Sustainable Supply Chains: Chains, Levers or Webs?
Customers have enormous power in the world of business-to-business (B2B) sustainability. By simply asking questions of their suppliers, customers send powerful signals about what matters.
Customer questions can prompt suppliers to focus on a wide range of issues, from carbon, water and the circular economy to human rights, economic development and community impacts. When customers link their questions to their purchasing preferences, these signals become imperatives that suppliers cannot ignore. Yet, after decades of experience, B2B customers still wield their power inconsistently, even counterproductively.
In theory, sustainable supply chain management has made great strides in recent years. Each set of performance reports or guidance includes supply chain approaches, from CDP to GRI to SASB and even the UN SDGs.
In practice, many B2B sustainability practitioners tell a very different story. While some true industry leaders have developed very effective approaches, overall less has changed in two decades than one might expect. Too many B2B customers cling to approaches that impose maximum burdens on suppliers while creating minimal real impact on business risk or sustainability performance.
The choices can be summarized in three types of approaches: chains, levers or webs. It’s time for corporate sustainability leaders to honestly examine their supply chain programs and decide whether to stick with comfortable but inefficient mechanisms, or move to truly effective approaches.
What do the different approaches look like?
Chains: maximum load, minimum impact
Chain approaches are linear and go in one direction. Buyers use their market power to impose restrictions and demands on suppliers. Here are the most common steps:
- Imposing requirements, often presented as “guidelines”, which may or may not be realistic.
- Ask for lots of information.
- Provide little feedback on what really matters.
Chained programs do what chains do: limit action and impose a burden to bear. They can have some value by sending direct and powerful signals about what behavior to avoid (or what not to do). They also have a perverse self-selection feature, where some providers may choose to avoid certain customers who impose these charges.
But the burden on the supply chain can impose burdens that stifle innovation, limit resilience, and have more costs than value in terms of real impact and risk reduction. Chain approaches are sometimes less about reducing bad behavior or even business risk, and more about ticking boxes and being able to include “supplier programs” in sustainability reports. This includes reports imposed as strings by the customers’ own customers!
They also risk sending the wrong signals, directing valuable supplier energy to the wrong issues. This often happens when metrics aren’t driven by strategic thinking. The de facto rule becomes: “Do what you know how to measure” instead of “Measure what you have to do”. For example, companies with a very low carbon or water footprint may be diverted to expensive monitoring and measurement (or even asymptotic reduction targets) – when their real risks may be related to toxic materials in their product or to the property. -being of their staff.
While B2B customers often deny that they impose strings, ask any group of B2B vendors. They’ll tell you precisely how much time they’re spending responding to customer inquiries, completing surveys, and checking boxes, generating little value.
Levers: softer, smoother chains?
Leverage approaches are still linear but more focused on results than on imposing charges. B2B customers combine their market power with their own knowledge and capabilities to leverage the best performance of their suppliers. These approaches include:
- Clear guidelines, often with progressive performance levels to help suppliers improve,
- Clear feedback (including supplier scoring and procurement rankings) to send clear signals not only to EHS/sustainability professionals, but also to sales, marketing and business management within own supplier organizations,
- Clear priorities, including sharing customer issues when they need innovation and help from their suppliers.
Leverage approaches are still linear but open up the potential for two-way collaboration. Walmart pioneered this approach, which is not surprising given its massive leverage over its suppliers. The Walmart program has sometimes generated as much heat as light; many suppliers privately confess to having “made the pilgrimage to Bentonville [Walmart’s headquarters], kissed the ring, made the sustainability pledge, then came home and said “what did we just sign up for?”. Over time, however, Walmart’s program has had major impacts by driving significant reductions in energy use and packaging throughout its supply chain.
Even companies with much less market power can use leverage in their sustainable supply chain. By communicating its concerns and actions, for example, a women’s clothing retailer reduced energy and packaging use (and costs) by encouraging Asian manufacturers to make minor changes to basics such as buttons, bows and hangers. Even now, a healthcare giant that has taken significant steps to minimize its own packaging waste, is using leverage to reduce packaging of some crucial incoming materials from suppliers. Rather than setting arbitrary expectations, the company works directly with suppliers, showing them the nature and extent of problems and seeking solutions from the supplier side.
The emerging approach is to recognize and use the non-linear nature of many business relationships. Rather than simply pushing expectations and priorities, customers are using their market power to bring together multiple players who each contribute innovative solutions.
Web approaches tend to have:
- Sponsor companies that have matured through “chains” and have already made significant strides in solving their own problems before asking too much of suppliers,
- Unconventional (and often asymmetrical) partnerships between large and small companies, established giants and innovative startups, public and private entities, companies and NGOs,
- Creating entirely new product streams – and business opportunities.
For example, GM has been a leader in web-based procurement approaches. Their creative work has created fascinating breakthroughs such as transforming used water bottles into everything from Chevrolet Equinox V-6 engine covers to air filters for 10 GM plants to insulating coats for the homeless. shelter (in cooperation with The Empowerment Plan, a Detroit NGO). Dow’s Hefty Energy Bag program brings together plastic film producers, their plastic bag customers, municipal recycling facilities and others to create innovative solutions that reduce waste and replace fossil fuels with plastic waste.
Woolworths in South Africa works with a number of NGOs and external bodies to ensure their products are sustainable. Examples include a goal of sourcing cotton from sustainable sources; sourcing 100% UTZ certified cocoa for all Woolworths private label chocolates, bars and boxed chocolate bars; and working with the NGO and its partner Canopy to move the fabric supply chain towards practices that protect ancient and threatened forests and the habitats of endangered species around the world.
These are solutions that come from innovation, not from being weighed down by chains of requirements. What approach does your company/industry actually use? Which approach do you really rely on – chains, levers or webs?
B2B customers can get a quick idea by asking themselves – or better yet, a few of their suppliers – to respond to a few simple statements. Take a look at these statements and ask yourself (or your provider) if you would strongly agree (give yourself a five) or strongly disagree (zero) or if you fall somewhere in between both ?
- Suppliers know the information we want.
- Suppliers know what we do with the information we request.
- Suppliers know the behavior we want.
- Our buying decisions are heavily influenced by supplier responses/performance, eg we choose not to buy.
- Our suppliers provide us with solutions.
- We are working with our suppliers to find additional players who can help.
- Our Purchasing/Sourcing Managers see this as a value-added part of their job, not a burden.
- Our requirements/processes significantly improve the sustainability performance of our suppliers.
- Our requirements/processes significantly improve the business performance of our suppliers.
- Our requirements/processes greatly reduce our business risk.
Then add up your answers:
If your total score is in the 40s, you’re probably using leverage and even webs.
If your total score is in the 20s or less, you’re probably chained.
If you can’t answer the questions without a lot of nervous laughter, you have your own answer.
No one approach is right for all businesses, let alone all businesses now. But maybe it’s time to see if we can make a little more progress than in the past 25 years.