Companies with access to a number of supply chains are finding sustainability matters are a far more manageable barrier to growth
Businesses are increasingly recognising that they have to satisfy standards of sustainability and not just profitability. To effectively address these concerns many companies find that they have to check not only their internal practices but also those of their supply chain. With the increase in outsourcing they also increasingly rely on other companies for labour. With increased specialisation these supply chains have become ever more complex making monitoring them even more difficult, particularly when operating in developing countries.
The first step corporations need to take to make their supply chains sustainable is to communicate the standards they expect to their suppliers. For a company with a large influence over a relatively simple supply chain this can be done directly. For example, publisher Reed Elsevier publishes a social responsibility code that it asks its suppliers to display and adhere to. The code is based on widely established principles, such as those found in the UN Global Compact on Sustainability, making them easily understood and more acceptable. It also requires suppliers to pass the code on to their suppliers so that sustainability is maintained down the length of Reed Elsevier’s supply chain. In the electronics industry companies deal with many more suppliers and far more complex products. Communicating standards down the supply chain directly is inefficient, so Sony, Panasonic and the many of the other leading corporations collaborated to form the Electronics Industry Citizenship Coalition. This effectively communicates standards of sustainability at an industry-wide level. Some standards are communicated and enforced by third parties, such as the Fair Trade brand. Purchasing their products makes it easier for a corporation like Starbucks to vet their supply chain.
There is the risk that suppliers ignore or are unable to implement the standards required, so efforts must be made to audit and enforce compliance. The steel producer ArcelorMittal has over 60,000 suppliers, so monitoring sustainability is tricky. It uses a range of expertise to map the risks so that it can judge what the severity and likelihood of each risk is. This allows it to concentrate its efforts where it is most needed. As an example, having identified risks to sustainability in Brazil, ArcelorMittal used its resources and expertise to show its small business suppliers how to reduce energy consumption and how to separate waste for easier recycling.
A judgement needs to be made on how far down the chain the company wants or plausibly can enforce its sustainability code. Some are prepared to check extensively, such as the car manufacturer Ford. Ford enforces labour standards on the production of pig iron, even though it is several links down in its supply chain. For many the supply chain quickly becomes too complex and the provenance of resources cannot be realistically checked that far down the chain. Perfect sustainability is unlikely to be achieved, but it is hoped that as the ideas of sustainable business gain wider acceptance, the effect will cascade down the supply chain.