Sustainable Supply Chain ESG risks: What you CAN’T see, CAN hurt you

dating customs in canada A major concern for today’s businesses is the risks lurking in the dark, and risk associated with supply chain is one such area where the visibility is in adequate. Disruption in supply chain has significant impact on financial performance and reputation of the enterprise. A report by Amnesty International talks about the sourcing of cobalt by Apple, Samsung and Sony from the conflict zones in Africa where there is high rate of human rights and labour rights violations

There are three basic flows in supply chain: a) material flow which is the logistics network, b) information flow which is the communications network and c) monetary flow which is the financial network. Monetary and material flows are in reverse direction of each other whereas information flow is in both sides. Thus, an enterprise is related to its suppliers through these three typical flows and due to the multi-level of inter-linkages, the complexity of risk management in the supply chain suggests the need for a highly focused approach.

A survey conducted by Sedex Global in 2013 shows that the average number of non-conformance in tier 2 increases by 18% and 27% per audit from tier 1. This shows there is increase in enterprise risk and complexity at each tier.

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A sustainable supply chain is crucial to ensure a responsible supply chain and avoid disruption in the supply chain. To embed sustainability in the supply chain over the time, following should be considered:

1) Strategize: It is important to have the relevant and correct sustainable supply chain strategy in place. This should include the areas of concern, over-all goals and targets and execution plans.
2) Prioritize: This step plays an important role as it allows enterprises to focus on certain group of suppliers for specific issues and goals to be achieved over a specific time frame. Companies can also opt to prioritize as per vulnerability of the suppliers, addressing the most needed group of suppliers first.
3) Engage: Once the prioritization in done, it is important to engage with the selected supplier group to establish a common understanding of sustainability. Continuous engagement and collaboration can be achieved through supplier conferences and by leveraging technology platforms. Most enterprises engage with their supply chain around material, delivery and finances, supplier’s performance in the area of EHS and sustainability is typically not prioritized.
4) Innovate and share: Through proper engagement and collaboration between (a) enterprises to enterprise, (b) suppliers and enterprises and (c) suppliers to suppliers, both enterprise and suppliers can discover innovative ways and means to achieve sustainability, monitor and enhance performance.
5) Monitor: This phase should ideally be implemented once the basic understanding of EHS & S has been developed within the target group of suppliers. Monitoring, training and knowledge sharing with the supplier goes hand-in-hand and data/information should be used to assess the progress and areas of concern.
6) Empower: Once all the concern areas are addressed and it is evident that sustainability has been embedded and internalized by the suppliers, the suppliers should be empowered to monitor their sustainability performance and enterprise can ask for such information on need basis. This will enable enterprises to move to the next prioritized group.

No doubt engaging, monitoring and empowering tier 2 and tier 3 suppliers is a challenge, however, enterprise can address the same through indirectly engaging through tier 1 suppliers by asking for tier 2 suppliers EHS& S performance, however, this should include occasional engagement with tier 2 suppliers or engage third party for engaging and monitoring their EHS& S performance. In both the approaches, the purpose should be to empower the target group of suppliers. Apple, through it Full material disclosure and Regulated Substance Specifications applicable to all its suppliers from cradle to gate, has taken actions to remove toxic substance from their devices. Zara has committed to toxic free supply chain by 2020 by gathering suppliers’ data on chemical usage.

The amount of data from the supply chain often acts as major hurdle in the process. At times, the mere thought of the magnitude of data can discourage enterprise to work on a sustainable supply chain. As mentioned above, prioritization can help in managing the data by identifying what and from whom data is to be gathered and assessed for a certain period of time. Likewise, empowering can ensure that suppliers are capable for monitoring their performance and such information can be readily available to enterprise on need basis. Use of technology platforms can be considered as one of most effective ways to manage supply chain data and performance. These platforms can also be used for continuous collaboration with the supply chain. Companies like Marks and Spencer and Zara use technology platforms to collect their suppliers’ data. CDP supply chain program also acts as a platform for gathering supply chain data.

Purpose of data gathering should be to achieve sustainability embedded business and not a mere form of information which is to be shared. Likewise, the purpose of sustainable supply chain is to embed and internalize sustainability within each supplier and disclosing performance accurately should be an outcome of the complete process.

I am very interested in knowing your thoughts, do leave your comments.