Sustainability and supplier management

This is an excerpt of the original article. It was written for the March-April 2018 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2018

"Inflation creeps into U.S. Supply Chain.” So said the headline on a Wall Street Journal article I read this morning before writing this column. The Journal went on to write that U.S. companies are grappling with rising material and ingredient costs on top of pressure from higher wages—a potential double whammy— and noted that companies like Whirlpool and Ford have already issued warnings to the market.

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Corporate responsibility practices, in particular “green” or sustainable practices and ethical business practices, continue to be of strategic importance to many organizations. Within the supply chain, organizations will often set standards for their corporate responsibility efforts and then pass those along to suppliers to ensure continuity.

APQC’s Open Standards Benchmarking® data in procurement indicates that more than half of organizations consider environmental factors in sourcing decisions to a very great extent, and over 60% of organizations consider ethical factors to a very great extent (Figure 1). Given these levels of consideration, it makes sense that organizations would want to ensure that their suppliers adhere to standards regarding sustainability.

Organizations that consider environmental factors in their sourcing reap benefits for their purchasing processes, according to APQC’s data. However, organizations can further benefit by ensuring that suppliers adhering to sustainability standards receive their business. Organizations that set consequences for applying non-compliant sourcing processes have an even greater procurement advantage. These results indicate that fully incorporating environmental and ethical goals into procurement processes yields performance benefits in addition to benefits to an organization’s reputation. This is further illustrated by the electronics organization Intel, which has deeply integrated its goals for corporate responsibility into its processes for selecting and monitoring suppliers.

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