The coronavirus pandemic sparked a renewed focus on sustainability. A year in and that focus is only becoming stronger.
Senior procurement executives explain how this is playing out within their supply chain and how they are responding. Topics include capturing the competitive benefits of sustainability, how and when to talk to tier-2 and lesser suppliers, and the link with resilience, which is another critical supply chain issue of 2021.
Marco Philippi, head of procurement strategy for carmaker Audi, says “I think we’re in the middle of the ‘new normal’ already. You cannot have a sustainable company, or a sustainability strategy within the company, without a sustainable supply chain.”
A significant impetus comes from consumers. Alex Jennings, chief procurement officer of packaging company DS Smith, notes a landmark rise in end-user expectations for the products they buy. Although this is not the only pressure. He says: “It’s also being demanded by our investors and by our employees.”
A key strategy for progress is to move away from a transactional relationship with suppliers, the roundtable participants agreed. The pre-COVID landscape was mixed. Some companies have long seen key suppliers as strategic partners that can help drive innovation in the end-product. Others think the procurement team’s main job is buying as cheaply as possible.
You cannot have a sustainable company, or a sustainability strategy within the company, without a sustainable supply chain
George Booth, chief procurement officer of Lloyds Banking Group, says companies must recognise climate change is one of the biggest issues facing society. “As the UK’s largest financial services group, we are committed to reduce our own carbon footprint and challenging our suppliers to ensure our own consumption of resources, goods and services is sustainable,” he says.
There are also real connections between sustainability, transparency and resilience. Rhys Bush, Europe, Middle East and Africa vice president of Avetta, the supply chain risk management service, says companies engaged with their supply chain on sustainability initiatives such as modern slavery had repurposed that knowhow to track the risk of supply disruption due to local lockdowns.
“In this instance, there is a clear correlation between sustainability data and the bottom line,” he says.
This was in part because they had a real-time view of their supply ecosystem below tier-1 suppliers. This transparency is key, but participants say it needs to be done selectively, based on risk analysis rather than attempting an all-supply chain data dump.
Technology can be vital in mapping these dependencies, says Bush, but at heart, it is a challenge of leadership, knowing how to collaborate with tier-1 suppliers and when to support those lower down the supply chain.
There also has to be an acknowledgement that the best, most innovative and most sustainable suppliers may be able to pick and choose their customers, particularly if they are in a sector with capacity constraints.
Carol Williams, head of procurement at construction firm Laing O’Rourke, says: “It’s a very competitive market and, yes, you have to have a compelling reason why your partners would want to work with you.”
This supplier dialogue has to be two-way, Williams notes. The best suppliers “can bring great insights into our products and services,” she says.
Booth underlines the need for dialogue to be two way: “This will require new ways of thinking and we must work together with customers, government and the market to help reduce the carbon emissions we finance.”
Philippi adds that it is vital to collaborate with suppliers as expectations rise, rather than just severing a relationship when one falls below a new benchmark.
“It’s not our goal to just exclude everybody from our supply chain who doesn’t meet our standards yet,” he says. “We want to actively help them by training and qualification.” Audi also relies on artificial intelligence to identify sustainability risks with direct business partners and in the tier stages of their supply chain.
But there are difficult questions to face balancing competition and collaboration. Sustainability can be a way to stand out in a crowded market, a point of differentiation. Yet, some of the biggest challenges can only be solved by competitors teaming up to encourage change across an entire ecosystem. The procurement leaders around the roundtable take pragmatic, case-by-case decisions on collaboration.
Audi, for instance, has worked with other carmakers on a standardised supplier questionnaire. It is also a member of the Global Battery Alliance, a consortium of around 70 organisations, which includes rivals such as Renault, Honda and Volvo and aims to produce a global, sustainable supply chain for these critical components. Yet Philippi also believes Audi can attract consumers to its brand by stand-out sustainability in areas such as circularity, reducing reliance on raw materials by recycling from previous vehicles. It is pushing hard in these areas.
Also pushing hard on circularity is DS Smith. The firm produced more than 17 billion boxes in the year to April 2020, yet its substantial recycling operations make it a net-positive recycler, which means it recycles more than it consumes. Jennings says the firm is looking long term.
“How do you design your products so they can be reused or recycled, that the materials stay in use for longer and the manufacturing investment you’ve made keeps material value within society for as long as possible? I think this model of circularity is going to become more and more important as we go forward,” he says.
This kind of complex re-engineering of processes goes far beyond the remit of procurement. It points to a new and welcome development on the winding road to sustainability. No longer is procurement the “green department”, trying to bolt sustainability onto an organisation otherwise trying to run business as usual.
Williams adds that when it comes to sustainability in 2021, “everybody has their part to play”. However, with many companies creating 60 per cent of their value through their supply chain, the chief procurement officer must still be “a huge part of how an organisation delivers outcomes”, she says.
Booth believes that over time sustainability will become the most important differentiator in suppliers winning business. “For anyone in the chief procurement officer role, you should welcome the challenge of sustainability. You’re right in the middle of it and that’s fantastic,” he concludes.
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