COVID-19 has emphasised the need for transparency and sustainability in supply chains. It has brought forth the necessity for real-time information across business networks to forecast and interpret the impact of unpredictability and ethically deal with future challenges.
In the technology age, it’s difficult for organisations to hide actions that they prefer to remain private. How they act and what they do is now in the spotlight for employees and customers to see and assess. This is particularly the case when it comes to ethical and sustainable actions.
For some businesses, reducing the use of single-use plastics and introducing proper recycling methods might be the obvious step. But more can and should be done. Digging a little deeper into business spend, procurement, and the supply chain offers a better way to be sustainable on a strategic level and mitigate environmental risk.
One response is procurement with purpose, which looks to ensure the ethical, sustainable, and social responsibility of the supply chain. With greater visibility and transparency in the procurement process, organisations can choose to do business with more environmentally friendly suppliers, mitigate environmental risk, and evaluate trading partners against specific criteria.
A rising awareness of the harms of modern slavery and an increase in non-profit engagement has gradually made supply chain transparency more sought after. In some cases, companies have no option but to comply as they face new regulations and assessments from authorities, activists, consumers, and other stakeholders, who may be demanding them to reveal more information about their supply chains.
Risk management is an essential result of evaluating your end-to-end supply chain. Organisations that know the origin of their supplies can identify possible issues, such as modern slavery, high carbon emissions, and logistics inefficiencies.
For example, if a product is made in Bangladesh, I would research the labour practices of that manufacturer. I would also need to track whether components of the end product were sourced and shipped across the world during manufacturing. Analysing each step of the supply chain will help you to identify inefficiencies and areas of concern around environmental, sustainable, unethical practices.
The need for policies and checklists
When it comes to reducing environmental footprint, businesses need to have a policy system in place, which they can use to evaluate their partners. That checklist can include goals towards plastic reduction, carbon emissions, chain of custody of products, and metals origin.
However, research shows that only 50 per cent of procurement leaders had high or very high visibility into even their tier-1 suppliers in 2020, according to Deloitte’s 2020 Chief Procurement Officer Flash Survey. And, 90 per cent rated visibility into their extended supply networks as moderate to very low.
This data indicates that the industry still has a long way to go to achieve total transparency. But further education on the advantages of digitalisation, risk management, and procurement with purpose could spur companies towards change.
The need for transformation
We see many organisations act internally to drive sustainable and purposeful business. But when we compare the scope of internal, employee-driven action with what can be done through procurement spend, we see that external focus results in greater outcomes.
In fact, 88 per cent of respondents to a recently published report about the state of social procurement in ANZ said the effects of COVID-19 had increased their organisational commitment to social and purposeful procurement.
Assessing the supply chain and improving efficiencies can increase the balance sheet, signal a high standard of ethics to investors, and provide a competitive advantage in your market. Additionally, equity providers take this into account when providing finance.
Choose one focus
Organisations first need to define what sustainability means to them. There is more to it than just the environmental element. I look at it in terms of three areas: social, economic, and environmental. Organisations should ask themselves: what do we care about? Then, choose one field or issue and focus on it.
SAP, for instance, is focused on making climate protection measurable, diversity and inclusion visible, and ethical duties transparent. To achieve this, SAP has launched a portfolio of sustainability-specific products to guide sustainable action for itself and its customers around the world. The SAP Responsible Design and Production solution helps ensure product designers can make sustainable choices from initial product concepts to production.
Walking through the supply chain, most likely virtually, to gain visibility and understanding of the different stages will help organisations identify areas that need reform.
A move towards a ‘new and better’ supply chain?
The COVID-19 crisis has laid bare many of the long-standing vulnerabilities and risks lurking in organisations’ supply chains, including localisation and access to information. Businesses have seen the need for shorter, more localised supply chains.
The emergence of new and better technology can also help businesses prepare for future uncertainties and disruptions. One being Sourcemap. It helps companies gain insights into the end-to-end supply chain to ensure that social, environmental, and compliance standards are met at every step.
GreenToken by SAP is another supply chain traceability tool that offers companies transparency in their complex raw material supply chains. Companies that need to source raw materials can now report on origin and sustainable or ethical facts, enabling them to meet their procurement goals.
The pandemic has caused many organisations to revaluate their processes and business models. For others, it has opened new opportunities for innovation, growth, and competitive advantage in the post-pandemic world.
But all in all, no matter what industry you are in, at some point, there is an end consumer. You are either selling to the consumer or to an organisation that has end consumers within it. Therefore, everyone needs to be accountable for their own purchase decisions.
At some point, someone will come along and say, ‘I don’t want to do business with you anymore because someone in your supply chain is unethical or unsustainable.’
Procurement with purpose is not a de facto way of working. It is an ongoing process. Organisations need to understand the impacts of the decisions they make before they can drive meaningful improvements.