Tag Archives: GE

A Systems Perspective on Sustainability, Supply Chain Management- The Intelligent Choice

18 May

As we approach the mid-point in 2011, the tea leaves of the economic recovery have ‘sustainability’ in supply chain planning and management firming up as a key “rebuilding” block in company activities.  Two recent studies from two different continents bear that notion out.  First, consultancy BearingPoint Ireland has released a report which says two-thirds of companies surveyed in Europe believe that a green supply chain is a strategic priority. The report, entitled Green Supply Chain: from awareness to action, is the fourth of a series of “supply chain monitors” from the private consultancy.  The study was conducted among about 600 European decision-makers by Novamétrie between 2010 and 2011, with a position within Supply Chain, Sustainable Development or Industrial Divisions.   Key industries captured includes: consumer goods, transportation, construction, automotive, industrial goods, retail, energy and utilities, chemicals, IT/electronics and pharmaceuticals, among others.

The goal of the report, according to the authors was to summarize “the evolution over the past two years in terms of mindset, maturity and actions efficiency [and] explores the green Supply Chain practices in Europe, in order to identify the significant improvements in the most representative industries. The results clearly underline a growing interest of executive managements in developing products with a low environmental impact. What was seen as a constraint is now considered as an opportunity.”

Executive Management Mandates, Reputational Risk Management Are Key Drivers

A notable “inflexion” occurred between this survey round and prior surveys.  For instance, in 2008, findings suggested that supply chain ‘greening’ was primarily being driven by important environmental and regulatory developments (such as REACH, WEE, RoHS or the European Union Emissions Trading Scheme).  Now, with compliance programs associated with these initiatives firmly entrenched or in initial development, the drivers appear to be shifting toward meeting internal executive management commitments and addressing reputation management and/or consumer demands.  In other words, according to the report, “Environmental actions presently address new constraints and motives, which are more mature and integrated to companies’ decision processes.” Key findings from BearingPoint’s report include:

  • 70% of surveyed companies declare that green Supply Chain is a true economical lever.
  • For 47% of the companies, the return on investment of a green Supply Chain is reached within 3 years.
  • More than half of European companies now use environmental criteria to assess their Supply Chain performance: share of recycled packaging material, CO2 emissions.
  • Two-thirds of companies adopted or plan to adopt a green policy for their purchases.
  • Manufacturers must be able to measure and reduce their carbon footprint if they are to succeed on export markets
  • Over half of the respondents in the survey said they did not renew contracts with suppliers who did not respect their green charter.
  • Buyers are preferably choosing suppliers with certified processes such as ISO 14001.

According to Bearing Points recent press release, Irish Exporters Association chief executive, John Whelan, said: “There is no question that Irish businesses which produce transparently environmentally positive products, delivered by carbon neutral logistics services will succeed on international markets.”

Sustainability Drivers Both Inside and Out the ‘Four Walls’

In yet another study, Prime Advantage, a buying consortium for midsized manufacturers, unveiled its seventh (2011) Prime Advantage Group Outlook (GO) Survey.  This survey queried small and midsized North American manufacturers, and found that more than 80 percent of North American companies surveyed indicated that they developing more sustainable or energy-efficient products largely driven by customer requirements and compliance regulations.  According to the study, “the biggest driving factors behind these changes are customer requirements (80 percent), followed by compliance regulations (53 percent) and shareholder directives (12 percent). In addition, 57 percent of respondents have also started buying more sustainable indirect products for internal consumption.”

A Systems Perspective Breeds Competitive Intelligence

The Bearing Point study made a statement that caught my eye and for which I wholeheartedly agree.  Identifying with a systems-based mindset that recognizes the intrinsic and realized value sustainability-focused business management is a critical fulcrum for green supply chain practices. I noted in a post last fall that The Fifth Discipline and The Necessary Revolution author Peter Senge argued (in the October Harvard Business Review) that to make progress on environmental issues, organizations must understand that they’re part of a larger system. Senge also makes a great point that companies will be in a better competitive position if they understand the larger system that they operate within and to work with people you haven’t worked with before.

I’ve cited companies like Hewlett-Packard and Danisco as supply chain innovators in their product sectors.  These companies, among other innovators like Intel, P&G, IBM, GE and others, who’ve viewed supply chain in a systematic or holistic manner, organizations successfully have been applying that “big-picture thinking” needed to be truly innovative. Doing so can create leverage points that companies never realized they had before with their suppliers.

Clearly, the environmental (and often the social) footprint of a product extends beyond the four walls of the company who “brands” the product.  This footprint extends upstream and downstream, and must capture, control or influence inputs and outputs all along the way.  Some of the largest footprints (like energy and carbon) lie upstream or in the final hands of the consumers.  This is why leading companies are rethinking the global extents of their supply chains, exploring local sourcing options and implementing other operational efficiencies.

The results of the recent surveys indicate that companies in a wide number of sectors are waking up to the fact that sustainability is more than business innovation- it’s business intelligence.

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Navigating Sustainable Supply Chain Management in China Takes a Keen Eye & Business Sense

7 Apr

2010 marked a watershed moment in supply chain sourcing among worldwide manufacturers and retailers. Sustainability observers and practitioners read nearly weekly announcements of yet another major manufacturer or retailer setting the bar for greener supply chain management.  With a much greater focus on monitoring, measurement and verification, retailers and manufacturers Wal-Mart, Marks and Spencer, IBM, Proctor and Gamble, Kaiser Permanente, Puma, Ford, Intel, Pepsi, Kimberly-Clark, Unilever, Johnson & Johnson, Herman Miller among many others made major announcements concerning efforts to engage, collaborate and track supplier/vendor sustainability efforts, especially those involving overseas operations.  Central to each of these organizations is how suppliers and vendors impact the large companies’ carbon footprint, in addition to other major value chain concerns such as material and water resource use, waste management and labor/human rights issues.Meanwhile, efforts from China’s manufacturing sector regarding sustainable sourcing and procurement, was at best, mixed with regard to proactive sustainability.  From my perspective as a U.S. based sustainability practitioner (with a passion in supply chain management), the challenges that foreign businesses with manufacturing relationships in China can be daunting.  Recent events concerning Apple Computers alleged lax supplier oversight and reported supplier human rights and environmental violations only shows a microcosm of the depth of the challenges that suppliers face in managing or influencing these issues on the ground.  Apple recently did the right thing by transparently releasing its Apple Supplier Responsibility 2011 Progress Report, which underscored just how challenging and difficult multi-tiered supply chain management can be.  But all is certainly not lost and many companies have in recent years begun to navigate the green supply chain waters in China. 

According to a World Resources Institute White Paper issued in the fall of 2010, China faces a number of supply chain challenges.  First, the recent spate of reports alleging employee labor and environmental violations can place manufacturing partnerships with global corporations at risk.  According to the report, Chinese suppliers that are unable to meet the environmental performance standards of green supply chain companies may not be able to continue to do business with such firms. Wal-Mart has already gone on record, announcing that it will no longer purchase from Chinese suppliers with poor environmental performance records. In order to be a supplier to Wal-Mart, Chinese companies must now provide certification of their compliance with China’s environmental laws and regulations.

Photo Courtesy of http://www.flickr.com/photos/scobleizer/ under Creative Commons license

Wal-Mart, like many other IT and apparel manufacturers also conducts audits on a factory’s performance against specific environmental and sustainability performance criteria, such as air emissions, water discharge, management of toxic substances and hazardous waste disposal. These actions are extremely significant as Wal-Mart procures from over 10,000 Chinese suppliers.  This increased scrutiny on environmental and corporate social responsibility through supplier scoring and sustainability indexing, says the WRI report may trump price, quality, and delivery time as a decisive factor in a supplier’s success in winning a purchasing contract.

Chinese Government Stepping Up Enforcement

Finally, what good news I hear about the depth of environmental regulations on the books in China is buffered by the apparent lax enforcement of the rules and regulations.  That is however appearing to change.  The WRI report indicated that the Chinese State Council is directing key government agencies, including the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Environmental Protection to prohibit tax incentives, restrict exports and raise fees for energy intensive and polluting industries, such as steel, cement, and minerals extraction.   Also, it’s been reported in the past years that the People’s Bank of China and the Ministry of Environmental Protection are also working with local Chinese banks to implement the ‘Green Credit’ program, which prevents loans to Chinese firms with poor environmental performance records. In addition, the National Development and Reform Commission and the Ministry of Finance have issued a notice to all Chinese central and local governments to purchase goods from suppliers that are ‘energy efficient’. Finally, on a local level, governments have developed preferred supplier lists for companies producing environmental-friendly products for their purchasing needs.

Supplier Challenges Are Not Just Environmental

A China Supply Chain Council survey conducted in 2009 identified a huge gap in knowledge between (1) clear understanding of which environmental issues posed the greatest risk (2) what to do to manage significant environmental risks.  Also, nearly 40% of the company’s surveyed thought sustainability to be cost prohibitive, too complicated or where particular expertise was lacking don’t have the expertise (on the other hand 60% did!).  Two- thirds of respondents did consider sustainability to be a supply chain priority, although many were not confident of the return on investment.  However, more than half of the respondents reported that they had begun collaborating with their larger supply chain partners.    In fact, according to the World Resources Institute White Paper, despite increasing pressures to improve their environmental performance, Chinese suppliers face many financial challenges to operating in a more sustainable manner

World Resources Institute White paper notes increasing  non-environmental pressures, including:

  • “Extended green investment “payback”: While improving resource consumption, such as energy and water, provides long-term cost savings, the payback for making such environmental investments may be as long as three years, which is financially impossible  for many Chinese suppliers.

  • Lack of financial incentives from green supply chain buyers: Multinational buyers are often unwilling to change purchasing commitments and long-term     purchasing contracts to Chinese suppliers that make the investments to improve their environmental performance.

  • Rising operational costs: Chinese suppliers face  rising resource and labor costs. For example, factory wages have increased  at an average annual rate of 25 percent during 2007 to 2010. Rising costs dissuade suppliers from making environmental investments which may raise  operating costs.

  • Limited access to finance: The majority of Chinese suppliers are small and medium-scale enterprises (SMEs) with limited access to formal financing channels such as bank loans.  Chinese SMEs account for less than 10 percent of all bank lending in China,  and as a result, Chinese suppliers frequently do not have the capital to     make the necessary environmental investments.

  • Intense domestic and global competition: Chinese suppliers face intense competition from thousands of firms, both  domestic and international, within their industries. This intense competition puts constant pressure on suppliers to cut costs, which can  include environmental protections, in an effort to stay in business.

Leveraging the Supply Chain to Gain “Reciprocal Value”

Leading edge, sustainability –minded and innovative companies have found “reciprocal value” through enhanced product differentiation, reputation management and customer loyalty.  I recently highlighted the model efforts that GE has implemented with its China based suppliers to implant responsible and environmentally proactive manufacturing into their operations.  GE’s comprehensive supplier assessment program evaluates suppliers in China and other developing economies for environment, health and safety, labor, security and human rights issues. GE has leaned on its thousands of suppliers to obtain the appropriate environmental and labor permits, improve their environmental compliance and overall performance.   In addition, GE and other multi-national companies (including Wal-Mart, Honeywell, Citibank and SABIC Innovative Plastics) have partnered to create the EHS Academy in Guangdong province.  The objective of this no-profit venture is to create a more well-trained and capable workforce of environmental, health and safety professionals.

Summary

Many of my prior posts have highlighted the critical needs for increased supply chain collaboration among the world’s largest manufacturers in order to effectively operationalize sustainability in Chinese manufacturing plants. This is especially evident for large worldwide manufacturers operating subcontractor arrangements in developing nations and “tiger economies”, such as India, Mexico and China (and the rest of Southeast Asia). Global manufacturer efforts underscore how successful greening efforts in supply chains can be based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.

Suppliers and customers stand so much to gain from collaboratively strengthening each other’s performance and sharing cost of ownership and social license to operate.  But as I have stated before, supply chain sustainability and corporate governance must first be driven by the originating product designers and manufacturers that rely on deep tiers of suppliers and vendors in far-away places for their products.


Note: This piece is adapted from a recent article that I wrote, “Navigating China’s Green Road” that appears in China Sourcing Magazine

Taming the Tiger: GE Manages China Supply Chain Sustainability Issues with Education & Collaboration

1 Mar

Many of my prior posts have highlighted the critical needs for increased supply chain collaboration among the world’s largest manufacturers. This is especially evident for large worldwide manufacturers operating subcontractor arrangements in developing nations and “tiger economies”, such as India, Mexico and China (and the rest of Southeast Asia). I have stressed how the most successful greening efforts in supply chains are based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.  I’ve further stressed how suppliers and customers can collaboratively strengthen each other’s performance, share cost of ownership and social license to operate and create “reciprocal value”.  But supply chain sustainability and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.

Recent events concerning Apple Computers alleged lax supplier oversight and reported supplier human rights and environmental violations only shows a microcosm of the depth of the challenges that suppliers face in managing or influencing these issues on the ground.  Apple recently did the right thing by transparently releasing its Apple Supplier Responsibility 2011 Progress Report, which underscored just how challenging and difficult multi-tiered supply chain management can be.

GE’s “Bringing Good Things to…”  it’s Supply Chain

In the fall of 2010, GE conducted a Supply Chain Summit in Shanghai, China. China was selected as the first supplier summit venue outside the United States mainly because of the ‘unique set of challenges global manufacturers face in conducting overseas manufacturing’. As GE’s Supply Chain Summit site notes, “China’s manufacturing industry has grown immensely over the past decade, faster than its environmental controls and the availability of skilled managers. Thirty percent of GE’s suppliers covered by the company’s Supplier Responsibility Guidelines Program are in China, yet more than half of the environmental and labor standard findings under the Guidelines Program have been identified in the country. Many factories continue to struggle to meet standards and local laws regarding overtime, occupational health, and environmental permits.”  This suggests that the ratio of negative supplier findings to supplier location is higher in China than in other geographies where GE operates.

To meet that deficiency, a key element of GE’s supply chain management program relies on intensive supplier auditing and oversight.  GE’s comprehensive supplier assessment program evaluates suppliers in China and other developing economies for environment, health and safety, labor, security and human rights issues. GE has leaned on its thousands of suppliers to obtain the appropriate environmental and labor permits, improve their environmental compliance and overall performance. GE performs due diligence on-site inspections of many suppliers as a condition of order fulfillment and as part of its tender process.

In a two-year period from 2008 to 2010, GE’s supplier environmental and social program focused assessments were conducted in 59 countries, in addition to performing “spot checks” or investigating complaint or media initiated concerns at particular factories. Some suppliers noted “audit fatigue” which can be perfectly understandable (being an auditor myself I can appreciate the wear and tear this causes on the mind and body after a while!). Third-party firms conduct some of the inspections. However, many of those participating in the audits found that third-party firms often did not provide the critical “how to” guidance as to altering business practices to assure future compliance.

What appeared to be most beneficial to manufacturers is GE’s detailed auditor-training program, which includes instruction on local law requirements and field training followed by a supervised audit with an experienced GE auditor.   The summit findings noted that dealing with the hands on “how to” aspects of solving non-compliance issues greatly helped Chinese manufacturers to “understand the importance of treating their employees fairly and the need to systematically manage the environmental impacts of their operations”. Suppliers at the summit also highlighted the business benefits that resulted from this “maturing approach to labor and environmental standards, including improved worker efficiency and morale, an enhanced reputation, and increased customer orders”. GE’s more advanced suppliers shared that they were developing management systems or integrated processes to proactively address issues and risks.

Education First!

EHS Academy, courtesy GE

In addition, GE and other multi-national companies (including Wal-Mart, Honeywell, Citibank and SABIC Innovative Plastics) have partnered to create the EHS Academy in Guangdong province.  The objective of this no-profit venture is to create a more well-trained and capable workforce of environmental, health and safety professionals, and give them the management, implementation and technical knowledge to be able to proactively assure ensure “that real performance is sustainable and integrated fully into the overall business strategy and operating system” of a company.  Chinese regulatory agencies are also invited to participate as well. The model that GE is using in China offers a positive example of collaborative innovation.

As large companies like GE and Apple expand their production capabilities throughout the globe, it’s vital that they continue to seek ways to train and educate contract manufacturers on environmental and social issues.   This may be tough to do because countries like China are still in the “ramp-up” phases of economic development.  Plus it’s been evident for some years that enforcement of environmental and social laws and regulations by government agencies has not been on  par with the intent of the laws.  It’s also likely that (for the foreseeable future) Chinese political and economic systems will remain focused on rapid development at all costs. So it’s critical that local/in-country government policies be aligned as well to support capacity-building for companies to self-evaluate, learn effective auditing and root- cause evaluation,  institute effective corrective and preventive action programs and seek means to systematically achieve continuous improvement through proactive environmental  and social management systems.

The GE program offers a glimmer of hope that (in China and similar developing economies) that multi-stakeholder, collective and timely collaboration may (someday soon) tame the tiger.

“First Movers” Use Materiality Analysis to Link Sustainability, Supply Chain Management & CSR

25 Jan

By Dave R. Meyer (SEEDS Global Alliance)

Note:  this is the second of a three-part series exploring “materiality” and  the intersection of supply chain management, sustainability and  corporate social responsibility.

My first post in this series suggested that there was an intersection or cross-walk between sustainability, corporate environmental responsibility and supply chain management.  This “sweet spot” can be found in conducting “materiality” analyses.  Although the concept of materiality in the finance sector has a long track record in accounting circles, its application in the sustainability space is much newer.  Whereas financial reporting has taken a more short-term view and approach to handling performance and risk, sustainability generally factors in a much longer, strategic planning and implementation horizon.

Businesses have learned that in a world that has grown more transparent, they need to clearly identify what is material to their operations and stakeholders, and communicate this in trustworthy and convincing ways in order to drive creativity and innovation.  Materiality determination is a lot like the aspects and impacts analysis that is common to ISO 14001 based Environmental Management Systems.  ISO 14001 seeks to identify those elements of their activities, processes, services and products that have the greatest impact on the environment.  Materiality analysis does not only that but dives deeper into operations and stakeholder issues.  Let’s take a moment to explore materiality’s origins in the sustainability space.

Roots of Materiality in Sustainability Reporting

In 2003, The UK- based think tank, AccountAbility developed the  AA1100 Standard.   AA1000AS (2008) assurance provides a “comprehensive way of holding an organization to account for its management, performance and reporting on sustainability issues by evaluating the adherence of an organization to the AccountAbility Principles and the reliability of associated performance information. It also provides a platform to align the non-financial aspects of sustainability with financial reporting and assurance through its understanding of materiality”.    The framework for a materiality assessment is depicted in the adjoining graphic, jointly developed by AccountAbility, BT Group Plc and LRQA (The Materiality Report- Aligning Strategy, Performance and Reporting- November 2006).

The AA1100 Standard was revised in 2008.  In it, the AA1000 Materiality Principle requires that the “Assurance Provider states whether the Reporting Organization has included in the Report the information about its Sustainability Performance required by its Stakeholders for them to be able to make informed judgments, decisions and actions.”  Materiality norms taken into account by this standard are:

(a) Compliance performance (considering those aspects of non-financial performance where a significant legal, regulatory or direct financial impact exists).

(b) Policy-related performance (considering identification of aspects of performance linked to stated policy positions, financial consequences aside).

(c) Peer-based norms (considering how company’s peers and competitors address the same issues, irrespective of whether the company itself has a related policy or whether financial consequences can be demonstrated; and

(d) Stakeholder-based materiality (taking into account stakeholder behaviors and perceptions).

The Global Reporting Initiative has developed a framework for materiality determination as part of the G3 Sustainability Reporting Guidelines The GRI considers materiality as “ the threshold at which an issue or indicator becomes sufficiently important that it should be reported.”  The GRI defined a series of internal and external criteria to be considered when performing a materiality analysis.  Later in 2009, the GRI convened a to evaluate and create more specific guidance for determining materiality.  The draft content recognized that materiality analysis was one of the “least systematized aspects of reporting”:

“Identification of material issues and boundaries are core challenges for any standard risk assessment process. Despite the importance of these challenges to good reporting processes, they represent the most difficult and underdeveloped areas for most companies.” – Draft Report Content and Materiality Protocol, page 2.

The draft Report Content and Materiality Protocol review period closed last fall and is in review at this time.

Materiality “First Movers”

A number of companies have taken a “first mover” position in documenting materiality in their corporate sustainability reports.  Most have used a format similar in scope and criteria as the GRI or AA1100 frameworks, with some modifications.  Companies that have reported on materiality and that reach out to stakeholders what they find to be material to their interest and have some “reasonable control” over include companies from diverse manufacturing sectors such as automotive (Ford[1], BMW, Volvo), communications (BT), energy development (Exxon, Mobil) pharmaceuticals (Novo Nordisk, Pfizer, Johnson & Johnson), electronics and control Systems (Cisco, GE, Omron), consumer products (Gap, Starbucks) and mining (Holcim, Rio Tinto), among many others.  One such company is Danisco A/S.

I recently had the opportunity to visit with Mr. Jeffrey Hogue (@jeffreyhogue) of Danisco.  Mr. Hogue is Sustainability and Corporate Social Responsibility (CSR) Global Leader at Danisco A/S.  Danisco is a worldwide manufacturer of food and beverage products, including cultures, emulsifiers, gums & systems and natural sweeteners.  The company does business with the world’s largest food manufacturers.  Daniscos’ 2009/2010 Sustainability Report is extremely comprehensive and has been awarded some of the highest honors for corporate social responsibility reporting in the past year.  The company looked deeply into materiality issues in its report and has developed  strong operational programs to manage its supply chain in a proactive manner.  It’s web site indicates that they have developed and implemented a “new supplier management system…to strengthen our global supplier and material assessment programme through better audit portfolio management tools, detailed assessments, prioritised audits and improved collection of supplier and raw material data.”

Danisco catalogued and assessed stakeholder input from a variety of internal and external surveys and other sources, then indexed them according to their impact on its business. Issues emerging from the data were ranked according to their impact on the business and the degree of importance to stakeholders, forming the basis for the Materiality Matrix (see Figure 1 below).  The company strategically decided to address sustainability risks and opportunities identified as having “medium-to-high impact” on its business and being of “medium-to-high” interest to our stakeholders.


I asked Jeff if he could shed some insight on the company determined materiality and its resulting high ranking for supply chain (criteria, indicators etc).  I also asked Jeff if he’d share his thoughts on the critical nature of supply chain management relative to triple bottom line based materiality (as well as risk management).

“I think that there are three dimensions of this subject and why our supply chain is very important to our success.


Risk reduction – With a supplier base of over 3000 key suppliers it is crucial for us to manage any risk that may be present in our upstream value chain to eliminate the impact on our operations and our customers.  Therefore it is a baseline requirement that we scrutinize our supply chain and develop robust and systematic programmes to address and mitigate risk. Most of our customers expect it — and although it is in a lot of ways a compliance programme, we do derive value in knowing that we will maintain consistent raw material quality, avoid issues related to labor and human rights, and supply security.  We also have the ability to anticipate and mitigate other sustainability related endpoints like the impacts on agricultural raw materials from climate change, water scarcity, regulation, etc.

Opportunity harvesting – We also see the need to understand the potential synergies between our organization and our suppliers.  In many cases we do this to provide shared value in terms of capacity and livelihood building for our suppliers alongside our need for more secure raw material sources.  We often do this on a case by case basis — mainly on a regional level where it makes sense

Value chain pressures and expectations – We are experiencing a world where retailers and our largest customers see these issues in the light of their entire value chain and are actively seeking ways to reduce their indirect impacts.  This of course is cascaded down their supply chains through our organization to our suppliers.  We also see a tremendous opportunity in this area to be first movers and to act now based on how the retailers are moving.  This will put us in a position where we can be proactive and are faster to respond to value chain pressures.”

Materiality in CSR Reports of the Future

I also had the pleasure of several e-mail exchanges with Ms. Elaine Cohen (@elainecohen).  Elaine is a well known CSR consultant, Sustainability Reporter, HR Professional (and self-avowed ice cream addict).  She’s  the Founding partner at BeyondBusiness Ltd (www.b-yond.biz/en) and consults to companies on CSR strategy, processes and sustainability communications. I asked Elaine what trends she has seen in CSR reporting these past few years where supply chain has been classified as having “high materiality” to a company’s operations and to their stakeholders.

“I believe supply chains have been becoming increasingly more important over the past few years, as the effects of inadequate supply chain accountability are more and more visible in our market place. We can split these issues broadly into two: the human rights issues in supply chains and the sourcing issues in supply chains.  The HR issues surfaced mainly with the apparel issues in the late 90’s. But the last five years have been characterized by significantly greater transparency  due to the spread of the internet and ease of access to information.”

“… Additionally, I believe the increasing focus on Human Rights and the work of John Ruggie [Special Representative of the United Nations Secretary-General on Business & Human Rights], have been clear about squarely placing the responsibility for clean supply chains on the manufacturer. There is almost nothing more material for apparel suppliers than human rights in their supply chains – just take a look at some of their Sustainability reports. Regarding sourcing, this has also become a major issue – Starbucks and Ethiopian coffee farmers, Unilever and others in palm oil issues, Nestle and the Greenpeace KitKat campaign . Manufacturers are getting clearer that sourcing decisions are now much more visible than in the past, and much more risky. So for these companies, raw materials sourcing is most definitely high materiality. Sustainability reports are reflecting these trends and the space allocated to human rights, responsible sourcing and factory auditing is significantly greater that it was some years ago.”

Trending forward in 2011, I asked Elaine to read the tea leaves on supply chain management, CSR and materiality.

“I believe these issues will continue to maintain high-profile and ultimately move towards cross sector alliances to resolve issues that affect all players in a sector such as the Round Table on Sustainable Palm Oil , work done by the apparel sector and the electronics industry  to determine common standards. We might see multi-company collaboration on third-party factory inspection and evaluation. We might see a set of industry wide agreements on core issues….countries such as China and India are also aware of risks, and greater legislation and enforcement in these countries may help resolve some issues.

Takeaways on Materiality in the Supply Chain.

Jeff related to me that a key NGO with a critical stake in Daniscos’ supply chain affairs remarked that supply chain management and sustainability go hand in hand and is basically a foundational aspect of business operations and risk management.   The challenge, according to Jeff, is in finding the “shared value proposition” that is often difficult to achieve, especially across multiple layers of an often globally distributed supply chain.  Finding localized suppliers and establishing multi-stakeholder collaborations hold promise as models where stakeholder interests and large-scale products manufacturers can find the needed common ground to advance supply chain sustainability.

Elaine summed up our dialogue with the following suggestions: “For manufacturers, don’t underestimate the importance of high-quality supply chain management – get it right before it gets you right, learn from the mistakes of others, think of supply chain management as a core business issue which goes to the heart of strategy and brand decisions, not just something that is tacked on to a new project as a deliverable…In terms of materiality, make sure you “engage, engage, engage” at [the] local level with a wide range of stakeholders, so that you are not demanding deliverables which are not reasonably  feasible. Report transparently on all aspects of supply chain because, if nothing else, this will assist in identifying hidden costs and areas of potential risk.”

Thanks Elaine! I couldn’t have said it better myself.

In Part 3 of this series, I’ll lay out the business case for materiality assessments to strengthen supply chain management and a straightforward framework for materiality analysis.


[1] Ford’s 2008/09 Sustainability Report includes an interactive materiality matrix that categorizes issues based on two dimensions: the degree of stakeholder concern and the extent of the current or potential impact on the company.