Many companies are struggling with establishing sustainable supply chains because of their unproductive attempts at enforcement through leverage.
Achieving a sustainable supply chain begins with trust. Market forces and leverage do not bring about trust. Shared values and collaboration do. As a result, values shared regarding sustainability can create much more profitable supplier relationships when those values are put on the table and made part of the relationship. A company can literally watch the investments they’ve made in sustainability permeate through their entire value chain, bringing about greater returns from the process.
Unfortunately, many companies are struggling with establishing sustainable supply chains because of their unproductive attempts at enforcement through leverage. These companies’ attempts to ensure supply chain sustainability solely through monitoring policies and compliance have failed time and time again. This approach engenders the same trust issue as other forms of pressure. Only authentic collaboration working toward mutual goals ensures the development of a genuine, trust-based customer/supplier relationship that can foster a sustainable supply chain.
Partnering with suppliers to enact sustainable supply chains offers customer businesses distinct, downstream, competitive advantages that emerge within their own operations. After all, the value chain starts with supplier inputs. There are five main benefits to such relationships:
1. Protecting Against Reputational Damage
Stakeholder pressure from investors, shareholders, customers and nonprofits to extend accountability for a business’s sustainability into its supply chains has significantly increased in recent years, e.g., a record number of shareholder resolutions related to supply chain sustainability issued during recent proxy seasons.
Additionally, the increasing pervasiveness of social media, resulting in increased and nearly instantaneous public access to information, has prompted most companies to ensure that they are viewed as committed to sustainable and responsible business practices with regards to ethics, labor, health and safety, diversity, and the environment. The publicity backlash resulting from perceived negative sustainability practices could be highly material; this is not a new phenomenon.
2. Reducing Environmental Impact and Costs
As companies engage suppliers, apply science and conduct environmental and labor studies across a product’s lifecycle, they are not only able to reduce environmental impact but can also reduce costs and improve quality. In the retail and service industries, whose direct footprint is relatively small compared to the footprint of their supply chains, it’s imperative that they engage their suppliers in order to lower the environmental and social impacts of the products that they sell.
When retail giant Walmart announced its hefty sustainability-related goal to reduce corporate GHG (greenhouse gas) emissions by 20 million tons per year by 2020, the company realized that reductions in its own internal footprint would have a miniscule impact. Walmart needed to engage with its core suppliers to have any chance of accomplishing its stated goal. Walmart worked to distribute the goal among major suppliers with clear accountabilities. Concurrently, the retailer worked with suppliers to improve its suppliers’ emissions management capabilities by offering training and tools.
3. Improving Continuity of Supply
In today’s complex web of sourcing, given the speed of product copycats and the rapidly changing business environment, it’s necessary for companies to ensure ongoing, on-time delivery of supplies in order to remain as competitive as possible.
The auto industry learned this lesson when floods in Thailand brought a halt to the auto parts supply industry, idling factories around the world. As a result and after working with key suppliers, the auto industry supply chain is now much more diversified, which has resulted in benefits for their suppliers as well.
Working with suppliers to develop robust and resilient supply chains that can withstand unforeseen environmental, social and political challenges is smart business for both customer and supplier businesses.
4. Innovating Products and Services
Innovation is at the top of executive agendas across the world, yet very few companies effectively involve their suppliers in this endeavor. Suppliers often represent a gigantic pool of untapped innovation potential. The array of company innovation needs is vast. By engaging suppliers in addressing the many challenges a company faces, companies and suppliers are often collectively able to solve some of these innovation challenges.
If suppliers understand a company’s vision and long-term plans, they may be able to suggest changes and upgrades to the products or even their own processes and resulting material inputs, which have the potential to improve many areas of a company’s operations. In short, suppliers can be powerful allies to companies striving to accomplish innovation goals.
5. Creating Partnerships or Global-Industry Standards
Companies that advance their knowledge of the footprint of their products by partnering with NGOs and/or working to create global industry standards are able to stay ahead of any legislation or negative consumer sentiment that could impede their operations, which makes them more competitive in the marketplace.
In 2011, a group of major apparel and footwear brands and retailers made a shared commitment to helping lead the industry towards zero discharge of hazardous chemicals (ZDHC). As a part of the commitment and first steps, the group of brands published a Joint Roadmap document outlining the group’s collaborative efforts in leading the industry towards ZDHC for all products across all pathways by 2020. The Joint Roadmap includes specific commitments and timelines to realize this shared goal. The ZDHC Joint Roadmap has grown from six founding brands (Adidas Group, C&A, H&M, LiNing, Nike Inc. and Puma SE) into a coalition of 22 brands. In this case, collaboration has crossed company boundaries, improving sustainability, operational efficiency and marketing clout via a global standard that will move the industry forward.
Robust supplier/customer relationships and more sustainable practices cascade their benefits throughout the value chain. These benefits ultimately permeate through to the end consumer and to future consumers. The genesis of these many positive benefits is the efforts by customer businesses to reach out and create a relationship of trust with suppliers.
Suhas Apte and Jagdish Sheth are the authors of The Sustainability Edge: How To Drive Top-Line Growth With Triple-Bottom-Line Thinking (Rotman-UTP Publishing, 2016). Apte is president of Apte Consultants and a partner in the Blue Earth Network, helping businesses discover breakthrough opportunities. He previously served as global sustainability officer and president of the European Family Care business at Kimberly-Clark. Sheth is a professor of marketing in the Goizueta Business School at Emory University. He previously served on the faculties of Columbia University, MIT, University of Illinois, and University of Southern California.