Supplier CollaborationSeptember 3, 2020by Caitlyn LewisSupplier Days are your lightning bolt

Supplier Day is well versed in the idea that what you measure influences performance. Linking executive compensation to meeting Environment, Social and Governance (ESG) goals is becoming a practice adopted by several leading companies. Amongst the most recent: VW, Deutsche Bank and Apple. At VW, ESG criteria will be integrated into bonus calculations for the management board. Deutsche Bank will tie the salaries of its supervisory and management boards members to sustainability criteria. And Apple is introducing an ESG modifier that will be incorporated into their incentive scheme.

As the importance of Sustainability has gained momentum more organisations are  accepting the role they play in reducing carbon emissions, finding plastics alternatives and developing circular economies. This has led the way to questioning how companies evaluate the performance of their executive teams. Simply put, whatever transformation programme is planned, measurement and performance is key for successful execution.

This movement towards tying compensation to ESG goals reflects similar actions in supply chain sustainability. Increasingly, buying organisations are tying their agreements with suppliers to meeting sustainability targets and/or making commitments to explore more sustainable practices. The more altruistic of us believe that companies choose to do this because it creates a cascade of best practice and knowledge to ignite large scale change. This makes sense. If an organisation expects its suppliers to meet ESG standards and requirements, the suppliers will cascade those same requirements to its suppliers and so on. Others might believe it’s more pragmatic than that: McKinsey has stated that the typical consumer company’s supply chain represents 80% of greenhouse gas emissions and 90% of an organisation’s impact on air, land, water, biodiversity and geological resources. Simply put, a company has no chance of making any meaningful impact to its ESG ambitions without focusing on its supply chain.

But, even with a strong and rightly directed focus on supply chain sustainability, it’s easier said than done. First and foremost, the focus requires a renewed purpose for procurement. Where the issue of sustainability is often mandated to a Chief Sustainability Officer and a team of sustainability managers, it’s hard to expect they would have the relationships with and any influence over suppliers. It makes sense, then, that the incentives and performance metrics across procurement incorporates ESG goals too. You can send strong and consistent messages about the importance of sustainability but it will go unheeded if you continue to measure procurement’s value by cost-cutting.

Secondly, you must know who you’re working with and to what end. A one-size-fits-all approach is not enough. It is procurement that will make sense of and segment suppliers based on their capacity for running sustainability initiatives. Earlier this year, Philips shared their sustainability segmentation strategy.

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There’s no doubt that the commitment to building a sustainable supply chain is enormous and that’s why I like this framework for segmentation. Because there is no single solution, this model gives us a helpful approach to categorising suppliers based on their sustainable capabilities., It also cuts across the standard tier one, tier two system that could render an organisation blind to the suppliers that need to do the most work. The scandals that General Motors and Mattel faced when suppliers far down in the supply chain were exposed for violating environmental and labour standards are still fresh and act as a cautionary tale for any organisation that chooses only to work with tier one suppliers on their sustainability requirements. These scandals have taught us that we simply cannot assume that good practise will cascade. Companies must find a more effective approach for breaking down their supply chain when it comes to sustainability. The Philips’ framework is a good place to start.

It is important, therefore, that corporations consider how they communicate their commitment to a sustainable supply chain to their suppliers. In the past, the mistake of believing buying power is enough to strong-arm even the most reluctant of suppliers into accepting ESG targets has proved catastrophic – vis a vis., General Motors and Mattel serving as examples of companies thinking they can pass the buck. In order to ignite the energy so that suppliers will respond in like fashion, corporations must create a platform to communicate their message, to share the  commitment and to introduce and discuss options and opinions. An email is not enough.. Neither is a pdf slide deck. Nor  a negotiation between a procurement manager and a supplier over new standards and requirements in the T&Cs.

 A supplier day is the energy and boldness, the commitment to across-the-board communication and mutual vision that can signal the beginning of a new way of doing business.. A supplier day brings together the Chairman, the CEO, the CFO, the CPO and the CSO to launch their united pledge and plan to make a meaningful and positive impact on ESG. It is a day given to winning  over the support and buy-in from the leadership of their suppliers. A day where suppliers are invited to be a part of the decision-making process from the beginning and a day where both the buyer and their sellers agree that the buck stops with them.

 A supplier day can act as the lightning strike that charges suppliers into action. And the time to strike is now. With most of the world working remotely and virtual events becoming the next normal, it has never been easier to get executives, stakeholders and decision makers in the same (virtual) room.

They say that lightning doesn’t strike twice. But this lightning can, when virtual events are an easier and cheaper way to bring your supply chain community together. The variations are endless; from lightning strike supplier days to smaller, frequent supplier days to address  specific areas of sustainability. Virtual supplier days create cohesive and consistent platforms for reinforcing and progressing your company’s sustainability agenda. Finally, physical events can generate 500-1,000kg of CO2 per attendee. There would be no greater irony than discussing issues of sustainability during an event that is generating an immense environmental footprint.

It is irrefutable that a commitment to ESG goals requires a renewed purpose for Procurement; is not a one-size-fits-all approach across the supply chain and a commitment to ESG goals are too important to be left to boring email communication. Instead, Supplier Day can be the lightning bolt that provides purpose, focus and direction to propel the future of your company.

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