Sustainable Sourcing Part I: Hold Your Suppliers Accountable
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Estimated reading time: 3 minutes
Sustainability is far more than a buzzword in consumer products today. Consumers and investors alike demand environmentally friendly products, and increasingly expect the corporate world to foot the bill. Governments and the scientific community add to the pressure by requiring companies to reduce emissions and resource consumption, too. But consumer companies don’t have to shoulder the responsibility alone. By sourcing from suppliers with the same values, companies can make significant advances in their sustainability goals.
Sustainability and Sustainable Sourcing
Sustainability sounds like a slippery term, but only because it encompasses so much—from racial diversity and small business support to human rights and environmental concerns. For supply chains, sustainable sourcing (also known as “ethical sourcing”) can be defined simply as the effort to obtain products and services in socially and environmentally responsible ways (Spend Matters).
While consumers are often the source of conversations about saving the planet, companies are the main source of the environmental impacts themselves. A recent study by McKinsey & Company found that more than 90 percent of the consumer impact on the environment takes place within the supply chain that serves the Food & Beverage, Household Goods, and Retail sectors. The same study found that more than 80 percent of greenhouse gas emissions from manufacturing, distributing, and selling consumer goods emanate from supply chains.
Companies Step Up Sustainable Sourcing Practices
Consumer companies and retailers have influence over supplier business practices, yet few have held them accountable beyond setting basic codes of conduct. Historically, companies have adopted sustainable practices that reduced their own operating risks and costs, or improved their brand’s positioning with consumers. Today, more consumer companies are leveraging their channel power to help suppliers change their practices, as well. Below are some examples:
- Campbell Soup Company. Offering technology, guidance, and products to suppliers, Campbell’s helps farmers improve soil conservation efforts.
- Walmart. Sharing an online tool with Chinese suppliers, Walmart helps make factories more energy efficient.
- Unilever. Establishing a Sustainable Agriculture Code, including certifications and tools, Unilever helps suppliers meet the same sustainability goals and standards the company sets for itself.
Sustainable Sourcing is the Supply Chain’s Responsibility
Should companies simply pass the costs of sustainable sourcing on to consumers in the form of higher prices? According to one survey of 1,100 consumers, roughly half said they would pay anywhere from 5 percent to 28 percent more for ethically sourced products. That’s enough to give any brand a serious boost. Unfortunately, the same researchers found that many consumers who demand such practices aren’t really paying such premiums. Yet another reason sustainability efforts rest squarely on members of the supply chain (GT Nexus).
The upside? Sustainable practices are indeed yielding greater returns. The Carbon Disclosure Project (CDP) reported that half of large businesses and a quarter of their suppliers have lowered costs through carbon management practices. And 86 percent of the project’s participants claim to have benefitted commercially collaborating with suppliers on these efforts (MH&L).
Here are three ways to bring your suppliers into the sustainability fold:
- Hold Suppliers Accountable. Companies can’t meet their sustainability goals without buy-in and participation from suppliers. To monitor supplier performance effectively, companies must make sustainability KPIs as important as cost or quality KPIs.
- Offer Supplier Incentives. Sustainable supply chain partners who help set new standards or advance goals should earn special preference, designations, or awards. In one example, Levi Strauss created a special, low-interest financing program for suppliers who rated highly on sustainability scorecards (McKinsey & Company).
- Take Collective Action. Joining forces can help companies reach sustainability goals. The Consumer Goods Forum (CGF), The Sustainability Consortium (TSC), and World Wildlife Fund (WWF) are just a few examples of organized efforts to reduce greenhouse gas emissions and mitigate other environmental risks.
Whether you’re a manufacturer sourcing ingredients, a retailer sourcing finished products, or a consumer selecting products from store shelves, sustainable sourcing needs to happen throughout the supply chain—we’re all responsible for holding each other accountable.
Affordable and Sustainable Sourcing
While consumers say they care about sustainable sourcing, many are not putting their money where their mouths are just yet. Until they do, members of the supply chain will bear the responsibility and costs. Fortunately, the gap between sustainable and traditional low-cost procurement practices is shrinking, and companies are starting to see returns from their sustainable sourcing practices.
Stay tuned for Part II of this series, where we will look at ways shippers can develop more sustainable transportation practices. To make sure you don’t miss out, subscribe to our blog below.