Why Sustainability Matters to Supply Chain Sourcing

Corporate social responsibility (CSR) is rapidly becoming a key market differentiator for businesses as more consumers look to purchase products from companies that act responsibly.

So it comes as little surprise that significant efforts are underway to incorporate sustainability within supply chains. Gartner's 2017 Future of Supply Chain Survey data highlights how companies view CSR as an opportunity to enhance their brand reputation, rather than just satisfying government regulations. Eighty two percent of respondents say their organization's intention to invest in ethical sourcing is because "it's the right thing to do."

“ Far from perceiving sustainability as a costly inconvenience, supply chain leaders are using it to their advantage”

“With the rise of social media, a spotlight can easily be shined on companies — and their suppliers — that fail to operate in a sustainable way,” says Miguel Cossio, principal research analyst at Gartner. “Far from perceiving sustainability as a costly inconvenience, supply chain leaders are using it to their advantage, as it provides new opportunities to optimize costs and reduce waste.”

Explain the importance of responsible sourcing

Adoption of responsible sourcing will require supply chain leaders to make sustainability a non-negotiable element that is as important as quality. This in turn will impact how sourcing teams are measured. Performance recognition is often given to sourcing leaders based on cost reduction, yet some of the savings achieved through sustainability will likely be realized outside unit price. For example, changing material specifications to enable better recycling yields may not change the unit price but will still result in savings based on its total cost of ownership.

“Sourcing leadership teams should encourage the incorporation of sustainability objectives into their team's performance metrics and strike a balance with other financial objectives,” says Cossio. “This will require sourcing leaders to educate internal team members on the importance of CSR for the organization and help them create a story to articulate to suppliers why CSR is now a key factor in sourcing decisions.”

Incorporate CSR in your supplier relationship management programs

Incorporating sustainability in the brand's value proposition is also likely to affect the definition of what constitutes a valuable supplier for the organization. Suppliers that commit to CSR demonstrate their ability take on a long-term vision, which is an essential component of building strategic relationships. For this reason, supply chain leaders need to revisit their segmentation strategies and reassess their selection of strategic suppliers engaged through their supplier relationship management (SRM) program.

“Clearly communicate the importance of sustainability to strategic suppliers,” advises Cossio. “Provide a clear indication of what is expected from them, how you will measure sustainability performance and a clear timeline for complying with your minimum expectations. Be prepared to provide support to help your suppliers transition.”

Look to existing sources for support

In order to integrate CSR into the strategic sourcing process, supply chain leaders will need to identify and use data from external sources and service providers. A number of sources are available to help outline a responsible sourcing strategy, such as:

• Competitor activity. Look at what your competitors are doing in terms of responsible sourcing and in what areas of procurement they have implemented sustainability criteria.
• Industry associations and nongovernmental organizations (NGOs). These organizations have data, key performance indicators and solutions that you can leverage.
• ISO 20400. This is the world's first international standard for sustainable procurement, which provides guidance to organizations on how to integrate sustainability within procurement.