Building Sustainable Supply Chains: Procurement

Screen Shot 2015-07-30 at 11.52.42Imagine the complex the life-cycle of a simple white t-shirt and the impact it has on the communities along its supply chain. From the farmers growing the cotton, the factory workers weaving the fabric, cutting and sowing of the end product, along with the transportation of materials at various stages , these processes have tremendous impact on the environment and the finite natural resources we depend on. Organizations have numerous opportunities to improve sustainable practices along the supply chain from product design, to procurement, logistics, sales and reverse logistics.

The apparel industry offers multiple examples of opportunities to improve overall practices, lower impact and grow as a market leader. Companies such as Reformation and Levi Strauss, among few, have proven that being sustainable is a good business and profit model. The apparel industry has not changed its procurement and manufacturing practices for decades, as exemplified by the deadly disaster at Triangle Shirtwaist Factory in New York in 1911, and more recently we’ve seen similar stories happening in developing nations . Buyers constantly push for lower costs, which continues to shift manufacturing to developing nations. Too often we hear the horror stories of factories burning down in Bangladesh or Pakistan, and the number of avoidable deaths.

Procurement strategies lie at the heart of international supply chains and offer an array of opportunities to improve on sustainability practices while creating value. Sustainable procurement practices are directly linked to stable supplier relations, efficiency, transparency and accountability. Companies that implement innovative sustainable procurement strategies see the immediate top and bottom line benefits; improved quality of goods and services procured, and increased trust. Below are 3 top procurement strategies that international organizations can depend on to build a more sustainable supply chain:

  1. Engage your suppliers & collaborate

Meet your suppliers, visit their suppliers and conduct performance assessments to identify high-risk and non-compliant suppliers. Ask to meet the producers at the bottom of the pyramid and work closely to ensure that value is being built throughout the supply chain. Organizations should want to know the total cost and impact of sold goods, by working closely with downstream supplies they can better measure these indicators.

Rapidly changing weather patterns, like the current El Nino , significantly affect international supply chains, particularly for food and apparel. Working closely with suppliers allows companies to formulate strategies to protect their production during these times. Furthermore, having the information of all that is required to deliver the end product also allows organizations to measure and mitigate their impact on local societies and the environment.

  1. Partner with NGOs & be creative

The United Nations Capital Development Fund (UNCDF) supports programs that aim at reducing poverty through inclusive and equitable local development. A huge pillar of this outreach is the program’s ability to bridge the gap between the private and public sectors. The program works closely with international organizations to develop stable procurement programs in indigenous localities from where they can source goods directly from small producers. Organizations such as Oxfam or The Fairtrade Foundation work closely with members of developing communities around the world, understand how to position and operate in those environments, and can prove to be valuable partners when diversifying international supply chains. Companies should also take advantage of the data these NGOs have gathered from various locations to help guide them when forming supplier partnerships. Partnerships can stretch across the globe and aim to reach multiple communities in need, or stay local and manage the impact of programs in their own communities.

Some organizations have already seen the proven benefits from similar partnerships. Reformation is anScreen Shot 2015-07-29 at 15.52.48 apparel company headquartered in Los Angeles, California. The company proudly boasts on its website “We make killer clothes that don’t kill the environment” and they have the facility and data to back that up. But efforts do not stop there, they have recently launched a program through which they actually help people recycle their old, used and unwanted clothes by offering a free shipping service to their warehouse for such items. The items received are sorted to determine if they can be reused or recycled. If they determine that the materials are useful than that becomes part of their production.

  1. Take a 360 view of supply chain operations & use data

New data and integrated business management systems can help companies have better transparency in their supply chains. Competitive advantage lies in a company’s ability to break out of silo management styles and bring members from across the organization to supply chain task teams. For years marketing managers have made great use of customer related data, from structured sources such as POS systems, and other types of transactional information. Today, marketing departments are at the forefront of big-data management by blending traditional structured data with unstructured sources such as social media, email or videos.

Data use in supply chain is still at an infant stage, managers are still only making use of transactional data, often looking at inventory, order fulfillment and forecasted demand. Seldom do companies formulate a broad data strategy where all departments are utilizing the same knowledge to ensure that their goals are aligned with those of the overall organization.

Why is this important?

  1. The price of raw materials is volatile due to environmental degradation and increased competition. This volatility creates uncertainty in supply chains, which can have significant cost implications on inventory and operations.
  2. Studies show that 60% of consumers a company’s environmental record, sourcing and employment policies affect their purchasing decision. Building sustainable practices into supply chain strategy can help strengthen stakeholder relations.
  3. Supply chains are exposed to multiple risks and stronger supplier relations help companies develop strategies to mitigate risk and make forecasting projections that will meet changing customer demand.
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Supply Chain or Value Chain?

Michael Porter first addressed the notion of value chains in his famous business writing Competitive Strategy. He explains the concept as a set of business processes operating within a firm that together provide increased value to customers. This value building set of process operations incorporates information and activities connecting a company’s supply side with its demand side, and thus covering raw materials, inbound logistics, production process, marketing, sales and all other aspect of a diverse supply chain. Following this explanation, companies whose values lie in corporate social responsibility and sustainable operations should think of their supply chain as a value building mechanism. To do this organizations must shift focus from the customer centrist approach to a more holistic one that incorporates the well-being of people, environment and resources in countries where they have a licenses to operate.

From the perspective of the organization the concept of value is subjective, but there are various benchmarks that help companies measure and quantify efforts. As an example, the textile industry is one of the most chemically dependent industries on earth and the #2 polluter of clean water.  As we have seen in recent years, clean water is becoming a coveted treasure as drought and bad business practices continue to deplete the last remaining clean water sources. In countries like Pakistan, India and China, where the textile industry is booming, we can notice the most deplorable water situations. This is not sustainable for the local societies, and it builds instability up the supply chain creating a very risky environment for large multinationals.

New technologies are available to help multinationals gather information from the bottom of the supply chain such as water use in cotton growing, energy use in knitting and weaving, or chemicals used in dying and cleaning. At the moment these are measured at factory level, and are rarely shared with buyers. Such practices allow bad practices to continue unnoticed, and the supply chain in weakened by unsustainable practices. Multinational corporations cannot make proper forecasting decisions when they depend solely on production from unsustainable suppliers; their supply risk increases as they choose to ignore these practices.

Furthermore, the public is keeping a much closer eye on the business practices of large organizations. Take for example the multiple scandals that Nike has been a part of over the years. From unsafe working environments, to child labor their stock prices have suffered one blow after another. This has weakened their buying and negotiating power to suppliers and hurt their image to customers around the world. The public relations department tried to defend the company by placing the blame on suppliers’ business practices, but in the eyes of Nike customers the company should have assumed responsibility for all practices in their supply chain.

So is value building through improved business processes a concept that should still be questioned, or is it the norm for industry leaders? Organizations must find ways of monitoring materials and information flows in the supply chain. A resilient supply chain is one from which all actors benefit and want to be a part of for an extended period of time. This ideal supply chain is built on best practices learned over years of exchanging information with customers and suppliers in a transparent manner; this IS building value through operating processes. Companies can implement best practices offered by organizations such as the Global Impact Investing Rating System or the Global Reporting Initiative to ensure the maximum amount of value is drawn from all business processes for all actors’ part of the supply chain.

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