Tech 101: A Guide to Supplier Sustainability Solutions
If you’re wondering how technology is going to improve your company’s sustainable practices, never fear. The answers are here, with CEO of SupplyShift, Alex Gershenson.
You’ve undoubtedly heard the phrase “sustainable procurement practices” at your organisation lately. After all, it’s the topic du jour.
Businesses worldwide are reacting to the change in consumer buying habits by adjusting their operations to suit the new agenda. According to a United Nations report, 93% of the world’s top 250 largest companies now report on sustainability. By 2030, projections suggest that the market for sustainable products will be worth a staggering $12 trillion a year.
Today, ahead of the upcoming United Nations COP26, business leaders and organisations are facing more pressure than ever before to address sustainability issues.
Unfortunately for the private sector, the majority of these issues (80-90% by some accounts) are found in their global supply chains. So, to meet these new priorities, one of the most impactful things a business can do is focus its sustainability efforts on the supply chain.
Monitoring sustainability… easier said than done?
Addressing sustainability issues with suppliers is easier said than done. Doing so requires a high degree of visibility and insight into supplier practices and ESG performance, and in today’s global supply chains, that can be a challenging task.
Companies need tools to help them better understand these practices, and there are a lot of platforms on the market that promise to provide supply chain traceability and data transparency. Once companies start looking into solutions, they can quickly get overwhelmed by the wide range of nuanced technologies in the space.
If your company is planning to – or has already begun – investing in supplier sustainability technology solutions, it’s critical that you understand how to get the most out of the technology. After all, it will be your tool to ensure that your suppliers are maintaining best practices!
But first, it’s important to gain a better understanding of what you’re working with:
Active or passive platforms?
There are two popular categories used for assessing sustainability today: active and passive supply chain sustainability assessment platforms. There are some crucial differences between them, so it’s important that you know which one your company is adopting:
1. Passive Assessment
Passive supplier sustainability assessment platforms include ESG rating platforms, supplier databases, and static third-party data providers.
Passive systems take the approach that suppliers can be assigned a universal score based on available data, or in some cases, data reported by suppliers to the overarching platform. These can be valuable assets, particularly for companies in the early stages of their sustainability journey, because they provide a decent look into supplier data.
However, they have their limits. Data provided by passive assessments is usually limited to a subset of publicly traded companies, so a business might not be able to get a read on the sustainability performance of their small to medium-sized suppliers.
By taking the passive approach, a company can get a very broad understanding of ESG compliance, which can be useful in providing a bird’s eye view of sustainability performance. However, certain standards and ESG priorities may not be included in these systems, because passive platforms tend to rely on uniform data.
For example, labour violations at the farm level may not be visible. As a company’s sustainability requirements grow, it’s likely that they will need to supplement these platforms with more sophisticated tools.
2. Active Assessment
In contrast to passive assessments, active assessments are broader in scope and do support supplier data collection, which allows for deeper supplier engagement and more granular insights about sustainability.
With active supplier sustainability assessments, you can also break into the private and small- to medium-sized enterprise spheres to understand precisely what standards suppliers are meeting. This is especially important for far-reaching multinational corporations with many tiers in their supply chain.
Often, active platforms allow companies to create tailored assessments or pick from a selection of pre-built assessments. With active platforms, your company can determine what kind of data is needed and send assessments to relevant suppliers in the platform. It’s efficient, though slightly more involved than passive platforms, and ensures that companies receive the exact data that they need when they need it.
In some cases, active assessment platforms offer integrations that bring some of the strengths of passive platforms into one place.
Why is it important to implement supplier sustainability technology?
The reasons are endless, but here are just some:
- Improved processes: This kind of technology is key to establishing, developing, consolidating and maintaining best practices. Moreover, this technology makes the process easier and can help with building sustainability into all key areas of supply chain and supplier management, including supplier auditing, selection, training, incentivisation, and remediation.
Among other findings, the latest research from Procurious reported that at least 50% of procurement leaders and professionals recognised technology as a means to automate the tracking of supplier performance against sustainability goals.
- Enhanced ROI: Supply chains are only as strong as their weakest links. Companies that take the time to identify sustainability gaps with their suppliers and assist them in remedying those gaps will reap the dividends. While this process may seem overwhelming at first, the market for tools that help identify these opportunities is expanding fast.
- Corporate social responsibility: In 2021 and the decade ahead, it’s safe to assume that consumers will no longer spend their hard-earned money on the products that your company produces if business operations aren’t authentically and transparently sustainable. This is a critical issue spoken about by the UK’s youngest CEO – Jenk Oz – on the first episode of Procurious TV, which is focused on sustainability and improving practice.
- Reduced risk: when companies prioritise supply chain visibility, the benefits extend far beyond sustainability itself. For example, companies that prioritised supply chain sustainability and sub-tier visibility experienced less disruption during the pandemic.
And this trend is set to continue: in the words of one respondent to the Procurious What Next? research report, “Digitalisation will make or break post-COVID-19 procurement organisations.”
Technology is key to enabling sustainable procurement practices. And building your own awareness and knowledge about how to best utilise this technology is crucial, no matter what your title or position is within your company.
To learn more about the importance of supplier sustainability technology, and what criteria to consider when selecting your own supplier sustainability platform, register for our upcoming webcast with Supply Shift, Supplier Sustainability Tech: Selection – The How and Why.
Join us on October 21 for an intriguing conversation between industry experts about the state of technology now, and what lies ahead in our digital future. Secure your place here.
