A Company Is Only as Sustainable as Its Supply Chain

August 24, 2021
By Denis Sanchez, MS, MA, MCIPS

The adage that a chain is as strong as its weakest link certainly applies to supply chain sustainability. As companies face pressure from government agencies, non-governmental organizations (NGOs), consumer groups and various stakeholders to deliver sustainable products, they realize that focusing on their own operations is not enough.

Instead, they need to expand their sustainability efforts to the supply chain and work with it to deliver a network of firms that not only delivers profits but also one that is responsible to its customers, the environment and society using innovative technology and business practices.

To make this happen, supply chain managers play a critical role as they build supplier relations, set expectations and create joint initiatives that transform the commitment to sustainability into performance improvement.

The Sustainability Role of Supply Managers

As competition shifts from between companies to between supply chains, it is inevitable that the procurement of products and services has a direct impact on a company’s sustainability performance. Businesses are increasingly held equally responsible for their own operations and the environmental and ethical behavior of their suppliers.

Therefore, it is an imperative for any company with sustainability aspirations to engage the supply chain function in the effort. Three pivotal areas are information sharing, supplier selection and supplier relationship management.

Information sharing not only supports transparency across the supply chain but creates distinct benefits for focal companies (those at the top of the chain) and their suppliers. For instance, sharing information on reduction of carbon emissions, water and material efficiency drives operational improvements for all supply chain stakeholders. Knowledge transfer is key to build innovation, capability and capacity for both buying organizations and their suppliers.

Buyer-supplier collaboration also has a positive impact on performance. Supplier development improves supplier capabilities that can lead to long-term profitability, green innovation and lower distribution costs, as well as better resource optimization, order fulfillment rates, waste reduction and many other outcomes that raise the competitive advantage of suppliers and focal companies.

However, managing supplier relationships is a long process that starts with selecting the right supplier and setting the right expectations. As with any relationship, each party has its own goals. Buyers want to engage suppliers that help them achieve their objectives, whereas suppliers want to drive more business from customers.

Sustainable supplier management looks to make sustainability a key theme not only in the selection process but in all areas of supplier performance. Therefore, buyers must build sustainability performance indicators into the screening and selection process and, on an ongoing basis, link order allocation to performance.

Barriers to Sustainability Adoption

So, with such clear playbook and benefits, why can’t all organizations do this? Besides the internal hurdles focal companies face to execute business practices that support their sustainability efforts, suppliers across the network have a list of concerns and pose distinct challenges of their own.

As Tier-1 suppliers work to meet customers’ sustainability demands, they are faced with the uncertainty of absorbing increased costs without a clear picture of ROI. As a result, there can be resistance to (1) adopting environmental technologies necessary for green practices or (2) shifting to labor-relation standards that might not be commonplace for the supplier and its locale.

The issues become more complex concerning lower-tier suppliers, which tend to have a higher incidence of violations with a severe social and environmental impact. From pollution to modern slavery issues, the performance of these companies can affect the focal company’s ability to meet sustainability and production targets. This is evident by L.L. Bean’s and Victoria’s Secret’s decision to discontinue use of Chinese cotton in their supply chains after reports of forced labor and human rights abuses in the Xinjiang region of northwest China.

Smaller, lower-tier suppliers face little scrutiny from NGOs or even focal companies. What’s more, buying organizations often lack information on lower-tier suppliers. The United Nations European Commission for Europe reports that only 34 percent of fashion brands implement tracking and tracing in their supply chains. This highlights the importance of the supply chain function taking a more active role in driving sustainability across their entire supply chain.

Strategies to Overcome Barriers

There are various strategies supply chain professionals can implement to improve the sustainability of their supply chains. Four strategic dimensions are goal setting, collaboration, assessment and management.

The goal setting process starts with mapping the supply chain to gain visibility of all players, then setting sustainability goals and performance expectations for Tier-1 and lower-tier suppliers. These should be enforced through contracts and supported by thorough risk-assessment programs.

Collaboration is an important component to gain buy-in from all participant firms. Focal companies can offer sustainability training to Tier-1 and multitier suppliers and help them build technological capability. Equally important is engaging Tier-1 suppliers as agents of change since they have more control and leverage over lower tiers.

Supplier sustainability assessments allow buyers to continuously monitor performance across the supply chain and make decisions that support continuous improvement, including (1) supplier collaboration, (2) business processes development and innovation and (3) resource and order reallocation. Finally, managing performance across the chain is an ongoing process that allows all firms to stay on track with their performance, anticipate disruptions and increase resilience.

Managing ROI

Strategic sustainability investments by focal companies and suppliers can lead to technology and knowledge transfers that create competitive advantage. Suppliers can realize improvements in business-process and product-delivery mechanisms to conserve energy. They may achieve cost reductions in labor, materials, waste and packaging, as well as various production-efficiency improvements.

Sustainability collaboration by suppliers also improves relationships with the buying organizations. Long-term trust and mutual collaboration can lead to more business and a symbiotic, stable relationship — as buyers and suppliers are more engaged, suppliers become increasingly necessary to success.

In the end, in the same way that a chain is only as strong as its weakest link, an organization is only as sustainable as its supply chain partners.

About the Author

Denis Sanchez, MS, MA, MCIPS

About the Author

Denis Sanchez, MS, MA, MCIPS is vice president, operational excellence at Cognibox, a compliance, training and risk-management solutions company. He is based in Toronto.