Can supply-chain transparency avoid a 'Nike moment' for IT?

Two Steps Forward

Can supply-chain transparency avoid a 'Nike moment' for IT?

The latest Newsweek Green Rankings showed that seven of the top 10 U.S. companies are from the technology and telecommunications sectors: IBM, HP, Sprint, Dell, CA, Nvidia, and Intel. It seems curious at first — after all, these companies make products that contain toxic materials and unrecyclable plastics, whose use consumes ever-increasing amounts of electricity, and whose disposal has become problematic for communities around the world. Oh, and are made by low-wage workers, often under suboptimal conditions.

So, why all the green love? It’s the supply chain, stupid.

Over the past few years, infotech firms have been engaging their supply chains as never before, at least on the environmental front, which is what Newsweek assesses. It has become a necessity for companies to do this — to reduce risks, but also to ensure efficient, cost-effective operations in a global marketplace. And while supply-chain scrutiny and transparency isn't a cure for all environmental and social ills, it is moving companies toward more successful outcomes.

“The majority of IT companies’ environmental and social impacts are not within their own operations, but instead are spread out across their supply chain,” explains Zach Goldman, a partner at Malk Sustainability Partners (MSP), a management consultancy focusing on this sector. “For many of these firms, their actual Scope 1 and Scope 2 impacts are almost negligible, relative to the size of their balance sheets.” That means environmental and social impacts reside almost entirely within their supply chains.

It is important to note that not all such companies outsource all their dirty work. One example is IBM, which continues to manufacture semiconductors and “package” them — that is, encapsulate and mount them on substrates — which are among the most environmentally sensitive aspects of electronics manufacturing. But IBM, which ranked first in Newsweek’s U.S. rankings and fourth in its global rankings, is an admirable outlier in this regard.

A study published today by MSP (download-PDF) sheds light on sustainable supply-chain management across the value chain in the information and communications technology (ICT) sector. It examines why companies in the sector are focusing on these issues, which issues they are concerned about, and how they are addressing them. The study was based on interviews with supply-chain managers, including those from Akamai, AT&T, Cisco, Dell, EMC, Facebook, HP, Sony, Sprint, and 20 other companies.

The study found that supply-chain issues are growing rapidly among ICT companies, with nine in 10 companies now having a sustainable-supply-chain policy. Seven in 10 supply-chain and sustainability managers believe sustainable supply-chain management strategies create business value in their firm. They are driven almost equally by stakeholder concerns, regulatory pressures, and issues related to risk and cost management. And, of course, nobody likes to see their name in the news, as Apple and other customers of Foxconn have recently.

You can read insights about the study by Michael Shoemaker, one of its authors, here.

“This is our industry’s ‘Nike moment,’” Tim Mohin, Director of Corporate Sustainability at AMD, is quoted saying in the study. He’s referring to the footwear and apparel company’s reputational challenges related to their alleged use of sweatshop labor in the 1980s and 1990s. “We are heading for continued upward awareness and scrutiny on supply chain behavior,” said Mohin.

“To a degree, the supply chain in this space is just coming out of being a black box,” Goldman told me recently. “We see greater transparency facilitated by technology, facilitated by greater stakeholder interest, facilitated by regulation. There’s more clarity into what’s happening in these supply chains, so there’s an imperative to take action as well.”

Much of this imperative is driven by the social side of sustainablity, where such issues as conflict minerals and working conditions and overtime have become hot-button issues for ICT companies. Nearly 20 percent of respondents cited labor hours and “difficulty finding the middle ground between fair hours and worker desire for overtime” as key concerns. Child labor, an issue in other industries, wasn’t considered highly relevant in the ICT supply chain.

One challenge is the web of relationships within the industry, where companies can simultaneously be competitors with and customers of one another. “These issues have fostered a complex environment which frustrates some efforts toward greater transparency and sustainability,” writes MSP. ”Cross-industry coordination is attempting to address this issue.”

ICT companies will have no choice but to confront this complexity head-on. Demands for increased transparency in the ICT sector, like most other sectors, aren't going away. Indeed, they're growing. “Between regulation, customer inquiries, and the wide dissemination of camera phones, companies’ supply-chain operations will become increasingly public,” says MSP. “Supply-chain managers should prepare for this and the growing public stance that firms are responsible for the activities of their overseas suppliers.”

He might have added one of my oft-asked questions: In an age of radical transparency, will you be transparent, or will others be transparent for you?

Which is to say, that megapixel smart phone your supplier is manufacturing isn’t just a cool consumer product. It’s also a potent weapon, able to capture high-definition evidence of environmental and social misdeeds in far-away factories. With that in mind, you’d be wise to get your supply chain in sharper focus, and make sure it captures a picture you are proud to share with the world.

Image by Kathathep for Shutterstock