This is an original article written by Yao Kun.
In the age of disruption — of COVID-19 and Climate Change — businesses need to ensure that their supply chains are resilient and adaptive to change. This is especially pertinent in a world of Global Production Networks (GPN), where suppliers and procurers are closely integrated and highly dependent on one another in their respective operations. Nonetheless, It is heartening to see an increase in the number of multinational corporations (MNC) who responded to this call to action, underscoring the importance of supply chain sustainability.
More importantly, an interconnected issue of this scale requires solutions that go beyond addressing their immediate suppliers. In this article, we explore why supply chain sustainability solutions can fall short of expectations, and how we can better improve supply chain sustainability within our own GPNs.
Supply chain sustainability: fad or future?
But before that, one must first understand why supply chain sustainability has become so popular. One of the main reasons for this renewed focus is because companies seek to promote growth.
For instance, a 2016 McKinsey study argued that of the top 50 publicly traded Consumer Packaged Goods (CPG), half of the enterprise value depends on expected growth. However, 51% of that value is chipped away by sustainability factors such as carbon emissions, child labor violations, deforestation, among other sustainability considerations.
Source: McKinsey & Company, 2016
Furthermore, the same study argued that a CPG company’s supply chain accounted for over 80% of the greenhouse gas emissions, as well as over 90% of the impact on air.
Source: McKinsey & Company, 2016
Given these clear and concentrated supply-chain impacts on companies, it is no wonder that companies are beginning to recognize and concentrate their efforts on their individual supply chains.
Broken telephone, broken networks
While we can celebrate the increased uptake in sustainability as a global phenomenon, we also need to recognise why some initiatives fail to last.
A recent study conducted by the Harvard Business Review (HBR) found problems with the company’s supply chain sustainability in every case they visited, which shows how delicate pursuits of supply chain sustainability can be.
One example cited in the study was the observation that lower-tier suppliers lacked systems and infrastructure to handle environmental and social problems in their workplace.
In Mexico, China, or in the United States, the same patterns of poor enforcement plagued the lower-tier suppliers despite an increasing enthusiasm for supply chain sustainability. One possible explanation for this is a lack of a mechanism to guide that change. For instance, MNCs can often impose unrealistic deadlines for their procurement practices; but because suppliers do not want to lose their clients, they follow through on these deadlines often ignoring working hours and working conditions.
The above example suggests that MNCs often have greater power, and indeed, greater responsibility in pushing for supply chain sustainability. Because of their influence within the supply chain, it is imperative that these corporations need to act as the arbiter of sustainable change.
Troubleshooting (Global Production) Networks
The reality of supply chain sustainability is that companies need to work together to drive change. Because there is a complex network of global production, lower-tier suppliers are more incentivized to stick to current arrangements because of top-down demand structures.
Understanding contradictions between actors within a supply chain is important because it helps us better understand what we must do to create tangible and long-term solutions to improve their sustainability initiatives.
Therefore, it is imperative to keep the following guidelines in mind:
1. Communicate your sustainability goals
Firstly, it is necessary for sustainability goals to be communicated to your supply chain. Some companies do this by requiring first-tier suppliers to set a long-term sustainability goal. Others do so by adopting a supplier code of conduct. This means that companies should communicate expectations of sustainability goals towards their suppliers, and bridge the gap of expertise and knowledge gap between large corporations and small companies. Through this process, you also encourage first-tier suppliers to monitor lower-tier suppliers to do the same in their sustainability strategies. This creates channels of communication among all stakeholders involved.
2. Train your suppliers
One of the key hurdles of first-tier suppliers is that they lack the capacity to pursue sustainability efforts. Because of this, any pursuits are short-lived or lack the effectiveness to get any benefits. Therefore, MNCs need to help first-tier suppliers build their capacities for sustainability initiatives. One way to do this is by leveraging best practices and case studies of top suppliers in supply chain conferences. This helps to facilitate knowledge sharing and transfer between companies and helps smaller supplier companies explore the different ways that sustainability can be pursued.
3. Engage in Supply Chain Assessments
Finally, it is also important to measure and quantify your efforts. While pursuits of sustainability are important, companies need to periodically assess their sustainability efforts. This can come in the form of external auditors or providers who will assess your supply chain and identify problems and key areas of improvement. This is especially important because this allows for a more comprehensive and holistic view of their supply chain.
Unlocking the bottleneck
The benefits of sustainability are wide-ranging. It spans from brand enhancement, innovation, cost reduction, among a host of other benefits. However, we need to take a comprehensive and integrated approach for an interconnected problem before benefits can accrue. In doing so, we unlock the bottleneck of benefits and allow change to happen in a much more sustainable and long-term manner.
The currents of change often favor the bold. To pursue greater development of sustainability initiatives, we need to take bold steps forward, not just within the company, but also towards the web of interconnected suppliers.