Going to the source

Corporate social responsibility, sustainability, ESG… for many of us, these phrases and slogans have become entrenched in modern cultural conversations and for a corporate standpoint, have increasingly become part and parcel with organizational branding for some time.

08 Apr 2019

By Mat Langley

Going to the source
Corporate social responsibility, sustainability, ESG… for many of us, these phrases and slogans have become entrenched in modern cultural conversations and for a corporate standpoint, have increasingly become part and parcel with organizational branding for some time. But the times are changing, we should now also be looking at them as a strategy to build a strong eco-system of suppliers.

Today, the depletion of natural resources, climate change, and geopolitical uncertainties have seen the evolution of these phrases into actionable strategies rippling through the supply chain. In recent years, and as a result of commitments to action, what we’ve seen is the intertwining of sustainability and procurement. At this juncture, we enter the phenomena known as sustainable sourcing.

What does sustainable sourcing mean for corporate real estate occupiers? You’re probably thinking this involves handcrafted, 100% biodegradable stationary. The reality is, sustainable sourcing is a four-pillar (financial, environmental, social and governance) decision-making framework for supplier selection. Simply put, suppliers of FMCGs, electronics, furniture and office supplies are assessed against these four elements – naturally, then, environmental and social objectives begin to fuse with wider business objectives. The value in ingraining sustainability into procurement is the balance between flexibility and robustness struck, while bringing organizations closer to their suppliers.

Financial health is arguably the cornerstone of the four aspects used in evaluating supplier sustainability and building supply chain resilience. Auditing a supplier’s financial statements, cash flows and debt structure will paint a clear picture as to its preparedness for unexpected events like a flood or other natural disaster. Lack of financial stability could point to imminent issues surrounding product quality and supply.

Next up in the assessment of supplier sustainability is its prioritization of environmental objectives – that is, understanding suppliers’ wastage, greenhouse gas and water usage. This will then allow for the identification of emission hotspots, as well as capturing opportunities for energy efficiencies and cost reduction. With this wealth of information, companies can then work with the suppliers to mitigate risks and implement sustainability initiatives, inadvertently strengthening their partnership.

Last but not least, it’s imperative that suppliers’ social and governance standards are examined during the sustainable sourcing process. The social aspect encompasses compliance with labor laws, proactivity in community outreach, and adherence to local regulations. Minimum requirements, if you will. Assessing corporate governance involves understanding a suppliers’ ability to balance the needs of its various stakeholders,  and observance of anti-corruption and anti-bribery laws.

Financial, environmental, social and governance are not the only factors to be considered when building an agile supply chain. It’s also worthwhile considering sourcing from a diverse pool of suppliers in different geographic locations so there is no over-dependency. Whilst working with suppliers during the sustainable sourcing process can alleviate identifiable risks, building elasticity through the supply chain isn’t quite enough in the face of a disaster of such magnitude as say, the 2004 Asian tsunami. Hence, concentration of suppliers is another key consideration.

Bringing this all together, a crucial part of sustainable sourcing is information gathering. As such, the ability of this information in building flexible and robust supply chains will hinge on companies’ and their suppliers’ willingness to engage, innovate and take action. In recent times, we’ve seen several large corporations make great strides toward striking equilibrium between profits social/environmental initiatives. For example, encouraging suppliers to use renewable energy, launching health programs for suppliers’ female staff and supplier self-assessment modules for high-risk goods and services.

An ideal vision for future is one where companies and their suppliers transcend the routine realms of tick-box audits and move towards a relationship where sustainability road maps are built in tandem with heightening awareness amongst employees. Given the complexity of supply chains and an increasing need for flexibility in today’s world though, a third party service provider may need to be engaged. This can be effective in customizing solutions for an individual company with a feasible implementation plan in place. Sustainability is now a vein running deep into supply chain. What’s transpired is a strong business case to consider the financial, environmental, social and governance standards of suppliers. Adopting a sustainability lens beyond its traditional realm will see its development into a significant risk-mitigation instrument for organizations and their supply chain partners.

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