Purchasing Power and Supply Chain Transparency
by Kelly Slutz
Maybe you've heard someone say, “we vote with our dollars.” The basic idea is this: we are told that - to be sustainable consumers - we should buy plant-based products that are compostable or recyclable where we live (insert any number of sustainable marketing terms here). It puts the onus on each person to use their purchasing power to drive climate change, one compostable product at a time. While our individual buying behaviors can make a difference in what products are produced and sold, the buying cultures of companies have a much more significant impact on the way materials are sourced and produced before they end up in our shopping carts.
The Power of Supply Chains
Understanding and engaging with supply chains is one of the most profound ways companies can decrease their environmental impact, protect human rights, and create positive relationships with local communities impacted by their commerce.
Supply chain transparency has grown as a concept and practice in recent years. On April 24, 2013, a garment factory called Rana Plaza in Dhaka, Bangladesh, collapsed, killing more than 1,100 workers and injuring more than 2,000. This terrible event catalyzed the demand to know more about where and how our products are made. Since then, activists and journalists have exposed many companies for their supply chains’ glaring human rights violations and environmental atrocities. In 1996, journalists discovered that factories supplying shoes to Nike were using child labor. The chocolate industry has been accused of supporting deforestation as recently as 2017. The US government is now cracking down on forced labor with the Uyghur Forced Labor Prevention Act. The mining of precious metals used for making solar panels, electric car batteries, and computer chips is critical to our ability to transition to a low-carbon economy but also has significant impacts on mining communities around the globe.
Multinational companies’ impact on people and the planet is enormous; it can be damaging or inspiring. While movements to localize economies and shorten supply chains are also important, for many industries, the materials they need require relationships with companies in other areas of the world. Therefore, it is critical that companies manage risks, practice due diligence, and collaborate with diverse contributors and stakeholders within their supply chain. The COVID-19 pandemic exposed the fragility of our supply chain networks in many ways, and our supply chains will continue to experience risks regardless of location. Weather events, systems breakdowns, and capacity issues (to name a few of the potential disruptions) will continue to play a role and require foresight to manage these risks and support thriving supply chains.
The Foundation of a Healthy Supply Chain
While risks can’t be completely mitigated, they can be significantly decreased by creating thoughtful, intentional policies and practices ahead of time. Consider the following recommendations:
Create procurement goals
Purchasing strategies should match a company's culture and goals. Your sustainable procurement goals will be specific based on your employees, industry, materials, and products. Companies can use ISO 20400 for guidance in creating a framework for integrating sustainable practices into purchasing.
Understand your supply chain and your materials
All companies and procurement teams should work with their direct (tier 1) suppliers to understand suppliers further down in their supply chain. Many companies use CDP disclosures to learn more about how other companies in their supply chain operate. “Nearly three quarters (73%) of a subset of 27 major purchasers answering a CDP survey said that they are either currently deselecting, or considering deselecting, existing suppliers based on their environmental performance. In addition, 63% are either currently using data from CDP disclosures to influence whether they contract with suppliers or not. This is in stark contrast to the 4% to 9% respectively, who were doing this a decade ago.” (1) Proactive procurement teams use CDP to enact positive change and manage risks with their suppliers. Many companies also choose to create their own questionnaires to gather data from their direct suppliers with more specific questions related to their industry. Easy-to-use questionnaires are an important tool for gathering information.
Collect actionable data and manage your risks
The most common way to collect data from suppliers is through questionnaires. Responses showcase the information tracked by the supplier regarding environmental impacts, social issues, and governance processes. Environmental data will help to create plans for reducing greenhouse gas emissions and pollutants produced at the facility and even reduce the embodied energy in your products if your company utilizes life cycle assessments (LCAs). Questions about social dynamics can uncover what it may be like to work at the company and get honest feedback from workers and employees. Make sure you are managing product specifications and documents for maintaining the chain of custody, getting through customs smoothly, and mitigating risk. Consider blockchain technology for greater transparency and traceability of raw materials.
Engage with your suppliers
Once you have data from your suppliers, you can start to identify projects to improve the sustainability of your shared processes. You might discover carbon reduction opportunities, ways to improve chemical management, or ways to support the livelihoods of workers. For example, Tesla made it their goal to source cobalt, nickel and lithium directly from mining communities. (2) As a part of this strategy, they became the technical and industrial partner of the Goro mine in New Caledonia. As part of the agreement, Tesla will purchase nickel from the mine for the next five years. Tesla’s goal is to have a positive impact on the mining community and help the mine become carbon neutral by 2040. (3)
Share your journey
Companies can use their annual sustainability or impact reports to showcase their supply chains and their changes over time. You will also want to disclose sustainability data and metrics publicly. CDP is a great place to do this, even if you’re not being asked directly to disclose through their platform. Companies can decide how much, when, and where to share, but stakeholders and consumers want to see that companies know and are engaging with their supply chains.
Supply Chain Transparency Isn’t Optional; It’s Essential
Sustainable procurement and supply chain transparency will be critical for businesses in the foreseeable future. Our dollars wield great power for making positive change in the world if companies do the hard work of knowing their supply chains. Supply chains were not designed to be transparent; in fact, the original goal was the exact opposite. Supply chains needed to protect private business information and intellectual property in order for the company to remain viable and competitive in the marketplace. Unfortunately, the downside of secrecy is manipulation and misuse. Ushering in a more transparent marketplace won’t be easy, but it’s worth it. It will require partnerships across competitors, industries, and the political aisle. The good news is, however, that consumers are typically willing to pay 2-10% more for products with greater transparency. (4) As consumers continue to buy more transparent and sustainable products, companies can continue to make their supply chains more transparent and sustainable. Ultimately, how we spend our money will make a difference, but it requires an investment of time, energy, and money from us all.
Sources
1. CDP. 6 Feb 2019. “A decade of purchasing power brings sustainability up the corporate agenda, as world's biggest businesses cut 633 million metric tonnes of CO2 from their supply chains.” https://www.cdp.net/en/articles/supply-chain/a-decade-of-purchasing-power-brings-sustainability-up-the-corporate-agenda-as-worlds-biggest-businesses-cut-633-million-metric-tonnes-of-co2-from-their-supply-chains
2. Tesla 2021 Impact Report https://www.tesla.com/ns_videos/2021-tesla-impact-report.pdf
3. S&P Global “Tesla role in Goro nickel mine paves path to vertically integrated supply chain.” 10 Mar 2021. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/tesla-role-in-goro-nickel-mine-paves-path-to-vertically-integrated-supply-chain-63082771
4. Harbert, Tam. MIT Sloan School. “Supply chain transparency, explained.” 20 Feb 2020. https://mitsloan.mit.edu/ideas-made-to-matter/supply-chain-transparency-explained
Bateman, Alexis and Leonardo Bonanni. Harvard Business Review. “What Supply Chain Transparency Really Means.” 20 Aug 2019. https://hbr.org/2019/08/what-supply-chain-transparency-really-means
Linich, David. Deloitte Insights. “The path to supply chain transparency.” 19 July 2014. https://www2.deloitte.com/us/en/insights/topics/operations/supply-chain-transparency.html