Sustainable SRM Is Focus of 10th Annual State of Flux Report on Supplier Relationships

Many businesses have come around to the idea that sustainability is not just a hashtag or a marketing ploy but something that can help a company advance its business goals.

But as organizations dive into all the ways they can save energy and use friendlier materials, they soon realize there are only so many they control. Truly leveraging sustainability requires close collaboration all the way down the supply chain to find mutual incentives for all, according to the latest report by State of Flux, a global procurement and supply chain consultancy.

In its 10th annual report on supplier relationship management, called “Sustainable SRM: Nurturing Growth in a New Climate,” CEO Alan Day notes that his firm focused on this topic because organizations face pressure to be more sustainable and, since many social and environmental issues come from the supply chain, it’s important to make sustainable SRM part of a business’ daily practice.

“Only by managing relationships with them can we improve practice through the value chain,” Day said.

Key Findings in Value, Tech

This year’s study surveyed 517 respondent from 303 companies, located around the world and representing 25 industry sectors.

Key findings about business attitudes came in the areas of value and technology.

Just over half of the organizations in the study reported having documented an SRM value proposition — a steep rise from last year’s report of just 33%. In North America, that result climbed to 62% from 38% in the last year.

But about 95% don’t see sustainability as a top-three business driver — or don’t see it having much of a non-financial benefit to their company, the study found.

“It is a surprising result given the opportunities to reduce environmental impact and risk of unethical trading that suppliers, managed in the right way, can offer,” the study said. “Companies that want to thrive and grow in the 21st century need to recognise that collaboration with suppliers to make all supply chain operations more sustainable will no longer be a ‘nice to have,’ it will be an imperative to creating business value.”

On the technology findings, 71% of firms said the systems they try to use for supplier lifecycle management (SLM) don’t do the job and are not integrated, the study said. And only 7% report having total satisfaction with how their technology handles SLM, the study said.

And only 18% of organizations said they use technology to track supplier sustainability, the report said.

Analysts seemed perplexed at why technology would be lagging like this.

“Applications no longer require upfront capital investment. Cloud-based software can connect with ERP, supply chain and financial systems via common APIs, making integration and sharing data simpler and cheaper than ever,” the study said. “Whether procurement fails to make the case, or the business fails to see it, is a moot point. But those that do invest will be at a strategic advantage.”

Sustainability a Goal for Procurement

State of Flux also enlisted partners like the Carbon Trust to shed light on the issues.

Collaborating with suppliers all the way down the value chain can be hard work, but it’s necessary work, Carbon Trust’s managing director Hugh Jones writes in the report. His independent advisory organization works with companies to improve their carbon footprint. Jones notes that while it’s important for organizations to weave sustainability into their operations, they will eventually come to realize the supply chain holds far greater opportunities. He said that 60% to 95% of carbon emissions attributed to a company actually come from the supply chain.

Procurement’s objectives, however, have often been limited to looking at bottom-line numbers. Even as procurement functions mature, as Jones writes in the report, sustainability is often not on their radar:

“Procurement teams are not always set up for the challenge of adding sustainability into the equation. Many organizations have spent years constructing and optimizing highly effective commercial machines which are focused on achieving the best quality at the lowest price. But this focus means they can find it difficult to accommodate wider definitions of value — such as sustainability or carbon intensity — when selecting and managing suppliers.”

There are, however, clear cases in which procurement teams have been able to partner with their suppliers to achieve mutually beneficial sustainability goals. Jones points to the automotive industry, where companies will share technical knowledge with their suppliers, to assist them in implementing better practices. And in the retail industry, companies often reward suppliers for best practices.

Jones highlights a few other ways companies are able to work with suppliers to achieve their sustainability goals, including creating incentives to use renewable energy sources and reduce waste.

Jones said procurement is the key to success in sustainable SRM.

“Ultimately, one of the greatest levers for change we have for taking action on climate change within the economy is using the power of procurement to cascade positive changes down supply chains.”