Sustainable sourcing: Do good while doing well
By Narendra Mulani -- Logistics Management, 7/1/2008
Sustainability in supply chain management is not new. Many leading companies are working to develop eco- and socially-responsible approaches that also help them grow revenue, reduce costs, manage risk, and build intangible assets. However, most companies are still at the starting gate with enormous unrealized potential to do “good” (for people and the environment) and do “well” (financially) through enhanced supply chain management.
But what aspects of supply chain management are most receptive to a sustainability initiative? The answer is simple: All of them, including product design, planning/forecasting, manufacturing, sourcing, order management, transportation, distribution, service management, and reverse logistics. Thus the next question is “where should I invest first?” Again, there are many possibilities. However, one of the most significant, yet seldom pursued, is “sustainable sourcing.”
Think of sustainable sourcing as a process of purchasing goods and services that takes into account the long-term impact on people, profits, and the planet. Sustainable sourcing considers how products are made, where those products and their components come from, how they are transported, and how they are ultimately disposed of.
As noted in Figure 1, sustainable sourcing leaders strive to ensure that their products meet or exceed environmental and social expectations and that their actions help to:
- Grow revenue by introducing new or differentiated products and services and complying with the eco-friendly shifts of business partners.
- Reduce cost by increasing resource efficiency, rationalizing assets and suppliers, and rethinking transportation and distribution modes.
- Manage risk by understanding and proactively managing brand and reputation, anticipating regulatory shifts, culling irresponsible or incompliant vendors, and developing innovative approaches to capturing socially conscious consumers and meeting regulations.
- Build intangible assets by enhancing brand and nurturing a reputation for social and environmental responsibility.
Keys to sustainable competitive advantage
How can companies leverage sustainable sourcing to do good while doing well? At the highest level, most have made a commitment to get, and stay, ahead of the curve. They understand that taking a reactive approach to carbon-emission reduction, supplier rationalization, and social and enviro-friendly branding could force them to make rush changes that won't accommodate their long-term strategies or timetables.
Leaders in sustainable sourcing also incorporate suppliers' and consumers' input in the early-stages of design, development, and production, using integrated business models that emphasize collaborative supplier partnerships and tight alignment between sourcing and the company's business objectives.
Most companies are accustomed to structuring sourcing and procurement operations around lowest initial cost. If they're particularly progressive, they may even think in terms of total cost of operation (TCO). However, few TCO approaches address carbon emissions costs; branding and image costs; the financial impact of dealing with socially or environmentally irresponsible suppliers; the environmental costs of packaging, palletizing, and display materials; or the moral and financial costs associated with disposal. Leaders in sustainable sourcing understand how the above factors influence their buying decisions, and they incorporate them into the sourcing process.
Sustainable sourcing leaders excel at deploying performance-reporting tools to increase the use and effectiveness of preferred product and supplier programs. Managing tradeoffs is vital; and leading-edge procurement technology—using spend analysis capabilities to acquire, update, consolidate, and share information—is often key to managing sustainable sourcing's more-complex tradeoffs. Many of today's procurement tools have embedded “green rules” that streamline the ability to quantify an item's lifetime environmental impact. Without robust technology, it is virtually impossible to analyze trade-offs across thousands of supplier assessments and hundred of thousands of procurement transactions.
Lastly, high performers in sustainable sourcing perceive and mange risk in terms that are different from their less-progressive peers. They're familiar with the politics and changing environmental and social policies of the countries and customers to whom they sell. Conversely, they not only know their suppliers' products and capabilities, but also the extent to which those suppliers, products, and capabilities comply with local, regional, and global expectations.
They have clearly communicated a Supplier Code of Business Conduct that establishes expectations for suppliers' sustainable performance, and they've implemented processes to assess suppliers' conformance. These risk-management programs become even more important as companies move towards multinational sourcing strategies.
The bottom line
Critical mass in sustainability has clearly been reached. Enough consumers and governments have grasped onto the idea that most corporations have little choice but to make it a priority.
The trick now is for companies to position sustainability—and sustainable sourcing—as a business opportunity that complements business imperatives; creates value via emissions reduction, materials safety, waste reduction, land sustainability, water-use optimization, energy reduction, and social improvements; and is underpinned by rigorous strategic analysis, program management and performance measurement.
| Author Information |
| Narendra Mulani leads Accenture's Supply Chain Management service line. He has worked across a diverse set of retail, technology, and products clients, and continues to have responsibility for Accenture's global relationship with Procter & Gamble. He has been with Accenture since 1997. |
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