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Good OM Reading: The State of Sustainable Supply Chains

October 2, 2016

eyBuilding and maintaining resilient supply chains is a key success factor for business in a globalized and fast-changing world.  Over the past few years, sustainability has been added to the procurement and sourcing criteria for many companies.  Workforce health and safety incidents, labor disputes, world conflicts, raw materials shortages, environmental disasters and new legislation in areas like modern slavery have contributed to the growing awareness of supply chain risks.

Many companies still do not have an understanding of the performance, risks and sustainability impacts of their supply chain.  This new 48 page Ernst & Young study explores the current state of sustainable supply chains by interviewing more than 100 global supply chain executives.  The study shows that by improving performance throughout their supply chains, companies can enhance processes, save costs, increase labor productivity, uncover product innovation, achieve market differentiation, and have a significant impact on society.

Companies do vary significantly in their approaches to supply chain sustainability. The interviews revealed that the approach to creating sustainable supply chains can be categorized in 5 major groups:  basic, improving, established, mature, and leading.  Most companies are in the improving or established categories.  An improving program is characterized by a minimum level of expectations with a focus on risk and compliance, and basic auditing of high risk suppliers.

As a program becomes more established, companies set clear expectations for suppliers and develop processes to select and manage suppliers against those expectations. Companies with a mature program focus on integrating these processes, requiring suppliers to work with their 2nd and 3rd tier suppliers to improve performance.  Mature companies also address their own sourcing processes, rather than simply relying on suppliers to achieve sourcing goals.

The report draws 6 conclusions: (1) supply chain sustainability can no longer be ignored; (2) companies are predominantly risk-driven; (3) companies tailor their approaches to create sustainable supply chains; (4) leading companies are establishing a shared commitment with suppliers; (5) technology enables visibility and influence beyond tier 1; and (6) collaboration is critical for companies to achieve greater impacts.

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