Leverage analysis: A short-cut towards impact

With hundreds if not thousands of suppliers, prioritization is key when organizations want to improve their supply chain sustainability. Using a spray and pray approach to supplier engagement isn’t just a poor use of your own time, it is potentially damaging to your supplier relationship as well. But how do you know where you get the most (sustainability) bang for your buck?

Conducting a leverage analysis of your supplier base will help you prioritize for maximum impact. The leverage analysis will help you determine which suppliers are likely to comply with your request, which you should invest time in collaborating with and with which suppliers you are better off sticking to the bare minimum of compliance.

Moving beyond CoC to unleash impact

Supplier codes of conduct are a common way to begin working with sustainability issues in the supply chain. However, a CoC is the bare minimum when it comes to human rights due diligence and going beyond that is difficult. The benefits in engaging and collaborating with suppliers to create sustainability impact cannot be understated though, as estimates from CDP show that emissions in a company’s supply chain are on average 11.4 times higher than its operational emissions

Typically, as companies get bigger, so does their supplier base. But even the smaller companies we work with in the Food and Beverages, Manufacturing and FMCG sectors have large supplier bases. This only underlines the fact that resources have to be prioritized if organizations are to realize their sustainability goals. But how do you make sure you create maximum impact with limited resources?

An impactful approach can be to focus your resources on the suppliers that are likely to cooperate. Working with cooperative suppliers will allow you to maximize your impact, while ensuring that you don’t waste time trying to collect data from companies that are unlikely to cooperate with you. There are low-hanging fruits that are ripe for the picking if you can work with the suppliers that are more likely to respond positively to your sustainability related requests, but how do you identify them?

Pulling a page out of procurement’s playbook

Procurement teams are used to working with leverage and exploiting it to create better financial outcomes for their organizations. The same tools can be used to create sustainability impact. By carrying out a leverage analysis you can identify which suppliers to work with to collect some quick wins and where you are better off simply requesting the bare minimum of a CoC. In the leverage analysis you classify suppliers by answering two questions:

1. How attractive is your organization as a client to the supplier?

2. How important are your organization’s activities to the supplier?

The two may seem very similar, but the distinction points to a key difference.

Question 1 on attractiveness is concerned with the supplier's interest moving forward. The question answers how interested the supplier is in expanding their business with you. To illustrate, you may be a lighthouse client that the supplier can use to market themselves and thus even though your business value is fairly insignificant you have some leverage. On the other hand, question 2 is concerned with the status quo, how big is the account in comparison to the overall business of the supplier. In other words, how much leverage do you currently hold with that supplier?

And both of those aspects are important to consider, because they help you in identifying the level of willingness to cooperate that one can expect from the supplier.

Mapping your suppliers into a matrix gives a neat overview of your suppliers and their assumed willingness to cooperate. On the vertical access you plot suppliers in relation to your organization’s attractiveness. This judgment here should be based on the relationship with the supplier. On the horizontal access you plot your supplier according to the relative value of the contract. Here you might need to make a judgment regarding the supplier's annual revenue and hold it up against your contract value with the supplier.

The matrix can be divided into a 2X2, with four boxes that provides a neat overview of the supplier and provides a good guide that can guide action.

Development:

Your business is attractive to the supplier, but it is not a large client currently. This supplier will probably be interested in growing their account size with your organization and thus probably more receptive to sustainability requests and collaboration.

Inconvenience:

Your business is not very attractive to the supplier and they are not an important client to your organisation either. This means that there is low potential to drive sustainability issues and your requests are unlikely to be complied with. Action: As the supplier is unlikely to drive positive change, you should be concerned with making sure that the supplier meets minimum compliance standards.

Susceptible:

Your business is currently not very attractive to the supplier, but you have a large contract value and thus there is potential for pushing the sustainability agenda via improving attractiveness as a client. Focus should be on improving your organization's attractiveness as a client.

Core:

Your business is important to this supplier and it is simultaneously a large client. This supplier will most likely be open to change and responsive to sustainability requests. Here you can focus on driving change and cooperating on reaching your objectives.

Once you have gone through this exercise, you know which suppliers to expect cooperation from and where it may be a waste expending big efforts and. you are set up to create bigger impact faster.