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Best practices for managing sustainable supply chains

William Newman, Contributor

The program director and I had several good conversations about how to align a sustainable supply chain with the supply base. I felt confident that the direction was set, but now came the critical discussion about implementation.

How would they implement the program, what governance models would they use and how would it all be funded? A passerby might have thought I was speaking gibberish at that moment, because such answers simply don’t come easily.

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So many organizations, from large corporations to small not-for-profits, are eager to jump on the supply chain sustainability bandwagon without fully understanding what such a program means to the organization and its supply chain. A recent study conducted by the UN Global Compact revealed that, on average, 93% of global CEOs across manufacturing industries believe sustainability is an important or very important topic for their company. Far fewer seem to have the wherewithal and knowledge to implement an internal governance model and interact effectively with their supply chains.

First things first for green supply chain management

Before reaching out to the supply chain with information requests and surveys, it’s best to get organized internally. This helps establish a focal point for managing sustainability activities within the organization and how they affect the supply chain.

Often this center brings together one or more lead functions in the organization.  Purchasing, logistics, engineering and operations all play a role and closely coordinate with finance to realize the triple bottom-line (TBL) results needed for a successful supply chain sustainability initiative. It is good practice to create a sustainability program office (SPO), a body that provides the visibility and governance structure to coordinate internal and external supplier activities. The SPO is also the ideal entity to facilitate both outbound and in-bound communications with suppliers and with executive stakeholders inside the organization.

In practice, an SPO addresses both tactical needs (such as issue tracking and resolution, logistics and coordination, program communication and program management) and more strategic needs (such as program funding, strategic road maps, risk management, and governance). In my experience working with organizations, the minimum required to enable a program area such as the sustainable supply chain requires a “consolidated” program office model, whereby resources are committed, funds allocated and broad oversight is managed by a governing body. Companies can use a variety of software applications to facilitate SPO activities, such as scorecards, dashboards, shared team workspaces and project or program management tools. 

While other operating models may well work for small organizations, the complexities of supply chains typically warrant a certain level of authority for conducting sustainability activities that transcends functional operations. This approach also alleviates the tendency to relegate interactions with suppliers to a “nights, weekends and lunches” level of priority and helps the organization manage sustainability as a competitive business strategy. Going at a sustainable supply chain initiative half-heartedly is not only an improper way to deploy any strategic initiative, it may also lead to unprofessional handling of supplier requests that can affect the manufacturer’s reputation and professional relationships.

Where consistency is important

When working with suppliers, there are four key areas where consistency is vitally important in establishing and maintaining sustainability goals throughout the lifetime of the supplier relationship.

First, consistency with communications is critical. This means every supplier in the sustainability program receives the same level of communication initially and at the same time. Communication will begin to deviate from this initial position as information is revealed about each supplier’s ability to hit sustainability targets and what is required to address supplier needs and compliance levels. The best approach will also depend on a supplier’s position as a top-10 or bottom-10 supplier and the risks associated with noncompliance in key areas.

Second, consistency with evaluations means you can compare and contrast suppliers because you are using the same information, surveys and questionnaires. This is the “apples to apples” dimension of any supplier management activity. A manufacturer’s requests will have a number of elements consistent with TBL reporting -- financial, environmental and social. Because of the work that goes into creating a structure that defines the guidelines, standards and frameworks that are important to the manufacturer, the supplier base might be more inclined to take the requests seriously, which allows for effective evaluations of supplier compliance and risk.

There are a number of collaboration tools and business network approaches that can make the evaluation effort run smoothly. For example, rather than use 20th century technology and issue paper surveys and questionnaires, many organizations are using cloud-based survey applications and portals for basic qualitative questionaires. For data-driven evaluations in which ratings or quantitative measures are needed, ERP vendors offer sustainability performance modules that allow suppliers to provide information as if they were performing internal data reporting. In addition, there is growing interest in embedded sustainability, where sustainability information is made available alongside other supplier-related evaluations. Sustainable business networks are also emerging. Organizations can use them to connect to upstream customers and downstream suppliers in a social media-style environment to share and receive standardized evaluations and feedback.

Consistency with ratings and metrics is another area where manufacturers tend to get derailed. It involves taking the evaluations and ensuring that the correct metrics are responded to with the correct rating systems across similar time periods. For example, if a manufacturer asks Supplier A for its greenhouse gas (GHG) reduction targets, it might receive a high-level “statement of direction” from the supplier’s CEO or vice president of operations alluding to overall target levels for the next five years. Supplier B might respond with a highly detailed and complex facility-level report that outlines specific GHG components, where they originate and how they will be reduced on a calendarized basis. The two responses are clearly not comparable, and the problem could have been avoided if the manufacturer had been specific about the kind of detail it needed for its sustainability evaluation.

Finally, internal consistency in practice is important in preventing inconsistent approaches, communications and evaluations from emanating from different parts of the organization. While in theory the SPO is designed to prevent this from happening, in practice there is a long history of maverick spending and unmonitored purchasing activities in large, multinational corporations. Sustainability activities play a large role in a manufacturer’s purchasing and logistics functions, which makes uncontrolled spending a potential Achilles’ heel for its sustainable supply chain program.

One solution is a spend analytics tool that connects directly to a manufacturer’s e-procurement or supplier relationship management application. In this setting, a purchasing manager can assess TBL impacts as well as other facets of supplier performance (such as errors, defects and warranty issues), and decide to re-bid or extend a new bid to a broader group of suppliers. This action can invoke a request for quotation (RFQ) that links the information from spend analytics to the e-procurement function, prepopulating the RFQ  with email contacts.

Executive sponsorship across the organization is essential in maintaining these consistencies and other governance elements of the supply chain. Without such sponsorship, a company is better off refraining from embarking on deep, complex sustainability activities in its value chain and instead focusing on more conceptual messaging. As with most compliance and business strategy initiatives, if a sustainable supply chain program lacks broad executive support, it will rarely produce the results expected.

ABOUT THE AUTHOR

William Newman is managing principal of Newport Consulting Group, an independent management and technology consulting firm based in Clarkston, Mich. Contact him via email at wnewman@newportconsgroup.com or follow him on Twitter (william_newman).