Creating a sustainable and ethical supply chain is vital for businesses in today's world. Regulations like Germany’s Supply Chain Due Diligence Act (in German, Lieferkettensorgfaltspflichtengesetz or LkSG) not only reflect a commitment to environmental stewardship and social responsibility, but it also ensures long-term viability and success.
The number one challenge businesses face is engaging with their suppliers across sustainability and human rights goals, such as the UFLPA or the new EU Corporate Sustainability Due Diligence Directive (CSDDD). The most common mistake companies make is overwhelming suppliers with questionnaires, providing no value in the process. Instead you should be resourcing your suppliers with information and actions they can take better align with your company’s values.
Here's a brief look at why resourcing suppliers is essential in building such a resilient supply chain:
Understanding the Role of Suppliers in Sustainability
The supply chain of a company often involves multiple layers of suppliers, each playing a crucial role in the final product or service. As such, the ethical and sustainable practices of these suppliers significantly impact the overall sustainability footprint of the company.
The Business Case for Ethical Supplier Engagement
- Risk Management: Engaging suppliers in sustainability practices helps mitigate risks, including environmental hazards, labor disputes, and regulatory non-compliance (Klassen & Vereecke, 2012).
- Brand Reputation: A company’s commitment to sustainability enhances its reputation. Consumers are increasingly favoring brands that demonstrate ethical practices (Bhattacharya & Sen, 2004).
- Long-term Viability: Sustainable practices lead to resource efficiency and cost savings over time, contributing to the long-term viability of both the company and its suppliers (Hart, 1995).
How Companies Can Help Suppliers Improve
1. Education and Training
Providing training and resources to suppliers on best practices in sustainability and ethics is crucial. This can be in the form of workshops, guidelines, and shared learning resources.
2. Setting Clear Expectations
Companies should clearly communicate their sustainability expectations to suppliers, often embedding these requirements within their procurement processes (Carter & Jennings, 2002).
3. Collaboration and Support
Building a collaborative relationship with suppliers, rather than a transactional one, can lead to more significant improvements in sustainability practices. This might include sharing technology, expertise, or even financial support for sustainability initiatives.
4. Regular Feedback
Conducting regular audits and providing constructive feedback can help ensure compliance and continuous improvement in ethical practices (Awaysheh & Klassen, 2010).
5. Encourage Continuous Improvement
Work with suppliers to improve practices through the use of webinars, training materials, and best practice sharing.
6. Recognizing and Rewarding Progress
Acknowledging suppliers who make significant strides in sustainability can motivate continuous improvement and set a standard for others.
Challenges and Solutions
- Resource Constraints: Smaller suppliers might lack the resources to invest in sustainability initiatives. Companies can help by providing financial support or technical assistance.
- Cultural Differences: Global supply chains involve diverse cultures and business practices. Cultivating an understanding of these differences is essential in implementing sustainable practices effectively.
- Measuring Impact: It can be challenging to measure the impact of sustainability initiatives. Implementing robust tracking and reporting mechanisms is vital.
Helping suppliers improve their ethics and sustainability is not just an act of corporate responsibility but a strategic business move that ensures resilience, efficiency, and long-term profitability. As the business world evolves, companies that invest in building sustainable and ethical supply chains will be better positioned to face future challenges and meet the demands of a rapidly changing global marketplace.
Citations
- Klassen, R. D., & Vereecke, A. (2012). Social issues in supply chains: Capabilities link responsibility, risk (opportunity), and performance. International Journal of Production Economics, 140(1), 103-115.
- Bhattacharya, C. B., & Sen, S. (2004). Doing better at doing good: When, why, and how consumers respond to corporate social initiatives. California Management Review, 47(1), 9-24.
- Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review, 20(4), 986-1014.
- Carter, C. R., & Jennings, M. M. (2002). Social responsibility and supply chain relationships. Transportation Research Part E: Logistics and Transportation Review, 38(1), 37-52.
- Awaysheh, A., & Klassen, R. D. (2010). The impact of supply chain structure on the use of supplier socially responsible practices. International Journal of Operations & Production Management, 30(12), 1246-1268.
