The criticality of business sustainability has never been more pressing. Momentum for the “purpose economy” has been building for years, most recently through major initiatives such as the Business Roundtable commitment and 2020 Davos Manifesto. For global enterprises, the supply chain has been the most effective channel for enacting change and accelerating progress.
While most of the attention on supply chain sustainability centres around societal contributions, climate change and driving positive business results (such as valuation and brand reputation), the other critical benefits – namely, resilience, risk mitigation and continuity – have come front and center during Covid-19.
The Invaluable Incentives for Sustainable Supply Chains: Growth and Resilience
Many corporate sustainability commitments stem directly from the United Nations Global Compact. A recent survey found 73 per cent of CEOs that participate in the UNGC report that sustainable business builds trust and reputation, and 44 per cent see opportunities for sustainability initiatives to generate revenue. Those leaders are 100 per cent right.
The value extends to all aspects of the business. Eighty-eight per cent of studies found that companies that adhered to social or environmental standards experienced more operational success, with 80 per cent showing a positive effect on stock performance.
While that growth-orientated value is terrific, today, the Covid-19 outbreak shines a different light on sustainable supply chains – reinforcing the strategy as a crucial lever for transparency, adaptability and risk mitigation. Of course, sustainable supply chain programmes have always played a role in risk management by identifying and mitigating risks associated with forced labour, dangerous working conditions, information security lapses, quality issues, environmental waste, corruption and more. But in the face of the pandemic, today’s supply chain leaders need to go deeper.
Risks are heightened during crises such as Covid-19. As procurement teams react and rush to reroute or find alternative sources, they run the risk of partnering with the wrong suppliers. Failing to spot risks that affect your business could add fuel to a very hot fire. Could your brand withstand the damage of dwindling public trust associated with news that a key supplier forced its employees into factories during quarantines? What about a vendor data breach, critical plant closure, or a supplier that had to shut down for compliance reasons?
The supply chain is in a fragile state. A February 2020 survey on more than 200 businesses with global supply chains found that over half of respondents expected the coronavirus epidemic to increase their operating costs. Any additional and preventable threats that disrupt supply continuity or damage brand reputation could be devastating.
Unfortunately, the risk is very real. Companies are cancelling supplier on-site audits due to travel restrictions and quarantines, which negatively affects supply chain visibility and due diligence programmes. Some manufacturers are experiencing a significant surge in volume, while others are trying to maintain (or reboot) operations with less capacity. In both cases, sustainability standards are at high risk of being compromised to meet new demands.
And many small and mid-sized businesses – which make up the core of the global supply chain – are struggling to survive, which could lead to an increase in risky business behavior. As has been proven time and time again, your supplier’s risk is your risk, which means it’s time to act aggressively.
The four phases: reaction, resilience, rebound and the new normal
To understand how to counter evolving supply chain risks, it helps to look at the pandemic in four main phases: reaction, resilience, rebound, and the new normal. In the initial reaction phase, leaders are focused on employee safety, transitioning to remote work to ensure business continuity, and identifying the most severely impacted suppliers. The next phase – resilience – is focused on re-establishing and rerouting supply, helping fragile suppliers, and managing risk tradeoffs.
Having the right sustainability indicators and intelligence determines success throughout these phases. Companies that have committed to sustainable procurement practices are best equipped to overcome challenges such as Covid-19 because they have taken the actions necessary to protect the supply chain. They have established visibility, are monitoring performance and collaboratively improving management systems in the deepest parts of the supply base. When they need to onboard new suppliers, they have proven processes for effective evaluation.
Digital third-party sustainability assessments, which help buyers assess and improve sustainability performance across the full spectrum of supplier categories and regions, are an essential tool for building resilience. Sustainability assessments ensure that supplier performance is measured and improved, and that high-risk partners are continuously monitored.
As we enter the rebound phase, the intelligence and feedback that come from the assessments provide a strong proxy for agile business management among suppliers, preparing them for the global challenges that still await despite the pandemic’s end – such as climate change, diminishing natural resources, modern slavery and more – all of which will require built-in resilience throughout a flexible supply chain. The assessments also help buyers prioritise where to focus time and effort once the restrictions lift.
Sustainable supply chain is paying off for the companies getting on board – and for those who committed to change before Covid-19, the value has been business-critical. On a global level, businesses are facing obstacles that are threatening resilience and overall success. Sustainable supply chain practices can help companies navigate muddy waters with agility and flexibility, strengthened supplier relations and visibility, and positive bottom-line impact.
While we don’t quite know what the new normal will look like, we can be sure of three things: sustainability will continue to drive the purpose economy, risk management and business continuity will top every board’s priority list, and the supply chain will be the key lever for success in both.
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By Pierre-Francois Thaler, co-founder and co-CEO, EcoVadis