January 3, 2013

Supplier Management Trends in 2013: Trend 2 – Sustainability Beyond Reputational Risk

In 2013, the focus on sustainability will continue to evolve. In fact, some predict that it will become “the buzzword” for 2013. But why the change now?

Looking back on the term sustainability, it has often been at odds with what can be coined a successful business strategy. For example, the idea of “Environmental sustainability” has gotten pulled into the global warming debate and other green movements. “Ethical sustainability” has pushed the concept in the direction of world development and global fair trade. These sustainability efforts have traditionally contrasted with ideal “Economic sustainability”, based on the effort of continuous and predictable supply chains.

Along these lines, many contrarians in the business world have long thought that an explicit focus on sustainability based on these environmental and social factors would divert attention from core business activities and potentially negatively affect the company’s strategy and business model. The theory went that a “sustainability” focus, as many have defined it, would increase costs and reduce overall competitiveness and bring lower margins.

To acknowledge the “sustainability movement” many businesses haven taken on sustainability in in the form of Corporate Social Responsibility (CSR) as a PR campaign for mitigating reputational risk. Thus, as a result of pressures from the outside, mass campaigns were developed to demonstrate attention to sustainability efforts.  Today, however, investment in sustainable practices within supply chains is transcending reputational risk towards a newer focus to promote efficiencies, cost avoidance, risks avoidance – and as a way to truly establish a profit through better productivity.

Hence, from my perspective, it would seem that this new definition of sustainability for global business is going into a second wave, requiring organizations to go beyond checking boxes on a sheet for establishing “CSR compliance” (e.g., feeling good about planting trees, focusing on diversity, or being involved in a humanitarian effort), but instead truly being focused on building stronger supplier relationships through increased collaboration and insights. This type of sustainability is now becoming entrenched in corporate strategy and operations, and being seen as fundamental for value-creation, versus simply a ‘corporate responsibility’ approach tagged on as an after-thought.

A classic example of focusing on sustainability version 2.0 is BMW. They demonstrate this in a number of ways from their Efficiency Dynamics program focusing on carbon emissions to the development of a subway car with Siemens that is 97% recyclable. Of course, a sexy brand and good marketing always helps, but in reviewing their financials and looking at their most recent 2011 Sustainability report, it is clear they have taken this new definition head on.

Part of what’s driving this second wave is the maturity of global economic change. With low interest rates and continued expected anemic growth in developed world markets, and new opportunities in developing ones – combined with ongoing geo-political uncertainty and the impact of natural disasters on supply chains – leaders of globally influential firms must find new ways for managing their resources. Embracing sustainability throughout all levels of the supply chain may be creating a competitive advantage for businesses that makes them more valuable since they are considered more resilient during times of change or uncertainty.

To catch the wave of sustainability version 2.0, organizations will also need more insights into their supplier management processes and systems. Supply chain and procurement managers must increasingly think beyond short-term financial considerations (e.g., sourcing being viewed at as simply leveraging spend to lower price) towards building relationships (e.g., insight into demand, best practices, joint risk mitigation programs, etc.) that can deliver long-term value. This requires using a platform that can easily and flexibly incorporate sustainability initiatives that promotes collaboration and deeper insights into a supply base.

The benefits from this sustainability approach include:

  • Supplier risks are better anticipated and managed (e.g., risk is spread out across different players, risk is understood by all stakeholders, programs are not managed in silos, etc.).
  • Reduced operational risks, such as: disruption to supply throughout the relevant tiers; increased cost; and, lack of access to key raw materials.
  • Reduced costs and enhanced long-term efficiency and productivity.
  • Improved process and product innovation.
  • Empowering suppliers to uncover better opportunities for developing sustainable products and services, of which the benefits flow up the chain.

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In our next segment on supplier management trends in 2013, we will look at the increased need for supply chain mapping and what this means to supplier management.

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by Grant Watling

Chief Customer Officer

Grant has 11 years management consulting experience specialising in supplier data and analytics advisory services. Grant holds a Master’s Degree (MSc) in International Business, is a Prince2 practitioner and holds certificates from the Institute of Financial Services and the Chartered Insurance Institute.
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