Over 90% of a business’s greenhouse emissions stem from its supply chain network. Managing supply chain sustainability, therefore, is pivotal in reducing the organisation’s carbon footprint. Besides the environmental impact of corrupt supply chains, businesses must also consider the socio-economic violations that may originate from unethical sourcing and labour practices across their supply networks. But how to drive sustainability through supplier management?
Sustainable supply chain management involves embracing environmentally, socially, and financially viable practices across all sourcing and procurement processes. It thus forms a vital part of a business’s comprehensive sustainability strategy.
Well-defined and executed supplier management strategies increase predictability and improve supplier performance. They ensure the customer receives high-quality goods on time. While lack of accountability places risks associated with product defects and delays at each step of the value stream, effective supplier management gives visibility and drives process improvements. Sustainable supplier management works to identify and mitigate sources of risk throughout the supply base and helps you drive your sustainability efforts.
Why is sustainable supplier management important?
Globalization of supply chains has allowed organizations to expand their supplier base. If you work with international companies, you need an efficient supplier management process to gain a competitive advantage, reduce costs for sourcing products and maximize the value of your supplier relationships. You can also use this process to increase your business bottom line since much of a company’s value can rely on the strength of its supplier relationships.
Enhancing enterprise sustainability through sourcing and supplier relationship strategies is a continuous process, starting with first-tier supplier selection. Some considerations for supplier selection are:
- Environmental: Verify if supplier uses a certified environment system (EMS). Evaluate their energy sources, transportation practices, packaging methods, waste disposal methods and other practices that may impact their carbon footprint. Assess their understanding of the circular economy model and commitment to resource usage optimisation.
- Social: Evaluate the supplier’s stand on fair wages, worker welfare, safety practices, and ethical sourcing. Ask about their Diversity, Equity, and Inclusion (DEI) initiatives, corporate social responsibility (CSR) practices, and employee training and sensitisation programmes.
- Governance and compliance: Request information about the company’s anti-corruption policies, regulatory compliance,.and transparency practices. Investigate any past legal infringements and assess their adaptability to changing regulations. Inquire how the company, in turn, sources its suppliers.
Do not forget to check the suppliers Ecovadis rating, which can help with an initial selection. By partnering with first-tier suppliers that are mindful of their business’ emissions, fair trade practices, compliance regulations, and their own first-tier suppliers, you can significantly increase supply chain transparency and drive your sustainability efforts.
Three sustainable supplier management strategies
Businesses must go beyond the traditional Quality, Cost, and Delivery (QCD) approach to supplier management and add sustainability to their supplier management strategies. While there are many approaches, these three strategies are proven to minimize risks throughout the supply chain and help you build strong relationships with your suppliers.
1. Build long-term relationships with suppliers
Historically, decreases in demand within the aerospace and defense industries have often caused suppliers to shift their capacity to other sectors. When demand eventually increases, that reduced capacity leads to longer lead times and other issues within the supply chain. Organizations must maintain supplier relationships that can withstand changes in the market to prevent depletion of resources, capability, capacity and reduced quality and can promote sustainability efforts over time.
Here are supplier relationship management strategies you can take as a customer:
- Ensure predictable budgets: Cutting back on spending with suppliers will shift subcontractor attention to other sectors. While it’s not always possible, more consistency in your production volume with suppliers ensures these relationships stay intact over the long term.
- Plan, Do, Check, Act: Develop your Supplier Management plan and evaluate it for its effectiveness. Engage your supply base and report their performance to them consistently. A monthly scorecard helps you give direct feedback to your suppliers on their quality and delivery performance. Based on their performance data, determine what areas they need to improve through supplier development.
- Proper planning and adequate lead times: Proper production planning and good communication ensure the suppliers’ production is aligned with your own. If changes do occur to planning, the more time suppliers have to respond to requests, the more likely they are to meet deadlines. Include suppliers in your discussions of projected needs and let them know when program plans and production requirements change.
2. Enact proactive quality and sustainability management processes
Reactive quality control includes practices such as final product inspections, documentation of problems and corrective actions. These procedures react to errors and manage the results of process variability. Proactive supplier quality management seeks instead to reduce the opportunities for issues.
Here are some of the most effective methods you can use to streamline quality management, including:
- Process standardization: Define procedures and train personnel to follow them appropriately. Ensure systems align with engineer and design specifications and provide visual aids to clarify work sequences.
- In-process inspection: Insert inspection points throughout the manufacturing process as early as is reasonable. Use historical data to decide on critical inspection points and frequency of inspections.
- First Article Inspection (FAI): Inspect the essential attributes of the first finished items produced from a new design or after a significant change in process.
- Data-driven goals: Use data-driven objectives for the plant, personnel and sustainability evaluation to drive continuous improvement. Goals such as 100% quality, 10% reduction in scope 3 green house gas emissions drive accountability and enhancements.
- Data-informed statistical process control: Use big data and predictive analytics tools to detect and manage variation, changes and inefficiencies. Statistical studies can help you discover patterns and determine the factors that affect key quality outcomes. In manufacturing, real-time data from sensors and historical data make up most big data. Statistical programs integrating technology such as artificial intelligence (AI), machine learning (ML) and data mining help create actionable knowledge to drive better decision-making and improve quality.
3. Include sub tier contract flow-downs
You can encourage accountability at all tiers of the supply chain by including the right flow-downs in contract language. Contract flow-downs are legally binding clauses that hold sub tiers to the same customer requirements established by the end customer contract. Your contract might contain non-negotiable flow-downs required of all subcontractors if you’re a contracted manufacturer for another purchasing organization. In this case, these flow-downs must be included in all contracts with your suppliers. This is useful when dealing for instance with scope 3 green house gas emissions reporting and reduction goals.
It’s also critical to include flow-downs for any areas where not flowing down requirements can put the prime contractor at risk of contract breach. By making these requirements clear within the language of the contract, all parties at every supply chain tier can remain accountable for following end-customer specifications. Flow-downs should also include an approved vendor and product list since any variations in procurement can result in product defects and contract non-compliance.
Sustainable supplier management is a continuous process
Driving sustainability through effective supplier management is a continuous process. It forms a vital part of business’s comprehensive sustainability strategy. To summarise how to drive this as a vital part for your sustainability efforts:
- Clearly communicate your sustainability expectations to current and potential suppliers
- Collaborate with them to ideate, develop, and implement sustainability initiatives
- Develop sustainability KPIs to measure supplier sustainability performance
- Incentivise green practices, such as the use of eco-friendly packaging materials
- Encourage the use of digital technologies, such as smart contracts, to preserve natural resources
- Promote local sourcing for labour and raw materials
- Encourage lean manufacturing
- Conduct supplier audits and performance reviews to ensure that sustainability remains a core value
- Track your suppliers’ first-tier suppliers to ensure sustainability compliance further down the supply chain
