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Why it's time to radically rethink supply chains

Cargill, Fiat-Chrysler and Hewlett-Packard Enterprise help illustrate the evolution of supply chain sustainability.

Within the rapidly evolving world of supply chain transparency and traceability, honing a focus on concrete solutions is a thorny topic at best.

My supply chain technology company, LaborVoices, was invited to host a panel on just that at the VERGE conference held last week in San Jose, California. We invited our good friends at Fiat-Chrysler Automotive, HP (now Hewlett-Packard Enterprise) and Cargill to join us in the endeavor.

One central challenge is that companies have invested so much in optimizing their supply chains for cost savings and risk reduction that they’re not really eager to retrofit management systems to account for sustainability.

But operational risks from Fukushima to the Asian tsunami have driven home the need for supply chain transparency and traceability. Indeed, visibility into risk exposure is often the first step in supply chain sustainability.

Supply chain strains

We picked our co-participants because of the industries they represent. Seasoned sustainability folks may wonder, "Why not apparel?"

Well, we're guessing that most everyone has heard about apparel supply chains, and, frankly, a lot of industries have a hard time relating to their particular challenges.

For example, apparel supply chains largely flow in one direction, from farm to factory to retail, building and selling a T-shirt, for example. Things are very different for other sectors.

Companies have invested so much in optimizing their supply chains for cost savings and risk reduction that they’re not really eager to retrofit management systems to account for sustainability.

Take Steve Polski, senior director of sustainability for Cargill, who pointed out that the company doesn't have just one linear supply chain, but thousands.

The agricultural supplier also doesn't just compile multiple inputs into a finished product; disassembly, or breaking a kernel of corn or an entire pig into constituent parts and shipping pieces to different receivers, requires an entirely different model.

Visibility also can be even worse when delving down into layers of tiered suppliers.

In the automotive business, for instance, companies can have over 1,000 tier one suppliers, said Bill Hall, head of sustainability for Fiat-Chrysler.

The scale of operations make it difficult to audit more than a relative handful of those suppliers, and customers such as Fiat-Chrysler often lack the ability to control whom tier 1 suppliers subcontract or buy from. Efforts to map the entire supply chain can then turn into cajoling lower-tier factories to hand over their data.

Despite these challenges, we heard of increasing pressure to act — although that pressure is shifting in interesting ways.

The rise of the green buyer

Across the conference, we heard about an abandonment of the "green consumer," or the average citizen that would vote with their dollars to transform industries. Instead, there was an embrace of the "green buyer" — or the corporate or government procurement agent that asks the right questions of suppliers.

The green buyer then writes a big, bulk purchasing check to back those questions up.

This shift has ripple effects across industries, even impacting esoteric fields such as cloud computing.

On the eve of its corporate split into two companies, leadership at both the newly formed Hewlett-Packard Enterprise and HP Inc. decided to enact new human rights policies because of business demand for supply chain sustainability.

Cimmaron Nix, program manager for human rights and supply chain responsibility at Hewlett-Packard Enterprise,  said that customers increasingly ask for sustainability metrics in bids for the company's services.

Thinking radical

As encouraging as trends such as shifting customer demand may be for long-term sustainability, patience can be tough to maintain when the stakes are high.

During a separate panel on open data and deforestation, for instance, that patience started to wane.

Leann Speta, Google's supply chain sustainability lead, raised the issue of demonstrating real impact from new approaches such as open data, particularly when deforestation and fires in Indonesia have led to a spike in carbon emissions that raises the urgency of the situation.

At what point do radically transformative approaches — such as abandoning the status quo and its environmental impacts to become rice farmers — start to make more sense?

I would go further and call these tools useful cul-de-sacs. They're just not getting us anywhere.

She has a point. Some time soon, we have to stop thinking about convincing individual suppliers to improve their impacts, and start thinking of more transformative models, shifting entire sectors at once.

Several speakers brought up self-reporting and auditing as useful-but-limited tools for supply chain transparency and traceability.

I would go further and call these tools useful cul-de-sacs. They're just not getting us anywhere.

Self-reporting has obvious drawbacks, and auditing has been shown to be slow, ineffective and unreliable where it's needed most. Suppliers simply must have fast incentives, metrics that matter to them on a day-to-day basis.

Energy efficiency is the closest to providing this continuous feedback on the environmental side. How do we create the equivalent of energy efficiency for the social sustainability side? How do we generate the real-time dashboard of social efficiency metrics that will drive supply chain decisions?

Companies including LaborVoices are working to help answer those questions in a 21st century context. So watch this space. Or, better yet, let us know if you're interested in getting involved.

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