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As concerns about the environment, human  rights, and social equality continue to move front and center in the global  consciousness, more and more companies are taking steps to make sustainability  a core part of their business strategy. And the impact on suppliers promises to  be huge.

 

For example, since the biggest part of buying  organizations’ environmental footprint often comes from their upstream supply chains,i many are mandating that their  suppliers not only comply with specific sustainability guidelines, but also provide  detailed data to back it up. If such requirements haven’t yet touched your  business, they will soon. A recent PwC report names sustainability as one  of the fastest-growing supply chain management trends, with more than  two-thirds of supply chain executives surveyed saying it will play an important  role in how they manage their supply chains in 2015, and 76% of operations  professionals saying their company’s focus on creating a more sustainable supply chain would increase over the next three years.ii

 

Protecting the environment and human health is  clearly a worthy goal. But aside from the obvious ethical implications, what  are the key drivers of the sustainability movement in business? And as a supplier,  what should you do to position your company on the right side of this sea  change?

 

 

 

 

 

Leaning towards green: Why companies are embracing  sustainability

 

While the need to comply with government regulations  and cut costs definitely plays a role in the heightened focus on  sustainability, new drivers have taken center stage in recent years, including:

 

  • Self-imposed  goals by industry thought leaders. A growing number of companies recognize  that failure to take action could ultimately prove devastating to their  business. In the coffee industry, for example, climate change is already inflating  prices and reducing the availability of quality beans, motivating  companies and nonprofits to collaborate on efforts that can stem or solve  negative conditions. The palm oil industry offers another example, with giants like  Cargill and Unilever pledging to produce, trade, or purchase only sustainable  palm oil by 2020iii and participating in organizations  like the Roundtable on Sustainable Palm Oil. “So  while certainly it’s a good thing to buy sustainable palm oil to help stop  deforestation, forward-thinking executives realize it’s also essential to their  company’s future,” says Thomas Odenwald, senior vice president of  sustainability strategies for SAP. “A recent scientific study showed that we  have now crossed four of nine planetary boundaries, and we keep extracting 50%  more natural resources than was the case only 30 years ago. We need to think  seriously about radical transformation. Maximizing profits cannot be the only goal;  we need an integrated sustainable business agenda across the value chain.”


  • Escalating customer concern about how and where products are made. Attention to sustainable purchasing is escalating rapidly, particularly among  younger millennial consumers. “The new generation of customers wants to have  more information about what’s in the products they buy, what’s not in them,  where they come from, and who made them under what conditions, and this is  significantly affecting not just high-tech and apparel, but many other  industries too,” says Thomas.


  • Brand  differentiation that goes beyond lip service. Though greenwashing is  still alive and well, customer demand for transparency—combined with the need  to truly engage  customers to ensure business success—makes it increasingly imperative that companies  walk their sustainability talk. And as the voice of the customer gains an  ever-greater weight in how brands are perceived, establishing a legitimate  sustainability presence can mean a big leg up. “We’re finding that the need to  impact your brand positively in your customers’ view to differentiate yourself  from competitors is a key reason to pursue sustainability,” says Aly Pinder, senior  research analyst in service management for Aberdeen Group. “In today’s market,  end customers get lots of opinions of you before they purchase, and the ability  to show them you stand for more than just a product is driving a growing number  of these initiatives.”


  • Sustainability’s  power to boost efficiency and service. By promoting more effective use  of resources, sustainability can enhance operational efficiency and productivity  while opening the door to better customer service. For example, a repair company  with optimized vehicle routing not only reduces its emissions through lower  fuel consumption, but lessens driving hours so technicians can spend more time  with customers. And goals like these are central to many sustainability efforts.  A recent Aberdeen survey found that the top three motives to build sustainable service  operations were the need to increase productivity and resource utilization  (69%), speed service delivery (47%), and eliminate service-related costs (33%).iv

 

Sustainability success strategies

 

As the sustainability tsunami builds  momentum, a proactive approach will go a long way towards helping you ride the  wave of change instead of having it crash down on your head. That likely means reshaping  parts or all of the way you run your business—not just internally, but also in  your interactions with customers and your own suppliers. The following guidelines  can help.

 

 

 

The Pains of Sustainability: SAP Eases the Way

Sure, it’s great news for the planet that more companies are tracking supplier sustainability. But the myriad platforms and lack of standardization in these efforts can turn into a nightmare for many suppliers, with some receiving 100+ questionnaires in a single week—each with its own unique format and requirements.

The SAP Product Stewardship Network (SAP PSN) is helping to change all that. This online collaboration community lets buyers and suppliers exchange sustainability and compliance data easily and efficiently (watch this video for a quick overview). Features include:

  • Free account sign-up and basic use
  • Industry-specific Product Sustainability Toolkits that:
    • Highlight critical environmental/social issues in 130+ product categories
    • Outline practices for performance improvement
    • List KPIs to track and measure performance
  • Standardized supplier questionnaires in each category
  • A single system for sustainability scoring
  • Instant score results so suppliers can benchmark against peers and competitors
  • The ability to reuse existing answers on multiple questionnaires

 

SAP has also partnered with 100+ other companies in The Sustainability Consortium (TSC), a collaborative group working to help standardize and streamline sustainability measurement and reporting.


1. Get ready to give greater detail. Maybe  you already know the exact amounts of particulate matter your factory expends  or the kilowatt hours your solar panels save you every month. But when it comes  to your own sources of supply, the picture can get murky fast. If a key  customer started asking how much fertilizer is used to produce each apple you  sell, or whether all your 3T materials are sourced from certified smelters,  would you know the answer?

 

While many buyers already query suppliers  about regulatory compliance or their general approach to sustainability, thought  leaders are taking such questions to a whole new level. For example, Walmart is  working with The Sustainability  Consortium (TSC) and using  the SAP Product  Stewardship Network to create a Sustainability Index that requires  its suppliers to answer detailed, scientifically based questions about their  product contents and business practices. By 2017, 70% of the goods sold in US Walmarts  and Sam’s Clubs will be sourced from suppliers using the Index. And other large  buyers are headed in the same direction.

 

“As  a supplier, you have two options,” Thomas says. “You can prepare up front by  proactively creating the transparency and differentiation now, or you can be  reactive by following regulations to simply secure your license to work. But at  the end of the day it’s a complete end-to-end relationship, and you need to be both  reactive and proactive to stay in business—not  only to respond to your  customers, but to make your own supply chain more efficient and sustainable.”


2. Secure leadership  and funding first. As Aberdeen research  shows, effective implementation depends on executive leadership, since that  sets the tone for your sustainability efforts across the organization. Sustainability  winners also put their money where their mouth is: best-in-class companies were  70% more likely to allocate budget to green initiatives than laggards (9% vs.  5.3%, respectively).v

 

3. Build  a culture of sustainability. “Whether you have seven employees  or 7,000, it’s all about building the culture you want in your company and  putting sustainability at the center,” Aly says. Use the lens of sustainability  for everything you do. “It’s not a one-off, once-a-year thing, but something your  organization is built around on a day-to-day basis. And that trickles down from  your leaders to all employees, showing them this is how we want to move  forward, this is integral to the way we see the future of our business.” How  can you get there?       

  • Align sustainability with strategic goals. “Sustainability shouldn’t aim at just one thing like ‘we  want to be more green’ or recycling all your laptops,” Aly says. "Instead,  approach it as, ‘if we do this right it will have a positive impact on our  business and drive at our end business goals,’ whether it’s increased revenue  or to bolster margins or deliver better services for the end customer.” You  can employ business analytics tools or your ERP system to integrate  sustainability information with internal data on your own processes, a best  practice successfully used by companies like Danone and Stonyfield Farm Inc. to  optimize both sustainability and financial performance.vi


  • Engage, empower, and educate. Participation and results soar when resources align with  rhetoric, so give workers training, tools, and information to satisfy not just operational  needs, but sustainability ones too. “It has to be something the entire  organization lives and breathes,” Aly says. “So whether it’s hiring a  consultant or buying fuel-efficient vehicles, you engage and empower your  employees to support the right culture for your business.” Establishing a  “green guru” to lead your initiative—perhaps an employee with Six Sigma or LEAN  credentials and a passion for sustainability—is also key here; 41% of companies  in the Aberdeen survey listed this as a top action.vii


  • Incentivize  your workforce to put sustainability first. “We’re finding companies are  doing really well when they communicate to employees not just the tasks they  have to do, but the value their work has to customers and the organization,”  Aly says. And be sure incentives drive the outcomes you really want. “So it’s  not just coming up with this creative yet very costly green initiative, but one  that also satisfies customer needs and margin growth.”


  • Evangelize  and publicize. “Top-performing companies  are very innovative in communicating sustainability practices and goals across  the organization, even in a global business with thousands of employees,” Aly  says. “We’re seeing powerful stuff around video, and there’s also all  sorts of movement around gamification.” Keep workers  and customers inspired and informed via newsletters, your website, press and  social media, and monthly/annual checkpoints. “Have dashboards or some type of  visibility tool to show progress metrics, and make it available to customers  and the broader teams,” Aly recommends. And be sure to publicly recognize and  reward employees who contribute the most to sustainability goals.


4. Think circular, not linear. Rather than focusing sustainability on pieces of your production process or specific “end-of-pipe” results, look at the entire lifecycle in a given process. For example, a cradle-to-grave approach to OEM design considers the environmental impact of not only how a  product is produced, distributed, used, and repaired, but also how it’s  disposed of or recycled. “If you think up front about the end outcome when  you’re purchasing or putting something on a shop floor, it should all  positively impact your sustainability initiative,” Aly says.

 

5. Dream big with decoupling. Sustainability  leaders aim high by joining aggressive expansion and sustainability targets. “You  want to decouple your growth aspirations as a business from further negative  environmental or social impacts; that’s the ultimate goal,” says Thomas, noting  that Unilever has committed to double its size  while halving its environmental impact by 2020. “That’s very, very  aspirational, and it includes their complete supply chain as well.”

 

 

Leading for the long term

 

In today’s hypercompetitive market, it’s all  too easy for sustainability to fall by the wayside as you focus on short-term  “business as usual”—with projects that promise a fast payoff grabbing the greatest  attention and resources. Yet industry visionaries are beginning to take a  longer-term view. “There’s a clear business case for sustainability and a  definite ROI, just not always in the short time frames we’re used to,” Thomas  points out.viii Aware of the dangers posed  by looming threats to environmental and human health, leading companies are adopting  innovative strategies that prioritize sustainability while driving financial  and sales success.

 

Will your business be one of them?

 

 

 

 

i See, for example, “A New Perspective on Enterprise Resource Management,” MITSloan Management Review, 3 September 2014, page 4: “Currently,  most companies directly control only about 10% to 20% of the environmental  footprints of the products they sell; the rest is linked to upstream suppliers  or downstream activities.”

ii “Sustainable Supply Chains: Making Value the Priority,” Pricewaterhouse Coopers (PwC)  and the APICS Foundation, 2014; data taken from PwC’s Global Supply Chain Survey 2013, PwC, September 2013.

iii “Unilever,  Cargill Push to Green Their Palm Oil Chain,” Fortune.com, 17 December 2014.

iv “Sustainability  Initiatives in Service: Find the Green,” Aberdeen Group, May 2014, page 3.

v “Sustainability  Initiatives in Service: Find the Green,” page 3.

vi “A New Perspective on Enterprise Resource Management,” page 2.

vii “Sustainability  Initiatives in Service: Find the Green,” page 5.

viii For example, carbon reduction activities can have a very positive return on  investment, delivering an average return of 33%, as noted in “Carbon  Reductions Generate Positive ROI,” Carbon Disclosure Project, 2012, page 6.  “Companies that have yet to invest in carbon reductions are missing high return  opportunities to create financial value for their investors—irrespective of the  environmental benefits,” the report says.