'To boldly go where no sustainability strategy has gone before...'

Businesses should ask themselves some simple questions to ensure supply chain sustainability goes beyond mere ‘window dressing’, according to Paul Davies, Chief Operating Officer at sustainability firm Banarra. 

With apologies to Captain Kirk, it would be fair to say that supply chains are one of the final frontiers for many corporate, government and Not for Profit sustainability strategies.  

Having expended thinking, time and resources on tidying up in-house practices in relation to responsible and accountable performance, the supply chain “skeleton in the closet” is one that, for many organisations, is a door too confronting to open (or at least opening too wide).  

To keep the idioms rolling, supply chains in terms of sustainability are variously seen by many otherwise responsible organisations as a bridge too far, a can of worms or even a house of horrors.

They can seem unbounded, outside of direct control and likely filled with untoward practices that become the favourite fodder of current affairs shows and Greenpeace documentaries.

But that doesn’t mean that companies can simply close that door and hope for the best.

Over the past two decades, many iconic companies that have publicly professed to be leading practitioners of responsible behaviour have then been nailed to the wall over their ignorance, complacency or naiveté around what is happening in their supply chains.  

Banarra has been witnessing some of the underlying causes of this over a decade, for instance:

• A narrow interpretation of the boundaries around sustainability, accountability and organisational risk;
• A limited awareness of which suppliers represent the highest risks in terms of sector, location and product/service;
• Risk management systems that struggle to acknowledge or deal with sustainability-related reputational risk in supply chains; and
• Sustainability managers/departments that sit in isolation to other managers and departments within the very same company that are dealing with risk and procurement.  

There are some fundamental questions that businesses need to be asking of themselves so that the efforts they make to address risk and encourage sustainable practices within their supply chain are well focused and meaningful, rather than futile and wasteful “window dressing”.

These questions include:

• What are we really asking of our suppliers?
• Where do we begin?
• How should we design and then test our approach?

While there are no generic answers to these, I can offer some thinking to help contextualise such questions so that you can start considering the best way forward. The following reflections are based on Banarra’s extensive involvement in supply chain sustainability over almost a decade. We have helped design, evaluate and deliver supplier sustainability approaches to companies across a range of sectors from financial to retail, and many in between.  We have delivered supply chain strategies, labour practice workshops, Sedex training, and other supply chain aspects. My involvement has been primarily to help companies develop and implement policies to encourage sustainable supplier practices, writing supplier codes of conduct, and designing and delivering supplier audit programs. My comments below are based on what those experiences have taught me.

What are we really asking of our suppliers?

What are we trying to do and why?

Many supplier programs are vague about their intended goals for the company and desired outcomes for the suppliers – ending up unfocussed, expensive and lacking performance measures.  Are you trying to manage real risk in your supply chain or more sending a message to the market about your commitment to responsible business behaviour?

Being clear on this helps you to decide whether you should be going down a ‘compliance’ style approach that sets minimum acceptable standards of supplier performance, or more an ‘encouragement’ based approach that supports suppliers to progressively change their behaviour, and that possibly goes beyond compliance. If it is be more compliance focused, will your approach be punitive (comply or else) or more one of ‘gently’ raising the bar over time (recognising your likely limited resources and that of your suppliers)?  If you’re looking to be ‘supportive’, what are you prepared (and resourced) to do for suppliers by way of helping them?  

Do as we say, or do as we do?

If you are going down the ‘compliance’ route, you may be putting your credibility on the line.  “Do as we do”, rather than “do as we say” should always underpin such an approach – firstly by checking and demonstrating that your own house is in order on those very social, environmental and governance performance areas that you’re expecting suppliers to meet, in order to avoid a classic and often highly visible double standard.  If there are significant shortcomings in your own sustainability performance, then you have two choices.  Wait until your own act is together before demanding compliance from your suppliers.  Or transparently acknowledging to your suppliers that your business still has work to do to lift its sustainability game and encourage them to work with you to jointly improve outcomes.

Where do we begin?

Identify the breadth or focus of your approach

A successful approach is predicated on tying together program intent, available resources and risk evaluation.  Are you intending to engage your whole supply chain? Or should your focus be primarily on your high spend, first tier suppliers? Or on those of your suppliers operating in particularly high risk sectors (e.g. clothing, contracting, etc.) or in geographical regions known for poor labour, governance, safety or environmental standards?  It is well worth identifying what information currently resides in your procurement department about supplier performance that can help identify higher risk or habitually poorly performing suppliers.  If supplier risk information is lacking, then your top 10 or 20 suppliers by spend may be a useful starting point.

Supplier sustainability schemes can be overly ambitious in what they are trying to achieve. Several years’ back I read with interest a major bank’s elaborate plans to launch a sustainable supply chain program involving multiple supplier audits in the first year.  By the end of year one, they announced a grand total of one supplier had been audited (from the tone of their report I don’t think they quite understood the actual message that outcome sent to the market).  Most, if not all, companies have to rationalise their program’s scope and intent with their available resources, so don’t try to do it all at once.

Align and marshal your forces

Many organisations make the mistake of running supplier sustainability programs as a solo exercise out of their sustainability departments.  To get the best possible outcomes you need to engage both your risk function and your procurement team in the development of the approach, including where to target the program and how it will be delivered.  You will also likely benefit from the imprimatur or public endorsement of your Board or senior executive to give it the legitimacy it needs to be taken seriously both internally and externally.  

Get your corporate communications team on board to align and promote the program with other corporate initiatives and help you craft a clear and unambiguous message to suppliers about what you are planning to do, when and why. Suppliers will no doubt have questions about this, so be prepared to respond to them in a coordinated, consistent manner across the business.

How should we design and then test our approach?

Engage your internal and external stakeholders in designing the approach

Trying to design a supplier program in isolation from those who will use it (internal stakeholders) and those who will be subject to it (suppliers) is not particularly smart.  Sustainable supplier policies, supplier codes of conduct, supplier questionnaires, and supplier audit models all need to be considered from both the user and the recipient point of view. Getting them engaged not only provides invaluable feedback on aspects such as relevancy of criteria, affordability, practicality and integration but also creates buy-in to the process on both sides.  

Suppliers should have a say in what you are asking of them.  There is, for many suppliers, a high degree of discomfort with what can be perceived as a client essentially imposing their values and principles on them. To then be held to account for something they had little or no say in developing is particularly challenging for them.

Run a pilot and assess the results

All the elements of your supply chain sustainability program need to integrate seamlessly for it to be successful. For example your policy, code of conduct, audit tools and audit approach all need to be consistent and complete before you can confidently roll out the program across your chosen suppliers.  The only way to gain this confidence is to test them in a controlled, contained and ‘safe’ manner. Running a pilot amongst a select group of suppliers or within one particular procurement area provides such an opportunity to demonstrate what works and what doesn’t.

I would also urge you to consider piloting a range of different models of auditing if you are heading down the supplier performance verification route.  Supplier audit programs are a trade-off between adequate coverage of your supplier base versus sufficient evidence-gathering so as to minimise risk. “Light touch” audit approaches (usually largely desktop review-based) are relatively cheap and cheerful but are barely worth the money they cost.  

In many cases they are worse than no audit at all as they run a significant risk of creating a false sense of security and comfort for you about your suppliers. Some sort of onsite verification is usually essential, given our experience that suppliers are highly variable in relation to the “accuracy” of their responses to questionnaires.

But ‘onsite’ doesn’t necessarily mean expensive. We have trialled a range of models for major banks that retain some onsite component, but vary the size of that according to supplier risk, size, location, complexity and past performance.  You may want to have a ‘lighter’ touch model for your low risk or low spend suppliers, but at the same time retain something significantly more intensive (and therefore more cost and time demanding) for high risk, high spend, major suppliers.

…….and stick with it

Be prepared to change your approach if it isn’t delivering the outcomes and confidence you need. There is little doubt that your process will (and need to) evolve over time as you gain more experience, or take it offshore, or commence second round audits of suppliers. And do continue to seek input from your suppliers, both during and well beyond the pilot phase, to determine whether they are truly gaining some benefits too. Bringing suppliers together to compare experiences with your approach can be a useful exercise, but be prepared for a range of views and be willing to respond to that feedback.

You are not likely to see substantive change overnight in terms of sustainable supplier behaviour. Many of your suppliers, even some of the smaller ones, are probably doing OK from a sustainability perspective already, and may even be doing better than your company.  It’s the laggards that you’re most trying to reach, assess, influence or remove.

Be smart about not painting all suppliers with the one brush.  Acknowledge and reward good supplier performance more often than berating those who fall short.  Celebrate and promote their achievements to their peers in your supply chain – a particularly effective means to stimulate a response.  A PwC survey last year revealed that 81 per cent of businesses who rate sustainability as important favour collaborating with their suppliers to create a responsible supply chain footprint and procurement framework.

The skeleton doesn’t have to stay in the closet.  Or at least check that both the skeleton and the closet were made sustainably.

About the author:

Paul Davies is a Principal at Banarra and has worked on numerous reporting, materiality, stakeholder engagement, strategy, community standards and assurance assignments in the property, telecommunications, financial, mining, energy, legal and service sectors. Davies is a certified GRI trainer, a member of the GRI G4 working group on management approach disclosures and a member of the GRI G4 Practitioner's Network.