Failure to pay serious attention to supply chain sustainability means less profits and more risk.
By Gareth Kane
Part of the DōShorts series
The Buck Stops at the Top
The days of organizations being able to draw a line of responsibility around the factory fence or office curtilage are long gone. When a Chinese electronics manufacturer dumps toxic waste in a stream, Apple gets it in the neck. When a contractor’s mistake leaves 11 men dead and a huge oil spill in the Gulf of Mexico, BP gets the blame, not the contractor. When horsemeat is added to beef somewhere on its tortuous journey through Europe, Tesco has to take out full page newspaper adverts to apologize, not the criminals who actually made the switch. Responsibility floats up through supply chains and lodges with the brand at the top.
Rising Resource Prices Increase Risk to Profits
But the pressure for sustainability in the supply chain is much more than just reputational risk. There is something more fundamental going on in the world. Having spent the 20th century drifting downwards, commodity prices started shooting upwards at the turn of the millennium, wiping out the fall of the previous 100 years.
The banking meltdown of 2007/8 appears as just a blip and the shale gas boom in the US appears to have done little to restrain the surge. It is hard to avoid the conclusion that our consumption is starting to rub up against the natural limits of the planet.
The impact of this on business is telling. Nearly a third of profit warnings by FTSE 350 companies in 2011 were attributed to rising resource prices. A recent survey by the UK manufacturers’ organization EEF found 80% of senior manufacturing executives thought limited access to raw materials was already a business risk. For one in three, security of supply was their top risk.
Nature has been dealing with scarcity of resources for several billion years and has come up with a neat solution: continuous loops of resources powered by a renewable source of energy. Against this model, the standard linear, take-make-waste, economy looks like an immature eco-system where everything tries to gobble up as much as it can. As with a natural system, now that resources are starting to get scarce, loops are starting to form. Pioneer companies are pushing the closed loop circular economy hard and renewable energy is starting to take sizeable chunks out of the fossil fuel monopoly.
Rethinking the Supply Chain
Given this big picture of huge shifts in the economic and environmental tectonic plates, it is clear that companies are going to have to rethink their supply chains. A circular economy requires circular supply chains and compatible product designs and business models. It will almost certainly mean letting incompatible suppliers go.
It may mean building new supply chains almost from scratch, as companies such as Marks & Spencer have done with high-grade recycled polyester fiber. It could mean investing in research and development, just as Google has invested in renewable energy technology.
Ultimately disruptive business models can and will kill off entire supply chains – witness the demise of Kodak in the face of digital photography.
Ask the Right Question on Sustainability
Clearly the scale of these changes will not be met by a single buyer trying to decide whether widget A is more environmentally friendly than widget B – and checking both suppliers have ticked all the right boxes.
I was recently asked how a certain sustainable supply chain idea would fit into a particular UK procurement framework. I gave a pragmatic answer out of politeness, but a voice inside my head was screaming “Who cares?! That's the wrong question! Forget the framework! The question is how do we take sustainability to the next level?”
When interviewed for my latest book, Building a Sustainable Supply Chain, Ramon Arratia of InterfaceFLOR made similar points:
“We continue to be impressed by what can be achieved when suppliers are encouraged to innovate and are rewarded for solving our problems instead of us trying to solve theirs. We have witnessed how much more the ‘inspire, measure, innovate’ approach can deliver than ‘code, questionnaire, audit.’
“Rather than ticking boxes and checking certificates and all that crap, if you stop doing business with a high impact supplier and start using low impact suppliers, things will start to change very quickly.”
Expand the Buy-In Reach
Of course there will always be the need to cover the “hard yards” of mapping, measuring and auditing supply chains, but we need to recognize that a sustainable supply chain is going to take much more than having a snappy green procurement policy and well trained procurement teams. We must also reach out to operations managers, product developers, business strategists, customers, existing suppliers and potential suppliers to effect great change.
None of this is easy or risk-free, particularly as traditional supply chains are so deeply entrenched. But the risks of ‘do nothing’ cannot be understated and, in any case, it’s far more challenging, fun and rewarding to be helping to build the clean, green economy of the future than propping up the dirty old economy we have now.
About the Author:
Gareth Kane (@GarethKane) is one of the UK's leading sustainability practitioners and has attracted a long list of blue chip clients such as the BBC, BAE Systems plc, Johnson Matthey plc, Viridor, News International (now News UK) and the NHS. He runs the Corporate Sustainability Mastermind Group – a small gathering of top sustainability executives that meets quarterly to discuss sustainability issues and share best practice.
CSRwire readers can use code CSR15 in the voucher box to save 15% on his new book Building a Sustainable Supply Chain, his previous DoShort Green Jujitsu or a personal subscription to the DoShorts Collection. Register for his free webinar on building a sustainable supply chain here.