The knotty challenge of supply chain sustainability (and how to unravel it)
Globalisation brought us a more interconnected world, with supply chains spanning the planet. In tandem, the communications revolution and increased transparency has brought more intense scrutiny of supply chains and shone a spotlight on the inequities of child labour and the terrible conditions facing workers in emerging economies in order to deliver everyday luxuries in the developed world.
Alongside the employment factors, scientists and various NGOs have highlighted the environmental costs resulting from international supply networks. Costs that are borne by some of the world’s most impoverished communities – from depleted drinking water to the health impacts of pollution.
Nearly every global brand has faced some sort of supply chain liability in the last few decades – from coffee to diamonds, and from sports shoes to furniture and high finance. This has led to greatly heightened awareness of the challenges of tackling sustainability in supply chains and also recognition of the cost that poor supply chain management levies on brands and reputation. The evidence of that reputational cost appears almost daily in the news, via intense public scrutiny and sometimes even consumer boycotts of brands and products, news of which spreads like wild fire across social media.
Leaders in sustainability
Companies have responded by recognising the need to set clear standards for their suppliers, which often take the form of Codes of Conduct that need to be met prior to any commitment of procurement, and which are then typically audited on an annual basis. IKEA for instance have been applauded for setting a progressive ladder of standards for their suppliers that seeks to drive continuous improvement of performance.
Leading brands have been quick to realise that good supply chain management has moved well beyond being just a hygiene factor – that it can actually be a distinctive brand differentiator. Here are a few prominent examples:
- Marks & Spencer’s Plan A aims to make it the most sustainable retailer in the world, which it claims is ‘our way to help protect the planet – by sourcing responsibly, reducing waste and helping communities’.
- Nike has gone further with its ambition to double its business while halving environmental impact by minimising its environmental footprint, transforming manufacturing to be ‘lean, green, equitable and empowering’ (with a target of 100% of contract factories to reach this standard by 2020) and using its brand to inspire and unleash human talent.
- Nestle has embraced the concept of Shared Value – i.e. doing business in a way that both delivers shareholder value and benefit to society, with priority areas being protection of scarce water resources throughout its supply chain and also investing in rural development to ensure sustainable production of the raw materials and commodities that the company needs to grow.
- Unilever’s Paul Polman is widely applauded for the company’s Sustainable Living Plan and the ambition to decouple Unilever’s growth from its environmental impact while increasing positive social impact across its supply chain and driving the profitable growth of its brands.
- Walmart – the world’s largest retailer with over 260 million customers – has established a Sustainability Index to provide sustainability information about products at point of purchase based on information provided by suppliers.
Raising standards across sectors
So the best practice ambitions and standards for sustainable supply chains are very high – which means that processes to safeguard that ambition and anticipate and mitigate risks are essential, particularly when brand value and reputations are staked on it. A periodic audit of supplier performance on the ground is essential, but in our 24/7 digital world, unlikely to be enough. That’s where Big Data and AI solutions have a role to play, enabling a brand to quickly and easily look across its entire portfolio of products and suppliers. In doing so, firms can assess the universe of unstructured data for the earliest possible red flags, in real time and in any language or geography. The technology has progressed to the point where it’s now possible for a company to have a single window on the full spectrum of risk facing its supply chain, allowing for mitigation and potentially even innovation to respond to the challenges at hand.
Trailing the pack
While there are clear leaders, it’s essential not to forget sectors and geographies where raising supply chain standards continues to be a challenge. The collapse of five garment factories at Rana Plaza in Bangladesh in 2013 killed 1,135 people. The tragedy led to the Bangladesh Accord on Fire & Building Safety which has since been signed by fashion brands such as Primark and H&M, although it remains to be seen how effectively it’s being implemented.
Similarly the tech sector is arguably a bit of a laggard with several firms receiving intense scrutiny and criticism for their relationship with supplier Foxconn, whose factories in China saw working conditions being blamed as the cause of multiple suicides. Being able to focus in on specific geographies, sectors and factories around the world using big data solutions means that it is possible to track the earliest signs of systematic concerns rather than waiting for an NGO or documentary film-maker to bring the short-fall to the world’s attention.
Potholes in the road ahead
However, even companies at the forefront of supply chain sustainability and ethics are not immune to new threats. A common and dangerous pitfall for firms comes with the decision acquire or merge with another business. In doing so it is also going to inherit supply chain legacies over which it has had no say or control.
When Dow Chemical bought Union Carbide, it also acquired association and ongoing controversy in relation to the 1987 tragedy at Bhopal, which killed over 3000 people following a toxic gas release, and subsequently 15,000 more. There are many smaller supply chain liabilities that come with any merger or acquisition and again big data can provide the due diligence essential to understanding the wider associations that come with such an investment.
Supply chains are the lifeblood of business today. They have long histories and they also have inherent risks that can escalate to damage the best of brands. Leading companies have robust procurement standards and supplier codes of conduct with sustainability concerns and a quest for continuous improvement at their core. Those leaders also need real-time scrutiny of their supply chains – as part of their supplier selection and ongoing auditing – to ensure they can look out across the real-time fast-moving digital universe and learn of problems before they break. While the tech sector may not yet be renowned for the best supply chain standards, they are nevertheless innovating some of the most strategic solutions to drive enhanced supply performance around the world.
Bronwyn Kunhardt is Managing Director at risk intelligence technology company Polecat
Follow @SupplyChainD on Twitter.