Dear supply chain

sivanlachman
Sep 26, 2021
3 min read

Companies have many reasons to focus on environmental, social, and governance (ESG) issues. As an answer to a demand coming bottom up from consumers and employees to demands from regulators, investors and banks. Probably, it is a combination of all these stakeholders' sentiment. Analysis shows that top ESG performers enjoy a 10-20% faster growth and higher valuations per section. Costs can be driven down by 5-10% through operational efficiency and waste reduction.

Supply chain is an important part of this effect. Many companies are already attempting to optimize resource consumption in-house, but the environmental and social footprint of a business extends far beyond its own walls. Most emissions are indirect emissions that occur across the company’s value chain ("Scope 3"), such as employee travel and commuting, and the use and end-of-life treatment of sold products. And most of those are usually from the upstream supply chain.

Although understood in theory, the biggest challenge is to turn that understanding into a clear vision and sustainability strategy for procurement. In a recent European survey, only 20% of companies used sustainability measures as primary criteria in sourcing decisions or supplier reviews, and less than 10 percent said that sustainability was included in category strategies.

Let's look at some corporate examples:

COLGATE-PALMOLIVE

Employing 35,000 employees, Colgate-Palmolive Company’s supply chain reaches far and wide around the world. Their recognition as a leader within global sustainability initiatives proves their commitment now and in the future. The company's actions have resulted in 16 zero waste certified manufacturing facilities in 2019 as well as being rated as the top household products company on the Dow Jones Sustainability Indices. Through these they have applied to consumers and regulators simultaneously.

APPLE

The key to Apple’s recognition as a sustainability leader comes both from their level of investment in green initiatives and in the care they take during product design and in sourcing materials.

Their Carbon Solutions Fund is investing in carbon removal solutions in partnership with Conservation International.

In 2017, they announced a long-term goal to one day use only recycled and renewable materials for all of their packaging and products. For a company with a supply chain as large and complex as Apple’s, this ambition is unprecedented. They work to overcome regulatory barriers, technical properties, supply chain inefficiencies and material availability. To top it off, Apple Publishes a supplier responsibility report in addition to a full environmental report.

The Startup landscape

This is an opportunity to be seized, and startups have started addressing this issue.

One company is Upparel (or ManRags) that takes unique approach to textile waste, keeping 150 tons of textile from landfills or 650 tons of greenhouse gases in production savings. Orbital Insight is about traceability and transparency.

Another very interesting example is Made2Flow (Israeli-German SU) that actually helps textile manufacturers measure their impact on the environment, find the gaps and close them. This is an excellent example of putting AI and ML to use in an Impact-Tech manner.

So what should you do ?

1. Determine the baseline and how far to go.

Understand and quantify the organization’s current ESG footprint.
Identify the most significant risk areas and improvement opportunities.
Determine what matters most in the context of the company’s overall ESG agenda.
Set goals and targets for sustainable procurement.

2. Establish the core and drive value-creation initiatives.

Define ESG metrics and policies that will be integrated into the organization’s standard supplier selection, procurement, and supply-management processes.
In parallel, select a number of top-priority ESG themes and address them via in-depth cross-functional innovation and improvement initiatives, such as collaborating with value-chain partners to decarbonize emissions-intensive areas of the supply chain.

3. Shift the organization.

Scale up and roll out successful initiatives.
Integrate sustainable purchasing practices into the organization.
Continuously train the procurement community on sustainable procurement principles and their application.
Track performance against targets.