5 ways to create sustainable supply chains with technology
From Rana Plaza to the horsemeat scandal, non-compliance, low engagement or simple a lack of supplier information lead to disasters that burned huge holes in the pockets of global corporations. In a world where supply chains can be extensive, monitoring and ensuring due diligence is no easy task. But the business risks, as we have witnessed in recent years, are significant. Whether it’s a drop in share price, damaged brand reputation, or increased costs to help disaster victims, understanding and managing your supply chain risk is simply good business.
Unfortunately, most responsible sourcing professionals expect incidents of supply chain upheaval to become more common in the face of increasing globalization, resource challenges, such as water scarcity and soil degradation, and the negative effects of climate change, such as extreme weather.
While technology alone does not solve all problems, knowing there is an issue is one of the first steps on the road to creating a safer supply chain. Thankfully, software platforms and tools can help you understand your supply chains. From identifying suppliers that need your attention and simplifying audit finding and action management processes to providing capacity building tools to help create a sustainable, effective and resilient supply chain technology is most definitely part of the solution.
Curious? Here are five ways that technology can help you create sustainable change in your supply chains.
1. Identifying risky suppliers
It’s hard to discuss risk management in supply chains without bringing up the deadliest garment-factory accident in history, the collapse of the Rana Plaza building, which killed over 1,100 people. It’s no secret that conditions for workers in Bangladesh are poor. So, how could technology help manage risks of this kind?
Even with only a few hundred tier 1 suppliers, simple tasks like information collection can seem like a mammoth operation. Extend this to tier 2 or increase your suppliers and things start to become unmanageable without systems. By automating the risk management process, supplier self-assessments and code of conduct surveys, for example, we can begin to reduce the manual administration required. Using a supply chain information management system, suppliers can be automatically screened for risks based on their country of operation, products, existing audits, and using pre-existing data. Then the system can simply invite suppliers to respond to questionnaires, and automated emails and summary dashboards follow up with required actions, so you can dedicate more time to engagement or considering alternatives.
2. Simplifying the auditing process
While audits have their limits, they remain part of the toolset for responsible sourcing professionals. As you’ll no doubt be aware there are many tens of thousands of audits undertaken on suppliers each year, increasingly to common industry standards such as BSCI, SMETA, or others. This provides an excellent starting point for technology that leverages existing databases and enables easy identification of audit status and findings.
Technology can also be used to create, schedule and conduct audits, in-house or help manage third parties doing so on your behalf. Observations and non-compliances - including images - can be captured on site, even when offline. Data can then synchronize with your systems as soon as the auditor’s device is back online.
3. Measuring and anticipating your carbon footprint
Transitioning to a low carbon economy means reducing carbon emissions not only from your direct operations, but that of your supply chain too. Of course, you can’t manage what you don’t measure, but monitoring scope 3 emissions – i.e. from the goods you purchase – can seem like a daunting task when you procure a large inventory of products.
Here, software tools can help you determine the carbon footprint of each supplier and calculate your carbon emissions per pound spent. Better yet, you can also use software to anticipate what the carbon footprint of future purchases might be, and make informed decisions.
4. Ensuring sustainable sourcing
Despite the wealth of commitments from global businesses, palm oil is still high on the agenda for many NGOs. In September this year, Greenpeace activists closed off access to all imports and exports from palm oil trader IOI, whose practices it’s claimed have caused fires, forest destruction and human rights abuses. Ensuring that your raw materials are sound – whether it is indeed palm oil, timber or gold – can help supply chain disruption.
Tracing your supplies right back to extraction or raw material is not easy. However, traceability and tracking software and services exist today to enable you to do just that. For example, by creating a map through your supply chain based on batches or lots of the product purchased. These processes draw on other databases – for example, in the timber category checking performance against the Programme for the Endorsement of Forest Certification (PEFC) and Forest Stewardship Council (FSC) sourcing criteria. When risks are identified, you have the opportunity to work with suppliers to resolve any issues before they become business critical.
5. Enabling collaboration and building capacity
Many of the challenges we see in our supply chains stem from a lack of legislation – or as is more often the case – a lack of application of that legislation. Indeed many of our supply chains are in developing countries, and while that can, and often does, present risks, it also provides opportunity. It is well know that a buyer generally holds more power than a seller, and to steal a line from Peter Parker – with (great) power comes (great) responsibility. If we continue to hold suppliers to our standards and only audit the results, we are destined to be locked into a self-defeating cycle. Just as over the years countries have established capacity building projects to inform, support and nurture developing countries, so businesses are beginning to understand the need for and benefit of capacity building in their supply chains. Again, this is already happening and the education and collaboration is being facilitated by technology.
By Matt Scott, Director of Business Development, UL EHS Sustainability
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”