With the COP26 conference recently concluding in Glasgow, the word on everybody’s minds is ‘sustainability’. But what does this mean? Sustainability can take many forms but at its heart, the concept is about meeting our own needs today without compromising the ability of future generations to meet their needs tomorrow.
Sustainability is not just flying less and recycling more. Governments, businesses and individuals alike can all play their part. In this article, we will focus on the ways in which business can promote sustainability across their supply chain.
Why does a sustainable supply chain matter?
Put simply, a sustainable supply chain makes good business sense. For one, governments are increasingly regulating businesses to ensure they meet certain sustainability-based targets. But consumers and investors alike are also more informed than ever and want to know that they’re spending their money with businesses who respect the planet, the community and their own staff.
Areas of sustainability to consider
The recent gas crisis is a good example of challenger companies failing to protect themselves against rises in the wholesale price of gas. Their errors were two-fold. In an effort to disrupt the market, customers were offered very low prices to tempt them away from the ‘Big Six’ energy suppliers. Because of the tighter margins, the smaller energy providers couldn’t afford to ‘hedge’ and this left them open to the high volatility of gas prices during 2021.
Thus, businesses who protect themselves financially have a greater chance of sustaining themselves through tough economic periods. In terms of the supply chain, ensuring suppliers are financially healthy is of vital importance as is balancing both the need for competitive pricing against ensuring the supplier can actually deliver on its obligations in the long-run. Businesses might want to consider paying more to deal with financially healthier suppliers in order to minimise the risk of disruption further down the line. This is especially important in today’s uncertain economic climate.
Many businesses who pride themselves on adhering to high environmental standards have found themselves at the heart of embarrassing scandals involving factories discharging toxins into rivers, or suppliers of raw materials destroying huge areas of wildlife to mine for minerals. The reality for many of these companies is that such events occurred not by design, but due a lack of oversight and governance of their supply chains to ensure that contractual commitments were enforced.
With climate change getting ever more urgent, every business would benefit from scrutinising the environmental impact of their entire supply chain. Reviews should ensure that contractual controls are in place to regulate suppliers, and that sufficient resource is dedicated to monitoring these.
Human / Social
As with environmental scandals, the news is never short of a prestigious brand’s products being made by children in sweatshop factories or local communities being ravaged by the construction of a new industrial site. In addition, consumers are ever more vigilant as to businesses’ donations, political alliances, commitment to diversity and to equal employment rights.
Businesses will therefore benefit from ensuring that the same objectives that they pursue internally to benefit their own employees and/or the local community are reflected in the values of their suppliers. One example might be ensuring their suppliers are committed to equal pay or that their suppliers aren’t affiliated with organisations with questionable human rights track records.
A comprehensive approach
Good supply chain management requires businesses to look at the entirety of their supply chain and not just their largest suppliers. Often, the greatest risk is posed by a suppliers further down the chain. Whilst many businesses are good at managing their direct contractual relationships with their first-tier suppliers, they forget to ensure these suppliers are passing on those standards to their suppliers in turn.
Businesses need not be afraid of requiring their suppliers to ensure compliance with sustainability objectives throughout the whole supply chain. In 2021, meaningfully committing to a sustainable supply chain requires businesses to really think about the end-to-end journey of their goods and/or services and ensure that no stone is left unturned.
If you have any questions regarding the above, please contact Poh-Leng Devare email@example.com.