What Motivates Suppliers to Meet Sustainable Sourcing Requirements- The Carrot vs. The Stick?

17 Aug

Are you old enough to remember the opening lines of the Buffalo Springfield song  For What it’s Worth? “There’s something happening here/What it is ain’t exactly clear/There’s a man with a gun over there/Telling me I got to beware”. I am thinking there is a green supply chain revolution in play, just as there was political unrest and turbulence of the mid to late 1960’s from which this song originated. Methinks Walmart may be “the Man”, but are they really holding a gun to suppliers?  I’m not so sure.

Walmarts efforts internally to establish its sustainability index continue to slowly progress along (I still predict a 2-3 year process before anything tangible emerges).  But, the company is as I predicted last year, changing the rules in how sustainability is felt up and down the supply chain- mostly for good.  Many companies in the retail and electronics sectors, such as Proctor and Gamble and IBM have most notably stepped up to the plate, but many others are learning from Wal-Mart’s green supply as well (see “The surprising success of the green supply chain” http://bit.ly/digXmH).  So how is this “cat herding” happening at such a rapid pace and what are the key issues being driven through the ‘value chain’.  Is this just a matter of keeping up with the next guy?

First- the ‘drivers”.  There are a number of factors and issues, both internal and external that can be attributed to this hot phenomenon in the supply chain space. In a 2009 study by GTM Research, sustainability was clearly a driving topic in supply chain management, ranking behind only three factors:  improving customer service, reducing supply chain risk and managing and optimizing an extended supply chain network  (Greening The Supply Chain: Benchmarking Sustainability Practices And Trends- GTM Research 2009 http://bit.ly/cl1QlU ).   The same study found that several factors were driving the greening of the supply chain across a number of vertical markets, notably:

  • Lost sales (projected to be in the billions of dollars) because products in the supply chain were not “green” enoug
  • Increased energy and transportation costs (accounting to over 50% of the cost increases)
  • Damage to reputation and
  • Supply disruptions

In response, Walmart and other major retail and industry giants are driving upstream and downstream performance based changes, designed to reduce suppliers environmental footprints and focused on several key areas:  energy management, fuel cost containment, carbon emissions, water use and waste generation.  New issues also factoring into the mix include green chemistry and management of restricted materials, depending on the geographic reach of global markets served.

To that end suppliers, from Tier One on down through the chain are responding to varying degrees and the early results appear favorable. As I reported last week, companies like Herman Miller, Walmart, P&G and Johnson and Johnson (http://bit.ly/cFBzjD) are showing marked reductions in most of the key metrics that they have been focused on, with much of the credit due to those suppliers who have found business sense in sustainability.

Now to that you may say that suppliers are goaded, cajoled, forced, strongly encouraged, or perhaps threatened to comply, or else risk losing millions in contracts.  Actually, what I am seeing with the likes of Miller, IBM, Hewlett Packard and others continues to be more of the carrot and less of the stick- more collaboration and performance based incentives coupled with onsite verification- that’s all good because it encourages accountability.  But that’s a topic for a future post.

In the meantime, to paraphrase another line in that Buffalo Springfield tune:  “Stop [vendors] what’s that sound /everybody look what’s going round”.  Until next time.

This post was originally published on my New Green Supply Chain Blog, which can be found at https://community.kinaxis.com/people/DRMeyer/blog

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