Improving supply chain sustainability is a tough task. Unlike the footprint of your internal processes, your success is ultimately dependent on buy-in from your supplier base. Big multinationals have an edge here due to the leverage they enjoy over their suppliers. But how do you approach supply chain sustainability when, unlike the Nestles and Coca Colas of the world, you have limited bargaining power? Here is a six step plan for ultimate impact.
Step 1: Conduct a leverage analysis
You have probably already created a spend analysis to understand the biggest material risks in your supply chain. Oftentimes though, your biggest spend sits with large corporations that are unlikely to go out of their way to comply with your ESG requirements. Unfortunate, but you shouldn’t let that discourage you. Focus your efforts on the suppliers, where you have the most leverage to increase your impact. Typically, winning contracts with you will be more important to your smaller suppliers than to larger corporations. This means that they are more likely to join you in making a sustainable impact. Identifying the suppliers you have higher leverage with doesn't have to be a large task.
Simply take a little time and go through your suppliers starting from top spend and move downward. You mark three things:
• Mark the suppliers you know you have a good working relationship with
• Mark the suppliers where you estimate that your contract value makes up a significant part of their overall business.
• Mark the suppliers with a more sustainable profile
Now go through the list and prioritize working with the suppliers you’ve marked.
Step 2: Do preliminary research on your suppliers to establish a data baseline
There is a whole lot of sustainability data on suppliers out there - use it. If your suppliers are taking strides towards more sustainable operations, they will most likely be communicating about it. You’ll find a lot of usable data by going through your suppliers’ websites, annual and sustainability reports. On top of that, SBTI, CDP, FSC, BCorp, GOTS, Fairtrade and many many more all have publicly available databases. Look up your suppliers in these databases before asking them for information. This will improve efficiency in your workflow as you won’t be waiting for your suppliers to provide you with data. More importantly, you’ll increase the validity of the data as you’ll be getting it straight from the source. Finally, taking this initial research step will also improve the proposition of working with you as a company. Sustainability disclosure and improvements is an extra strain you are putting on your suppliers. Why not make it easier for them by utilizing publicly available data, when it is available? Responsibly sweeps suppliers’ websites for you and recognises 600+ data sources. Get in touch here if you want to hear more.
Step 3: Clearly (and publicly) communicate your sustainability goals and commitments
Sustainability goals are a sign of your company’s commitment to sustainability, but also communicates that sustainability is part of the corporate strategy moving forward. And it is your organization’s job to ensure your suppliers know that. To leverage the full effect of your communication, you need to
• Communicate it directly to your suppliers via your common means of communication
• And perhaps even more importantly via more public announcements. By publicly committing to sustainability you send a strong message to your suppliers. It communicates that you are committed and that the focus on sustainable procurement isn’t a fad, but a business requirement moving forward
• To underline the importance of your new efforts, share your procurement policy or have your suppliers sign a Code of Conduct that stresses the importance of sustainability disclosures and performance moving forward.
Step 4: Support and educate your suppliers
While awareness of ESG is ever increasing, smaller organizations further up the value stream often don’t have dedicated sustainability professionals. This means that there is often a knowledge gap. Your suppliers could benefit from education and support on how to improve and report on key impact parameters. Taking GHG emissions as an example, you might share resources on how to start emissions accounting, suggest what organizations to work with on auditing and disclosure e.g. CDP or SBTi, or simply offer support in the process of switching fuel input or electricity providers.
Step 5: Improve payment terms for sustainability compliance or improvements
Beginning to require sustainability disclosures and improvements is an extra burden on suppliers. As it is a business relationship after all, you need to make sure that there is something in it for them. An efficient approach to establishing this quid pro quo is by offering favorable payment for your suppliers that are performing well. This could be in the shape of early payment for top performers or even delaying payments in cases of non-compliance.
Step 6: Recognise good performance and communicate about it
You can increase your suppliers’ incentive to comply with your sustainability requirements simply by recognising good performance. Let your top performing suppliers know that they are doing well. Use your website and socials to point the spotlight at them. When celebrating the impact leaders, those concerned will enjoy the recognition, while the laggards might benefit from the inspiration. Lastly, you’ll be improving your public perception. Win-win-win.
Following these six steps will set you up for success and help you achieve maximum impact with limited bargaining power. One last thing to remember is that impact comes with persistence. Real impact takes time and you’ll need to create a long term supplier engagement strategy with continuous touch points and revisions to ensure maximum impact in the long run.
Emil K. Braunschweig