Deriving Competitive Advantage from a Sustainable Supply Chain

Spend Matters welcomes this guest post from Suhas Apte and Jagdish Sheth, authors of The Sustainability Edge: How To Drive Top-Line Growth With Triple-Bottom-Line Thinking.

The focus of supply chain management has historically been on the bottom two drivers of sustainability shown in figure 1 below, namely cost reduction and risk management. Therefore, much time tended to be spent on maintaining transactional supplier/buyer relationships that entail dictating supplier policies and mandating supplier compliance auditing. Doing so has only ensured that businesses become incrementally “less bad.”

Figure 1. Sustainability Drivers Illustration

To do more good and create lasting value, it is imperative that businesses collaborate with suppliers more on the top two innovative drivers, those being generating higher revenue and stronger brand building. To more fully activate all four sustainability drivers and thus derive competitive advantage from one’s supply chain, 21st-century businesses require transformational changes in procurement policy and practices as part of a comprehensive sustainable supply chain strategy. Only then can businesses enjoy increased revenue resulting from sustainable, innovative products and materials that build stronger brands.

To bring about desired transformational changes, businesses will first need to achieve internal alignment between supply chain strategies and core business strategies. The greatest value emerges when a strong business case is clearly articulated behind a company’s sustainable supply chain strategies and initiatives. This can transform the focus of a business’s supply chain management team from simple resource procurement function to one that delivers reinforcing capabilities with the potential to generate value across the business and up and down the value chain.

Pursuing this strategic approach allows alignment to be built across all levels of a company’s organization, from the CEO through to the individuals in its supply chain department, so that everyone speaks with one voice in a common sustainability and supplier language.

Here are some emerging best practices for raising the bar in these relationships.

Engage supplier management in goal setting

Companies must engage supplier management, as high up as possible, when developing joint sustainability goals. Becoming more sustainable is typically good for both parties. Companies that do this well often hold a top-level summit with key suppliers, and even consider drafting and signing a joint commitment letter, outlining how all parties will work together to promote sustainable practices with both clear goals and accountabilities. In this way, companies can begin to build a community or ecosystem, capable of contributing sustainable value.

Enable training and capacity building

Training and capacity-building initiatives will take buyer/supplier relationships to the next level, affecting both businesses in a positive manner. For sustainability areas in which a company has strong capacity, it may be possible to build supplier capacity by using internal company expertise for supplier training and support. This often develops into a close partnership that adds value to all parties and creates a mutual loyalty that serves as a competitive advantage.

For example, when the retail giant Ikea determines that a supplier has not been complying fully with their supplier sustainability standards, they often employ an extensive intervention program that in some cases helps the supplier develop whole new capacities that are more sustainable for their businesses. In some cases, the door swings both ways, as companies can also learn from suppliers’ sustainability competencies.

Innovate products and services

Innovation is at the top of executive agendas across the globe, yet very few companies effectively involve their suppliers in this endeavor. Suppliers often represent a gigantic pool of untapped innovation potential. By engaging suppliers in addressing the many challenges a company faces, companies are often able to solve some of these innovation challenges collectively.

If suppliers fully understand a company’s vision and long-term plans, they may be able to suggest changes and upgrades to the products or even their own processes and resulting material inputs, which have the potential to improve many areas of a company’s operations. In short, suppliers can be powerful allies to companies striving to accomplish innovation goals.

The city of Istanbul and one of its suppliers, Siemens, serve to illustrate a great example of this collaborative innovation approach to problem solving. Istanbul needed innovation to significantly improve its water infrastructure and Siemens wanted opportunities to advance their own technology and share it with the marketplace. They worked together to install a failure-free water system.

Create partnerships or global industry standards

Companies often need to look beyond their own footprint and engage other expert stakeholders in order to meet their sustainability objectives. Companies can advance their knowledge of the footprint of their products by partnering with NGOs or working to create global industry standards, allowing them to stay ahead of any legislation or negative consumer sentiment that could impede their operations. This can also make them more competitive in the marketplace.

A classic example of this occurred a few years ago when Coca-Cola sought to reduce water usage at the sugarcane plantations that produced the key ingredient for Coke drinks. This was made possible only by teaming up with water experts at World Wildlife Fund (WWF), who had the capability to analyze the water footprint across the value chain. As a result, Coca-Cola started promoting and educating sugar cane farmers on drip-irrigated techniques.

Promote trust and transparency

In order to promote collaborative and trusting customer/supplier relationships that are aimed at both sustainability and business in general, successful companies often choose to assemble their suppliers in the same room and have open discussions about mutual goals and measured progress.

They can talk candidly about what’s working really well, and conversely, what isn’t working so well. This provides suppliers and buyers alike a chance to network and help each other identify and achieve their joint and individual sustainability and business goals.

In summary, true value emanating from sustainable supply chain can be derived from closely working with suppliers in a very strategic way. Companies that communicate their requirements and work well with suppliers can realize greater value from their supply chains, compared to companies that refrain from these activities.

By developing mutually beneficial customer/supplier relationships based on shared sustainability values and initiatives, businesses are able to rapidly conceive and develop a portfolio of more sustainable and innovative products, resulting in lasting consumer relationships that create value for all shareholders.

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