Improving sustainability in your supply chain

Read time : 17 mins Added: 15/04/2021

COVID-19 and Brexit have put the spotlight on supply chains as some businesses have found themselves facing difficulties through shortages or being unable to meet new customer demands. While empty supermarket shelves at the height of the pandemic were a visible sign of supply chain issues in the B2C space, similar issues were also hitting B2B organisations that were continuing to operate.

As a response, many businesses are taking a hard look at their supply chains to make them more resilient, but also taking the opportunity to improve sustainability and build back better. As a result of the pandemic, customers are evaluating what matters to them, how they can minimise their carbon footprint and buy responsibly. Businesses are therefore forced to look harder at what they are buying and who they are buying it from to see if their sustainability credentials stand up.

Sustainability rising up boardroom agendas

Consumer sentiment, reputation risk, the desire for brand purpose and the ability to gain sustainability premiums is ensuring that green issues are rising up boardroom agendas. The push for corporate social responsibility (CSR) and the close watch that shareholders have on environmental, social and governance (ESG) criteria has prompted many companies to look at things like their own carbon footprint, and create annual sustainability reports.

But for some companies the environmental impact of their supply chain can be much larger than that of their own business. This is leading forward-thinking companies to consider how sustainability is reflected in their supply chains. They may want to work with like-minded businesses, encourage other organisations to become more sustainable, or reward sustainable businesses by giving them a share of their budget spending. So, if you want to make your supply chain more sustainable how can you go about it?

Audit your supply chain

To take action, your business needs to know how your supply chain currently stands in relation to the ESG issues that are important to you. A supply chain audit will give you the information you need.

Some businesses don’t have a full oversight of the number of suppliers used. If you are heavily relying on one supplier who then faces issues this might leave you exposed to shortages, but if you have large numbers of small suppliers you might not be benefitting from economies of scale, so the audit process should help you right-size your supply base.

Supply chain risks to consider

As well as evaluating each supplier’s quality of product and service and their price competitiveness you’ll want to consider wider issues like their cyber-security and other potential reputational risks. You’ll also want to take a look at the geopolitical risks around your supply chain. These can disrupt trade routes, and changes in trade agreements and tariffs can increase costs.

Natural disasters such as earthquakes and hurricanes can cause huge disruptions to supply chains, especially when suppliers are concentrated in particular areas. Climate change, with the resulting likelihood of more extreme weather events happening more frequently and with greater severity, can also create impacts because of issues such as flooding, heat extremes making it hard to work, drought, changing habitats, poor harvests and other related issues. With all these factors, it’s likely that supply chain disruptions will become more common – hence the need to understand where the risks to your business lie.

The audit may require you to visit supplier premises, factories and warehouses so that you can see for yourself if what they are telling you matches up to the reality on the ground. You’re likely to need a multi-disciplinary team, so as well as procurement experts you’ll also need legal input for contracts, HR for any people issues, tech analysts to identify data risks and people to look at other areas or risks you have identified for consideration.

The sustainability part of the audit

You’ll need to delve deeper into the eco credentials of the goods you are purchasing and the supplier’s own sustainability behaviours. You might want to consider things from a purely environmental point of view, looking at issues such as the use of recycled materials, waste, carbon emissions, energy and water use for example. Depending on your industry, you may need expert input to look at things such as manufacturing processes that require the use of hazardous substances or particular health and safety risks.

A sustainable business is one that is resilient, and fully connected to the social and environmental systems around it. For many, this means focusing on the ‘triple bottom line’ of people, planet and profit. One way of doing this can be to consider how closely aligned your suppliers are to the 17 United Nations Sustainable Development Goals and following the Ten Principles of the UN Global Compact and Supply Chain Sustainability.

Doing your audit in line with the goals will involve looking at how you and your suppliers are supporting a wider range of behaviours and ambitions – for example, that the workforce is getting a fair wage with healthy working conditions.

Evaluate your supply chain

Once you’ve mapped your supply chain you can then evaluate it against your wider business and supply chain goals. This will help you recognise and acknowledge those suppliers that are already meeting or exceeding your sustainability criteria and those that are lagging. Your audit should clarify whether your supplier is complying with relevant regulations and standards or not. The results of the audit should help highlight where improvements could be made. So you’ll need to take decisions both based on the overall structure of your supply chain and then about individual suppliers. Ask yourself:

How futureproof and resilient is your supply chain as it stands?
How can you minimise risks and improve the bottom line in your supply chain?
What mitigations are in place for extreme weather events and other geo-political threats?
Do you have the right number of suppliers?
Are the suppliers in the right place?
How well are individual suppliers performing?
Do they meet your company standards and criteria?

When evaluating your suppliers, you will also need to identify critical risk scenarios and evaluate how they would respond in these scenarios and then, in turn, your response to that and the subsequent impact on your organisation. You will need to look at what you can do to mitigate any consequences and how that further impacts your supply chain strategy.

As well as doing your own audit, working with suppliers that have some type of recognised accreditation from an environmental body can give you reassurance that you are dealing with organisations that take sustainability seriously and who will also have had independent assessments of the company carried out by the certification bodies.

Add a sustainability focus to your procurement process

Having evaluated where the sustainability strengths and weaknesses are in your supply chain, you’ll now need to look at ways to improve it. So before finding suppliers that help you overcome these weaknesses, it’s also worth going back to basics to consider how well your procurement process integrates sustainability end to end. You might want to ask:

Are there ways you could adapt your process to gain additional benefits around sustainability? For example, can you break down some contracts into smaller amounts to encourage more local, smaller suppliers? This could potentially have the benefit of cutting down CO2 emissions as goods have to travel shorter distances and boost your local economy.
Are you asking the right questions to get the right amount and type of sustainability information during the procurement process? Is it being effectively used in decision making?
How do costs stack up in reality? Procurement may be currently aimed at getting the best available unit price, but what happens if you build sustainability into the equation and look at total costs instead – for example, the cost of getting rid of packaging and waste disposal? In some organisations that would fall under a different department’s budget and wouldn’t get taken into consideration in contract negotiations.
How well is reputation management handled when selecting suppliers as well as price and service levels? Could you wake up one morning and find that your business is in the news because of something environmentally unsound that a supplier has done such as dumping toxic waste?
Are you sure all your suppliers have strong business contingency plans?
How are you assuring that suppliers abide by your standards? Are your requirements built into your contracts? How are you monitoring and checking that these standards are being adhered to?

Improving sustainability is not a one and done issue; continuous improvement will be essential to help the UK reach our sustainability targets. This applies equally to your own business and your suppliers.

Supporting suppliers to become more sustainable

Once you’ve re-evaluated your procurement process, you will need to consider what your attitude is towards suppliers that fail to meet your sustainability requirements. You can:

Support them to become more sustainable
Replace them with suppliers that meet your criteria.

Either option will have internal time and cost implications, whether it is time spent finding new suppliers and setting up new contracts, or working with existing partners.

If your business is really passionate about sustainability, it can make sense for you to help and support your existing suppliers to become greener. Influencing your suppliers to become more sustainable may be easier for bigger businesses, but that doesn’t mean smaller businesses shouldn’t try too. Simply by raising the issue with your supplier you are adding pressure from customer demand for that business to be greener.

Ways you can help might include:

investment that might allow them to move to more environmentally friendly equipment or machinery, for example guaranteed volumes or preferential deals
mentoring
looking at opportunities that could make business processes or product design more sustainable such as the substitution of greener materials
encouraging innovation
helping them conduct risk assessments and improve accountability and reporting
adopting sustainability performance improvement goals to be achieved over time.

For example, a simple way to start might be asking for greener packaging on everything that is delivered to you. You can also share your knowledge and experience with your suppliers.

Becoming a greener supplier

If you are a supplier, ideally you shouldn’t be waiting for pressure from your customers to begin to take action. Behaving in a more environmentally sustainable way can often allow you to charge a green premium, and can also bring more business your way.

You should also be looking to see what you can do to contribute towards sustainability and climate change goals as part of the ethos of being a responsible business. Start with an audit of your own company and consider sustainability in product/service design and energy efficiency in your business. To help get you started take a look at our clean growth audit pack.

More and more organisations are thinking about sustainability in the procurement process. When you are putting together quotes or a response to a tender think about how you can effectively communicate and demonstrate your sustainability credentials to potential customers. Consider what you might need to include in your marketing materials and on your website. Also be ready for the kinds of sustainability questions potential customers might ask and have robust answers.

Be transparent about where you are in your journey to sustainability. Many larger buyers may be willing and happy to help you improve further.

You can also take a look at our green buildings tool to see if you can make improvements to your current premises that can help you reduce your carbon footprint. Things as simple as changing your lightbulbs can help cut emissions and save you money over the longer term. Our tool will help you quickly see how long the ROI is on any changes you make – from just a few months to a few years.

Useful resources

Supply Chain Sustainability – United Nations Global Compact. A UN guide to improving sustainability through supply chains.

UK Government Clean Growth Strategy. The UK’s ambitious blueprint for Britain’s low carbon future.

UK Government Sustainable Procurement tools. While this page hasn’t been updated in a while, some of the processes and tools can be helpful, particularly if you want to supply to government bodies.

Building sustainable supply chains in a post-COVID era. Has information about how certification programmes can help improve standards.

Lloyds Bank Clean Growth Financing Initiative. Access discounted lending for green purposes from small improvements to large-scale infrastructure changes.

Lloyds Bank green buildings tool. Customers get exclusive access to an insight tool that helps optimise potential energy efficiency investments in their property portfolio depending on sustainability, investment and cost-saving priorities.