Sustainable Supplier Selection

The August article put forward an argument for Design for the Environment or DfE and an augmentation to that discussion; this article talks to environmental sustainability through supplier selection and qualification. After all, a supply chain is not truly environmentally sustainable if suppliers do not partake and support environmental measures.

Organizations are working closely with their suppliers and supply chain partners taking initiatives to develop environmental sustainability which is primarily a desire to operate “green” supply chains as part of ethical sourcing practices. As such, they are building partnerships with stakeholders to enhance environmentally collaborative efforts (Vachon; 2007; p 4359) and when selecting suppliers it is imperative to ensure the suppliers are genuinely capable of honouring the partnership.  Selecting suppliers that are incapable or unwilling to participate in environmentally collaborative initiatives imposes barriers to an organization meeting its own sustainability targets therefore; de facto environmentally sustainable practices are becoming a part of supplier qualification processes.

Traditionally, environmental considerations in supplier selection have been limited to compliance with regulations and the perception that organizations are selecting off shore suppliers who are following the local laws and regulations (Dou, Sarkis; 2010; p 573). This is changing as organizations become more cognizant of environmental concerns and environmental needs gain consideration through performance and practices. (Dou, Sarkis; 2010; p 573) Considerations such as sensitivity to the consumption of resources and controlling pollution during performance while practices relate to policies and procedures designed to protect the environment. Coca Cola is an example of how just complying with laws is not enough and emerging market countries are willing to change laws to force improved behavior even if it means the supplier closing operations. In 2002 wells of farmers in the state of Kerala, India went dry and the local population became ill, which was attributed to the waste by-products of producing Coca Cola. Waste was given to the local farmers as fertilizer as a simple means for disposal (Blanding; 2010; pp 238) which led to a backlash from the local population who demanded that Coca Cola’s operating license be terminated. Coke’s Kerala plant closed in March 2004 (Blanding; 2010; p 249) and controversy surrounding the plant prompted an Indian court to make ground water the property of the Indian people and priority was given to drinking and agricultural use. (Raman; 2007; p 111)

Ensuring suppliers act responsibly to the environment is an important means in reducing risk to extended supply chains as supplier activities that violate regional laws or are perceived to be unfriendly to the environment can damage reputations. (Dou, Sarkis; 2010; p 573) Organizations have included in their practice regular audits of suppliers to ensure environmental compliance and are holding suppliers responsible to upholding the ISO14000 registration.

Certification such as ISO14001 and the broader sustainability standard ISO26000 are gaining traction as organizations are becoming certified to ensure decisions and processes align with environmental standards. As a body when all members of the supply chain incorporate standards into their operations, opportunities for collaboration helps develop greater environmental sustainability into product design and life cycle management.

Organizations are also adopting ISO26000, which expands on ISO14001, to encompass total sustainability including labour practices and human rights. Holding environmental certification is a means to show commitment to benefiting the environment and that management gives consideration to the environment. Recent research in the high tech industry reflects that organizations which are certified are more likely to include environmental initiatives in continuous improvement processes and have developed an environmental mission statement providing direction on strategy including their supply chain management strategy.

Formal monitoring of supplier environmental initiatives can be incorporated via reporting of sustainability initiatives into quarterly business reviews to keep focus on the environment and ensure that all stakeholders are being held to their commitments. I recently spoke with an organization that is developing a supplier citizenship survey where they intend to measure supplier maturity against a set of key performance indicators pertaining to environmental sustainability. The first survey will establish a baseline for the suppliers and thereafter will be expected to show continuous improvements relative to the baseline until leading class is achieved. The continuous improvements will be reported and measured through the supplier quarterly business reviews.

The value from incorporating environmental sustainability into supplier selection is not only the reduced risk in your supply chain from negative environmental actions reflecting poorly on your organization. But as well, the ability to collaborate with suppliers to integrate environmental programs into your supply chain will reflect positively on your organization pioneering the path to a “green” supply chain. □

References:

Blanding M; 2010; The Coke Machine; New York; Avery

Dou Y & Sarkis J (2010) A joint location and outsourcing sustainability analysis for a strategic off shoring decision; International Journal of Production Research; Vol. 48 (2); January; pp. 567- 592

Raman R; 2007; Community-Coca-Cola Interface; Social Analysis; Vol. 51 (No. 3); Winter; pp 103-120

Vachon S (2007) Green supply chain practices and the selection of environmental technologies; International Journal of Production Research; Vol. 45 (18-19) September – October; pp. 4357- 4379

Mark Morrissey resides in Toronto, Canada, and consults in procurement and global sourcing. Mark has worked in the high tech sector and has experience in low cost country sourcing, supply chain development and department organizational change. He holds a Master of Science degree in Operations and Supply Chain from the University of Liverpool where he wrote his dissertation on environmental sustainability within supply chains. You may contact Mark at:  mark_morrissey_12@hotmail.com