How Sustainability Can Help Strengthen Your Global Supply Chain
The increasing cross-border movement of goods and the emergence of global competitors have heightened business risk for companies reliant on production in different geographies.
These risks can include everything from inconsistent or poor quality to supply disruptions. Developing new relationships that cross multiple national boundaries doesn’t have to be fraught with worry, however; adopting a sustainable approach to your global supply chain management can open up a world of opportunities.
The consumer products giant Unilever sources from 10,000 raw materials suppliers worldwide and up to 100,000 non-production suppliers, earning annual revenues of more than $50 billion dollars from more than 400 brands. Securing supply is critical to sustaining Unilever’s future business and growth, and it has discovered tangible business benefits through supply chain responsibility, championing working conditions, providing fair-wage incomes and managing environmental issues such as waste and climate change. “These benefits protect and enhance Unilever’s reputation, help secure supply for our business over the long term, provide increased stability of operations and create cost efficiencies. Ultimately, they generate competitive advantage,” notes John Coyne, Vice President, General Counsel, Unilever Canada, Inc.
It turns out there is plenty of research evidence to support this view. A substantial review of 25 years’ worth of academic and industry research on social and environmental issues in global supply chains was commissioned by the Network for Business Sustainability and conducted by Dr. Stephen Brammer, a professor at the Warwick Business School in the United Kingdom and Drs. Stefan Hoejmose and Andrew Millington of the University of Bath in Britain. The resulting report, Managing Sustainable Global Supply Chains: A Systematic Review of the Body of Knowledge, found that leading companies view these new risks in their supply chains as opportunities for competitive advantage. Those companies work proactively and collaboratively with suppliers to monitor their progress, helping them improve by taking into account a variety of cultural, legal, administrative, linguistic and political issues that come with a global network.
For companies that want productive and efficient supply chains, the research identified a range of factors that can influence your ability to succeed.
First, ask yourself how your firm relates to its peers and to its supply chain partners. Here, the evidence suggests that coordinated industry action often plays a critical role in successfully developing sustainability throughout an international supply chain by developing a norm of compliance and excellence in sustainability. This creates a competitive level playing field through which incentives for unsustainable supply chain management are reduced. Therefore, a clear imperative for firms, wherever possible, is to engage in developing the capacity for action across an industry sector.
Looking internally, executives are encouraged to think about the big picture: what exactly is motivating change in your businesses? The motivators for addressing social and environmental issues in a supply chain, as cited by research, are: customers, compliance, costs, competitive advantage and conscience. It can also help to identify the levers that will increase your odds of success. The research shows seven levers that can facilitate or inhibit efforts to build a sustainable supply chain. These include the internal levers of purpose, policy and people, which range from leadership/management support (people) to clear policy statements/codes of conduct (policy). External levers include peers, partners, public policy and power.
To implement improved sustainability practices in the supply chain the research shows companies should:
establish a code of conduct
obtain third-party certifications
select appropriate suppliers and
monitor supplier activity.
It’s important to note there is no particular order to follow: different organizations may implement the practices in a different order.
Because of the complexity of the global business environment, there are some shortcomings to this “baseline” framework including how codes of conduct are relatively static and unresponsive to new issues or changes in stakeholder expectation, for example, and how third-part certification imposes substantial costs on suppliers. Introducing consultation, development and learning to business practice, however, can mitigate the shortcomings. For example, to manage for sustainability in its supply chain, Unilever developed a Supplier Code which defines the company’s responsible sourcing requirements. This Code is based on both local laws and internally accepted norms and helps create consistent expectations across the supplier network. Unilever requires not only that its direct suppliers adhere to the Code, but that direct suppliers ensure that their suppliers also comply with the Code’s principles.
By adding four “best practices” to their processes, businesses can build a sustainable supply chain. These are:
create meaningful expectations
confirm suppliers and agree to targets
evaluate and develop suppliers and
learn and improve.
Companies are encouraged to robustly scan the environment to anticipate new challenges and issues as they arise, as well as interact frequently with suppliers to encourage their participation in the development of a code of conduct, for example, as a way to create meaningful expectations. Evaluating progress made by suppliers is critical to supply chain improvement, and using probation periods and/or recognition reward programs are good examples of how to encourage suppliers meet expected targets.
Finally, continually improving practices through iterative communication and measurement will help companies learn and improve as they go forward. For example, establishing a company task force composed of in-house professionals and external academic and NGO expertise to review performance evidence quarterly to identify patterns and explore possible solutions might be one way to ensure accountability and transparency in achievements and performance.
As the research suggests, a developmental, supportive and mutually trusting approach to managing sustainability issues in international supply chains may offer the most robust set of “best practices” by which firms can minimize their exposure to risks and at the same time exploit a range of opportunities for performance enhancement in the buyer-supplier relationship. While it is recognized that these “high commitment” practices require substantial engagement from lead procurers and that these practices may not be suited to every organizational context, the researchers conclude they stand as aspirational “best practices” by which companies can benchmark their own progress toward managing their international supply chains sustainably.
Read the full research report for a detailed discussion of the best practices, case studies and implications for research and practice.