainability focus and objectives, and understanding where your company is currently might provide a useful frame for setting a vision:
- Risk management: Identify, prevent, minimize, and mitigate risk of negative impacts on people, communities, and the environment. Companies pursuing risk management are usually trying to protect their reputation and minimize business disruption.
- Supply chain improvement: Develop programs and practices to reduce negative impacts (labor standards violations, energy and water use, air pollution, waste) and increase positive impacts (improved worker well-being and development of healthy communities beyond the factory gates). Companies pursuing this approach are generally interested in achieving improvements in efficiency and productivity as well as maintaining and building their brand reputation.
- Supply chain transformation: Make changes in products and production systems across the full value chain, from idea to execution. In addition to the benefits of the earlier phases, companies pursuing this approach are using supply chain management and engagement practices to support innovation and competitiveness.
We’ll explore each of these in more depth over the next several months. Our vision is to see companies collaborate with their supply chains not just to solve problems but to make positive, systemic, and lasting change.
2. Focus on people, knowledge, and skills. “If only we knew then what we know now” is a familiar refrain. The past 20 years might look very different if we could send a time capsule to the past containing the wealth of experience we’ve gained. But we can take an important lesson forward: The world changes quickly, and our knowledge at any time is incomplete. We must improve how quickly we adapt our practices, and build teams that have the necessary knowledge and capabilities.
To provide a starting point for the learning journey, BSR worked with the UN Global Compact and Maplecroft to develop a high-level supply chain sustainability “Quick Self-Assessment and Learning Tool.” The tool helps procurement, sourcing, and other managers quickly and anonymously gauge their company’s supply chain sustainability strategy against a set of criteria, such as the existence of clear and established codes of conduct for the company and suppliers, internal roles and responsibilities, and sustainability goals.
Our hope is that this tool can help companies speed the process of learning about and shaping an impactful supply chain sustainability approach.
3. Measure impact. In 2009, the Novo Nordisk Responsible Procurement group asked BSR for help defining key performance indicators. To understand how other companies do this, we conducted an online survey and interviewed business leaders, investment analysts, and two NGOs that are active on supply chain labor standards. The results confirmed our hunch: Despite progress in measuring implementation at the customer and supplier levels, impact measurement is still in its infancy.
Impact measurement–such as the work conducted by the Sustainability Consortium and the Sustainable Apparel Coalition–helps identify areas for performance improvement and enables open, fact-based communications with stakeholders. We believe these efforts will help us achieve consistent and credible impact measurement for supply chains so that we can establish goals and accountability on the road to sustainability.
4. Get smarter about collaboration. Three priorities in collaboration deserve attention:
More comprehensive (and fewer) standards: If only we knew at the outset the problems that would be created by a proliferation of codes and practices for social compliance. Fortunately (and perhaps ironically), new platforms are emerging to enable convergence of these standards. For example, as a result of the European Commission’s efforts, it’s possible that in the next five years, we’ll have “stringent, prescriptive, and technically detailed lifecycle-based guidance” for conducting footprints of products across several environmental impact areas, not just greenhouse gas emissions. Standardization of social impact assessments in supply chains could be on the horizon as well.
More “professional” partnerships: In the past, partnerships were a murky area; today, there are clear and helpful practices for setting up and running collaborative efforts on supply chain sustainability, such as the ISEAL Alliance’s codes for standard-setting, assurance (certification and accreditation), and impact assessment.
More portable data: The number and sophistication of information technology platforms that can link participants in supply chains has grown rapidly over the last few years. The Fair Factories Clearinghouse, Sedex, EcoVadis, Achilles, and Aravo are just a few of the platforms and vendors for sharing information about sustainability performance in the supply chain. There is a real opportunity for technology providers to solve the data problem with easy-to-use, comprehensive, and standardized access to information technology that supports collaboration on supply chain sustainability.
As we look forward, it’s clear that the world will continue to look smaller and smaller, and that businesses will increasingly face natural resource constraints and social pressure to act responsibly. Businesses will be held accountable for impacts that may be several relationships removed from core operations, but still considered part of companies’ supply chain sustainability footprints. And with more standardized measurement and data visibility highlighting the many opportunities for improving sustainability impacts–and more technology applied to solving problems–we will see solutions that we can’t yet imagine today.
With these big ideas in mind, companies can consider some specific questions to help plan their own next steps:
- What vision of supply chain sustainability aligns with your organization’s goals and objectives?
- Who are the internal champions who will dare to examine business as usual and identify areas for improvement?
- Which external allies, from investors to academics to civil society organizations, will join you in addressing supply chain sustainability impacts?
- What will your supply chain look like in 20 years, and what are the implications for your supply chain sustainability strategy today?
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