Can you manage supplier impacts?

New ways some organizations are finding effective

By Mike Wallace

Supply chains are increasingly being seen as the low hanging fruit of sustainability. That’s why most of the largest companies in the world are already enhancing their Supplier Codes of Conduct (SCOC) and sharing amazing stories about how they have required all their suppliers to “do something” with regard to sustainability. While this is all great news for our mutual sustainability efforts as a whole, there are tremendous inefficiencies that are being uncovered in supply chains and a new recognition of where one can achieve the most impact.

When the idea of sustainability first came about, it was mostly focused on a company’s direct impacts and their efforts to manage these impacts. But over the last five years or so, the discussion has evolved from direct impacts to indirect impacts – more specifically, supply chain impacts.

Often, companies develop a whole sustainability program around managing their direct environmental and social impacts as they pertain to daily operations. This leaves out a huge piece of the puzzle – supply chain. For smaller companies who have a handful of suppliers, the idea of helping to manage supplier impacts seems less daunting. But for large companies such as Walmart, or large institutions like government agencies and state universities, the thought of trying to not only manage direct impacts but all the indirect impacts of suppliers seems nearly impossible.

The fact is that for large companies with thousands of suppliers it is unrealistic to expect that all impacts will be managed completely. But there are steps companies can take to educate its supplier base and give them the tools to effectively manage their own impacts. For example, Intel has 16,000 suppliers in over 100 countries. This supply chain is also one of the world’s most complex and technologically advanced. One way Intel manages its supply chain impacts is by assessments and audits to identify compliance gaps where immediate action is needed. This also enables Intel to find root causes and develop systemic solutions. In 2012, Intel held a two-day conference in Shanghai dedicated to supplier sustainability. This conference allowed the company to bring together a multi-stakeholder group to collaborate on key sustainable supply chain challenges and share best practices.

Intel also sets clear expectations for its suppliers to incorporate corporate responsibility strategies and policies into their own business plans long before this supplier conference. In 1998, Intel first documented these expectations around human resources, environmental management, worker safety and business ethics. Six years later they helped form the Electronics Industry Citizenship Coalition (EICC) and adopted the Electronics Industry Code of Conduct. By 2012, Intel requested that their top 75 suppliers publish sustainability reports in accordance with the Global Reporting Initiative (GRI) Guidelines.

To support this request, Intel partnered with GRI to provide training to suppliers to help them either begin reporting or make improvements to their reporting practices. Not only did Intel desire a better understanding of its supply chain and respective suppliers, but took the time and effort to develop sustainability capacity within that supply chain. They also offered training to suppliers who are not just exclusively supplying to Intel, but also to some of Intel’s competitors, as well as business partners. Further, by asking its suppliers to report using GRI and do so publicly, Intel gave the world a new look at sustainability information from companies that may have never reported on such things publicly. The Intel story takes us into a new direction and results in positive impacts in the area of greater transparency.

Public institutions provide another interesting angle. Take for instance the University of California (UC)—one of the largest higher education systems in the world. Think of that supply chain and how the system might examine direct and indirect impacts. The University of California, at Berkeley (one of the ten campuses in the UC system) has produced a sustainability report for several years. UC Berkeley held its first Sustainability Summit in 2004, formed an Office of Sustainability in 2008, and met its first carbon reduction target in 2013; reducing emissions lower than they were in 1990.

UC Berkeley also has environmentally-preferable purchasing policies and procedures, and carries out daily initiatives to achieve its goals. For example, in 2012 the campus purchased approximately $14.4 million in environmentally-preferable products, including sustainable food, recycled paper, and office furniture with recycled content. To make sustainable purchasing easier for the decentralized system (department users initiate their own purchasing transactions in the BearBuy e-procurement system), UC Berkeley has a contract with America To Go to provide catalogs with contracted local catering companies and restaurants for departments to use.

In light of these growing customer demands, companies like Steelcase and Staples are launching specific programs to help buyers more easily purchase sustainable products. And organizations like the Sustainable Procurement Leadership Council (SPLC) are organizing a range of institutional buyers to help standardize and streamline sustainable procurement.

Next Generation – Impact Sourcing
Responsible procurement and supply chain management in the sustainability area are evolving in a very interesting way. While the Intel story shares a new level of positive impact that can come from a progressive supply chain management approach, some organizations are looking at supply chain through an even broader sustainability lens –a business model of helping companies create shared value throughout their services supply chain that some experts are calling Impact Sourcing.

For example, service sector companies are employing high potential workers in disadvantaged areas (such as parts of Africa and India) to help meet and exceed cost and quality objectives, as well as enable these workers to earn a higher income; sometimes up to 200 percent more than they would earn in another job. A recent survey found that 46 percent of companies were likely to engage this kind of “Impact Sourcing” if they participate in corporate social responsibility (CSR) initiatives. The fact that companies are both meeting their business needs while giving people they might otherwise overlook an opportunity to work (and learn valuable workplace and technical skills) makes for an inherently more responsible supply chain. It also contributes to broader impacts in family and community, such as the reduction of poverty and further investments in family healthcare and education.

Who and How?
So the question becomes: How and who do you choose? Because a massive supply chain is difficult at best to manage, how do you prioritize key suppliers to engage with more deeply, more proactively and in alignment with your larger sustainability objectives? And how do you go about such engagement?

As referenced above, there are several ways to prioritize. Intel focuses on their top 75 suppliers as these compile the majority of their supply chain. Other companies may choose to focus on areas where their operations have the biggest impact on the socioeconomic conditions of the people who live and work there.

Regardless of prioritization, the common thread in working effectively with your supply chain is engagement– more specifically, education.

More often than not many companies in your supply chain do not have the necessary capacity to easily respond to the myriad of sustainability demands they are increasingly receiving.

Providing these companies with tailored training and helping them understand the growing interest in transparency on material sustainability issues is not only mutually beneficial, but benefits the broader, common sustainability interests of the marketplace. Rewarding transparency with continued contracts reinforces this transparency and helps us all make a strong business case for sustainability.

Posted July 7, 2014 in 25115