Manish Sharma, Director Asia Pacific –
Supply & Category Management, Valmet Chennai
The Supply Chain model of business is not new to us anymore and with the growing/ expanding globalization, this operating model has been extending its perimeter and achieving a new, bigger reach with each passing day. But this expansion, as a result of globalization, also brings in fragility into the Supply Chain system which makes it increasingly vulnerable. And the factors bringing in such fragility are diverse, ranging from natural calamities to cultural conflicts to environmental damage and what-not. Therefore, need of a socially responsible Supply Chain had been imperative for quite some time now. Hence comes the term “Sustainable Supply Chain”.
The viability of a sustainable supply chain, to a great extent, is determined by how serious companies are on the matter of sustainability and how deep they have dug through their respective supply chains, for that matter. While some Companies observe sustainability as a defence mechanism to keep a check upon unethical practices (viz. Child-labor, Bonded labor, Toxic emissions etc.), some confine it to merely a policy-compliant activity.
If I were to opine, sustainability is just the first step towards building a long-term trustworthy relationships with the suppliers. It’s not just something to be “complied” by checking “yes/ no” boxes in response to relating questionnaires on Company Ethics/Labor Laws/ EMS etc. I see it more like a sophisticated and robust model with various layers viz. Compliance (the first layer) followed by Collaboration and finally the Core layer where after the Company starts reaping the benefits of supplier relationship in the form of reduced cost, alternate revenue generating methods, improved brand value and so on.
Let’s, for a moment, just direct our focus on the Cost Competitive Zones across the Globe. The prevailing mindset on Sourcing suggests that the driving factor intriguing us to select or reject a supplier in a CCC is, let’s admit – “the lowest cost” (hence the savings). But this mindset has its own repercussions as we would always be unsure whether the chosen cheapest supplier is really the cheapest! Hence, we need to question ourselves on our Sourcing methods and in a way transform the stale, conventional method of Sourcing into what I can call as the ‘Responsible’ Sourcing. This is an efficient way to embed sustainability throughout the value chain. Easy said than done!
But how can we be truly sustainable if our suppliers, raw material suppliers, service providers, logistics partners and other related business houses are not. One vital aspect of integrating sustainability with the business operation is defining the risk ‘appetite’ and managing it. And the risks are grave – Financial, Social, Environmental, the list goes on. Risk management has become one of prerequisites for a successful collaboration towards a sustainable supply chain. The effectiveness of risk management is directly proportional to the level of information sharing and transparency between the two collaborating parties which could only work when the parties play ‘Partners; rather ‘Thief and Police’. The mode of risk assessment is usually done by conducting audits on the suppliers and making them aware of the non-compliances, whatsoever. The suppliers are then supported to come up with a mitigation plan against the identified risks/ non-conformities and are followed-up until the identified risk has been acted upon.
Timely supplier engagement is also an important call for companies looking forward to improve their performances. The procurement strategy must encompass the timely involvement of supplier in the process to further strengthen the supply chain and mitigate communication glitches which might turn, otherwise, create a sense of mistrust in the suppliers. The suppliers need to be educated on sustainability with live cases to enable them realize the real benefits. The process proceeds in layers until the suppliers understand each element of Sustainability Principles and work in-tandem with their collaborating partners. The process becomes auto-driven when the Suppliers start seeking new business values from the supply chain. These suppliers (tier 1) should cascade the sustainability principles to their suppliers (tier2) and the process should continue covering the whole supply chain.
Moving on, the Sustainable Supply Change is opening up a whole new set of opportunities for business improvement and expansion for leader-supplier collaboration who have recognized sustainability beyond mere compliance into their core activities. Companies now are realizing the benefits of the sustainable supply chain and how they could fetch huge fiscal, social & environmental benefits. There is still much to be done in the subject. Nonetheless, sustainability as the core of procurement strategies is the need of the hour!