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Supply Chain Management Survey Indicates Greater Pressure on Companies to Demonstrate Sustainability

By MMH Staff

Originally published on MMH.

Companies are struggling to take efficient action across their supply chains, while facing increased demands from stakeholders.

A new international survey by DNV GL, a global quality assurance and risk management company, reveals an emerging gap between beginners and leaders when it comes to managing sustainable supply chains.

The survey investigated how companies are approaching supply chain sustainability and how mature they are in their approach, and 50% rated themselves as beginners in this area.

The study was supported by GFK Eurisko and Supplier Ethical Data Exchange (Sedex), a not-for-profit membership organization which operates the world’s largest collaborative platform for sharing responsible sourcing data on supply chains. More than 1,400 professionals from Europe, Asia and America responded to the survey, and the findings are compared to an identical survey conducted in 2014.

The survey identifies a set of front-running companies, defined as leaders, which have a more structured approach to sustainability in their supply chain. According to the survey, the leaders have moved away from self-conducted initiatives and penetrate all tiers of their value chains with their actions. They are more active than average companies and apply more structured approaches. For example, they involve third parties to a much higher extent when auditing suppliers against their own protocols or recognized methodologies, and 30% provide their suppliers with dedicated training. By implementing sustainability in their supply chain, they say they have gained brand reputation (65%), improved their ability to meet customer needs (58%) and increased market shares (32%).

“Building sustainable supply chains is no longer a voluntary initiative based on unstructured attempts,” said Luca Crisciotti, CEO of DNV GL – Business Assurance. “Companies that have experienced positive effects from their actions have adopted a more systematic approach. Those able to tackle it in a strategic and holistic way can manage their risks better and reap benefits, while responding to legislative, stakeholder and global demands.”

Overall, companies feel greater pressure to show they have a sustainable supply chain today than in 2014 (86%; +6%). Seventy-six per cent say that customers are the main drivers influencing sustainable supply chain management. Nine out of ten professionals say that supply chain sustainability is key when they are making buying decisions themselves. Nevertheless, pressure comes from multiple direct and indirect stakeholders. Today, companies are expected to proactively manage all tiers of their supply chain and to do so in a way that contributes to the world’s sustainability goals.

Of the respondents, 81% have taken at least one action to improve their supply chain sustainability. However, actions are mainly self-conducted and limited to “tier 1” suppliers, and fewer actions are taken further out in the value chain. A direct audit of some suppliers has been undertaken by 39% of the companies, 36% have required suppliers to provide information and 32% have either had a dialogue with suppliers to address the challenges or implemented a sustainability policy. Only 7% of the respondents say they have reached out to all tiers of their supply chain.

“Managing risks across the entire supply chain can be challenging and requires the collection of supplier performance data to efficiently create visibility further down the value chain,” Crisciotti said. “However, companies can leverage advancements in big data analytics, data sharing platforms and blockchain technology to help collect and measure supplier performance in a structured and reliable way.”

The study reveals that disclosure of information about sustainability in the supply chain is still in its early stages, despite the opportunities offered by digitalization. Only 20% of respondents, including among leaders, have published information about their supply chain.

Methodology and sample
The survey was conducted in October 2017. It involved 1,408 professionals in companies in the primary, secondary and tertiary sectors across different industries in Europe, North America, Central & South America and Asia.
The sample consists of customers of DNV GL – Business Assurance and does not claim to be statistically representative of companies worldwide.
The questionnaire was administered using the CAWI (Computer Assisted Web Interviewing) methodology.
The sample includes 60 companies defined as leaders. The classification of a company as a leader is based on a list of attributes defined by DNV GL – Business Assurance.

The Missing Link: Connecting Procurement and Sustainability

By Eliza Roberts

Originally published on TriplePundit.

As Cape Town struggles to keep the taps flowing amid the worst drought in a century, agriculture is taking a hit. Water restrictions have especially impacted the fruit and vegetable industries, with 80 percent fewer potatoes being planted this season, for example.

The unfolding water crisis in South Africa may play out with increasing frequency around the world, as population growth, water pollution and climate change stress dwindling water resources.

Procuring ingredients from water-stressed regions is becoming riskier. That’s why a growing number of companies are seeking to minimize their risks by setting goals to source key commodities sustainably—or, in ways that reduce the environmental and social impacts of growing those crops. In fact, more than half of the 42 companies ranked in Ceres’ analysis of how the food sector is responding to water risk have set sustainable sourcing goals for some of their major commodities.

The problem is, too often, these sustainable sourcing commitments aren’t backed by robust directives or incentives for internal procurement teams. And without the support of procurement –the corporate function that optimizes supply security and quality, while minimizing costs and price volatility–companies are unlikely to solve the massive agricultural sustainability risks they’ve identified.

Some 70 percent of the companies we ranked haven’t taken steps to integrate sustainability commitments into their procurement processes. This means that their procurement teams and suppliers aren’t up to date on the company’s sustainability commitments. Buyers aren’t equipped with the understanding they need to decide which suppliers they should source from and what kinds of obligations they should include in contracts. And companies aren’t tracking whether suppliers are following through on commitments the company has set.

While a growing number of companies recognize this disconnect between sustainable sourcing goals and procurement as a key obstacle to achieving their sustainability commitments, few are digging in to address it. Campbell Soup, Mars, ABInBev and Group Danone are among those who are.

One of Campbell’s key steps is placing people with sustainability expertise into the procurement department. Two formal positions now integrate sustainability and procurement, including the Director of Responsible Sourcing, who has CSR and sustainability expertise, sits on the leadership team and reports to the Chief Procurement Officer.

According to Dave Stangis, Vice President for Corporate Responsibility and Chief Sustainability Officer for Campbell Soup, embedding these roles within the procurement team makes training buyers on sustainability commitments, and the supplier expectations that flow from them, more organic. “The company benefits when the department that delivers on those commitments is also the one that makes them,” says Stangis.

At the same time, Campbell has also built a roadmap for responsibly sourcing its priority ingredients, and trains buyers on using this roadmap with updated supplier expectations.

As a result, the supplier expectations are now incorporated into the suppliers’ contracts, and the procurement team is advancing more strategic conversations with suppliers about what sustainability and transparency look like. The company still has work to do. Says Stangis: “We’ll consider ourselves successful when we can speak with our suppliers about sustainability as something that is better all-around from a cost savings, relationship building, quality and economic point of view.”

Like Campbell, Mars has embedded sustainability roles into the procurement department at the highest level. Its long-time Chief Sustainability Officer, Barry Parkin, has assumed the lead role in procurement, according to Mars spokesperson, Lisa Manley.

The company has also set impressive science-based goals for reducing its impact on land, water and farmer communities, and is working to integrate these into the procurement process, with an emphasis on its top 10 ingredients.

Mars trains its buyers on sustainability commitments, embedding details about sustainable sourcing into supplier contracts, and it works closely with its suppliers, sharing its commitments and developing farmer partnerships. It offers agronomist support and farmer training, and pays a small premium to rice farmers who adhere to its sustainable sourcing guidelines.

The brewing giant ABInBev factors sustainability into procurement directives, providing guidance to suppliers on agricultural ingredients through its sustainable agriculture guiding principles. These principles are being integrated into AB InBev’s internal governance routines and procurement processes. Group Danone follows a similar approach.

Clearly, there is no one-size fits all approach to integrating sustainability into procurement practices. Each company needs to find a system that works best for it.

Regardless of the approach, the first order of priority is to set time-bound measurable goals for sustainable sourcing, and to simultaneously get senior executive buy-in and understanding of the business case for sustainable sourcing. Other important steps include: ensuring that your supplier codes and polices are both strong and linked to sustainable sourcing goals; and implementing structures for training and incentivizing both buyers and suppliers.

Making sustainability a standard part of how food companies purchase the ingredients they rely on is an evolving practice. But as our agricultural systems face the new reality of water scarcity and climate change, food companies must hasten to forge the missing link.

Eliza Roberts is Senior Manager of Water at Ceres, a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy.

Supply Chain Responsibility – A Signal of Excellence in Corporate Accountability? Stakeholders Are Increasingly Thinking That Way…in the “New World Order”

By Hank Boerner

Originally posted on G&A.

Back in 1991, the tense “Cold War” environment of the post-WWII era was coming to an end.  President George H.W. Bush, a veteran fighter pilot in WWII and “Cold War Warrior,” addressed the U.S. Congress (January 19th) to deliver his State of the Union address.

“We stand at a defining hour,” he declared. “What is at stake is more than one small country (referring to Iraq at that moment); it is a big idea – a New World Order, where diverse nations are drawn together in common cause to achieve the universal aspirations of mankind…peace, security, freedom, and the rule of law. Such is a world worthy of our struggle and worthy of our children’s future.”

While the comments included references to the winding down of the Cold War and the enduring division of nations into two competing blocs (the USA and USSR) and standing-by status of “the Third World” of developing nations, the term “New World Order” captured the imagination and has endured.  But what does it mean?

Among other things, it means a freer flow of goods, capital and people among the nations of the world, relatively more peaceful conditions and more freedom to create more opportunity in every corner of the globe.  And that meant the s-t-r-e-t-c-h-i-n-g of the corporate procurement and sourcing efforts and the building of a much-more complex and far-flung supply chain for many developed society companies.

And as that supply chain became a more universal practice and more deeply embedded into the vital operations of the corporate sector, indeed many aspects of the “New World Order” became apparent.  And questions began to arise: What are the conditions of the workers within your global supply chain?  What are the environmental protections being put in place as the local suppliers in less-developed nations strive to produce more for the major customers in developed societies? What is your firm’s contributions to the well-being of the local community at which you source your goods?

Many company managements do struggle with the answers to these questions – and investors and stakeholders continue to raise questions about the nature of, the operation of, conditions within, the supply chain of many companies in their portfolios.

We have brought you numerous reports from around the world on the subject of global supply chains in these weekly newsletters. This week’s Top Story is about survey results from DNV GL; the company conducted a survey of professionals at global companies across Europe, the Americas and Asia – out of 1400 responses, 60 companies emerged as supply chain “sustainability leaders” based on attributes defined by DNV GL.  You’ll want to read this.

The New World Order has come to define many business and investing activities over the 25-plus years since President Bush delivered his remarks.  The USA has signed on to the WTO treaty, which was a departure from the traditional GATT talks encouraged by the U.S. after WW II.

The fundamentals of manufacturing have significantly been re-ordered over these years – with apparel and footwear and accessories as examples virtually disappearing from assembly lines in North America.  Yes, we are living in the New World Order – ask a veteran purchasing manager or sourcing manager about that if you can – we are miles beyond the operating conditions of 1991.

With rising purchaser expectations of greater accountability on the part of companies they do business with, supply chain responsibilities inch closer and closer to the top of priorities. Tell us, show us, the mantra of the stakeholders seems to be!