With climate change, sustainability, diversity and inclusion increasingly taking centre stage – both politically and in the minds of consumers – Environmental, Social and Governance (ESG) has shifted to the top of the agenda for almost all organisations.
Starting its life as a corporate social responsibility initiative introduced by the UN, the ESG movement has shifted from being a tick-box exercise to a necessity in many businesses. For example, in Germany, the new Supply Chain Act will mean that companies with 3,000 employees or more will be accountable for any exploitation of workers in their supply chains. Meanwhile, according to a recent Deloitte study, 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns. The list of new requirements will undoubtedly continue growing.
While the movement is not new, it is a growing boardroom issue for almost all organisations. So, what can manufacturers do to get the most out of ESG?
Data-backed decision making
There’s no doubt that to make an impact that matters, business leaders need access to good data. This is because when supplier information is accurate, complete, current and devoid of duplications, it acts as a single source of truth. This makes it easier to record and aggregate any interactions that have taken place with suppliers, for example managing the information they have provided about ingredients that may be linked to land clearances, such as palm oil, cocoa and soya.
When this happens, the full scope of activities associated with every single supplier becomes visible and can be translated into a rich stream of information that can be queried or analysed.
Executives can use the insights yielded from this process to make informed decisions around which areas they should tackle first, for instance, sustainable forestry. Only then can they start investing in the right partners and solutions – such as supporting communities or boosting innovation efforts – to together have a truly positive bearing on the supply chain.
The supplier-data challenge
However, obtaining good data is an ongoing challenge. Ultimately, for manufacturing organisations to drive ESG, they need to rely on their suppliers for information. It’s not uncommon for organisations to regularly reach out to their suppliers with requests such as survey responses, reports on diversity and carbon footprint, and details about their own suppliers.
In addition to providing information to support corporate initiatives like ESG, suppliers are also expected to update their data master records. According to a recent HICX survey, 93% of CPOs expect this to be done at least twice a year. Despite the anticipation of organisations that their suppliers will provide information, it’s important to acknowledge that for most suppliers, this is not their core function.
Nor is it quick and painless. Many companies still use outdated tools to manage their suppliers, which leads to challenges around visibility, control and efficiency. In the end, every time a supplier needs to provide facts and figures, it costs them time. Most suppliers reactively meet these requests just to maintain contracts, rather than volunteering information in a way that can add more value.
But the fact remains that large manufacturers need to raise their ESG games, and they rely upon suppliers to get there. So, how can these businesses ensure that tens of thousands of suppliers are remaining compliant?
Suppliers at the heart of businesses
It’s time to fundamentally rethink the way we work with their suppliers. The only way to make a substantial difference through ESG is by establishing an environment in which it is easy for each supplier to complete the unique, required tasks at the time necessary, amid a backdrop of increasing information requests.
At HICX, we think this is part of a wider movement: Supplier Experience Management. The approach relies on two main principles: first, the organisation must remove all friction from the relationships with 100% of its suppliers; and second, it must put data quality at the core of its technology strategy.
To maintain supplier engagement, it’s crucial to actively build partnerships and work towards mutual success. The reward, at the end of the day, is being able to access the supplier information that is of vital importance to measuring the success of your ESG initiatives.
Shifting to create better partnerships
By leveraging Supplier Experience Management, organisations can put processes in place, such as feedback mechanisms, that drive efficiency and result in data becoming better and better.
Most suppliers are likely to perceive the additional task of providing ESG information as a cost, and therefore it’s important to keep the supplier’s perspective in mind at all times. Having open communication and transparency is essential. By treating them as partners in the same ecosystem, suppliers are more likely to recognise that you are working together towards the next layer of value.
However, when discussing value with different suppliers, it’s important to consider that vendors from different regions, and those in different categories, may not necessarily all interpret sustainability to mean the same thing. This is where segmentation becomes a valuable tool in communications. By clearly communicating to suppliers what your goals are, and what you need from them in order to achieve these goals, you will set them up for success.
Meanwhile, as CPOs shift their focus to ESG initiatives, they have also started to pay far more attention to other areas under their influence, such as the use of local or diverse suppliers and impact spending. When it comes to helping suppliers make a positive impact, for instance ensuring that their employees are earning a living wage, manufacturers would benefit from having a separate division, or at least one dedicated person within the function committed to driving this goal.
ESG for a better future
Encouragingly, we’re already seeing some of the largest and most forward-thinking organisations, particularly in sectors such as CPG and FMCG, embrace these supplier experience principles as they plan their technology strategy for the next 10 years.
At the end of the day, putting suppliers at the heart of your organisation will establish a culture whereby suppliers can provide their best information while doing their best work. Better data means better decision-making, allowing manufacturers to roll out better sustainability initiatives. With climate change being more important than ever and ESG continuing to grow as a board-level issue, there is no better time to embrace Supplier Experience Management, than today.
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