Beyond Tier-1 Suppliers: An Integral Part of a Sustainable Supply Chain

Author: Sneha Kumari

Sustainability is more than just environmental and green initiatives. It is also about social impact and human rights.A supply chain report from BSR and United Nations Global Compact (UNGC) defines Supply Chain Sustainability as:

“Supply chain sustainability” is the management of environmental, SOCIAL and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services”

The 17 SDG goals described by the United Nations, address the social elements that require upliftment of people and the conditions they live in, creating opportunities and reducing inequalities. I cannot emphasize enough the opportunities available to work upon and meet these goals by influencing the upstream supply chain process, suppliers being a key part of this.

Globalization has led to increased level of complexities in supply chains with access to suppliers all over the world. This has given businesses access to low costs of labor and manufacturing which, of course, comes at the cost of the people making these products. According to HBR research on suppliers of leading MNC in three different industries based in different countries,  severe violations occurred in every country and supplier. Problems like dangerous working conditions, minimal environmental practices, increased overtime hours and even the presence of high concentration of harmful chemicals were identified among many others. And with the outbreak of the pandemic, the situation has been worse for developing and least developed countries with increased unemployment rates thus increasing poverty and hunger.

But WHY are people critical in achieving a sustainable supply chain and the impact it has?

A business that strongly believes in fair labor practices and constantly works towards this initiative is already differentiates their strategy from the rest. With the rising awareness among the consumers, it only makes this an important factor for businesses to focus on and work in the direction of making their products responsibly.

As a consumer myself, if I were to find out that the piece of gadget I am interested to buy was actually produced in a factory with unsafe work conditions, underpaid staff , I would not purchase the item recognizing that consumers play a part in making the supply chain not only sustainable but also responsible. To deliver superior products and services to customers, it is imperative that the minds that go behind the making of these products take pride in building them. The importance of ethical practices also helps with retention of high skilled employees. When a business invests in their people, they can yield better customer experiences, innovation at scale and increase efficiencies.

However, implementation of the right measures remains a herculean task with the increased complexities in our supply chain. While industry leaders can establish the sustainability measures with their first-tier suppliers, it is not often easy for this supplier to implement it with their own suppliers. The lower tier suppliers are often found to be in the middle of the supply value chain with bigger customers and competition from myriad suppliers.Leaders in this field often overlook the need to include the lower tier suppliers to implement these goals. In fact, there are many who do not even know who their lower tier suppliers are which makes the implementation even more difficult. It is not surprising to note that most of the company’s focus on the cost, quality, and delivery as their key metrics when it comes to selecting and auditing suppliers. And the environmental and social factors and metrics are not even part of their assessment.

Despite the complexities, there can be initiatives taken that can help adopt and implement safe and sustainable practices in our supply chain. To start, it is important that the organization develops and adopts a Supplier Code of conduct and even more important that the Code is understood well, and the values are reinforced by the company. It is important that a plan is laid out which could be implemented in phases to trickle down multiple layers of supply chain and finally be inclusive of the sub-suppliers too. To successfully do so, a deep understanding and risk mapping of multiple layers of supply chain is required especially by the bigger organizations (the ones that exercise maximum control on their entire supply chain life cycle). Different initiatives can then be adopted to start implementing the plan with the suppliers.

 While monitoring the performance, it's helpful to collaborate with suppliers to educate them on key metrics and provide them with resources to train and implement the practices, including collaborating with lower tier suppliers. This not only helps trickle the right practices down the supply chain, it also helps keep track of the suppliers at deep levels helping with risk mitigation associated with the businesses.

HBR research suggests leadership to be a key factor in sustainable supply chain adoption. Leveraging associations like the Responsible Business Alliance can help evangelize leading practices. These associations can bring together huge power and influence with their suppliers and their suppliers’ supplier when it comes to implementation of ethical practices. Also, when leaders like these join hands, there is more incentive for suppliers to follow standards because now most of their customers ( the leaders in the industry) are demanding similar practices which makes it more feasible for them to implement.

While efforts are being made towards sustainable initiatives, make sure to keep the communication fluid within and outside these channels and take time to appreciate and celebrate the wins at every step. Before closing, I wanted to include this note from The Vice Chairman and MD of Mahindra & Mahindra Ltd:

“The purchasing power of a corporation can become a unique driver for bringing about positive change in society. Companies must use this power to achieve a purpose and make their supply chain a vehicle for inclusive growth. If this workforce is exposed to the advantages of good and clean business practices, it would make a great impact on their lives and on the wellbeing of the nation.”



References:

https://www.un.org/development/desa/disabilities/envision2030.html

https://hbr.org/2020/03/a-more-sustainable-supply-chain

https://flex.com/resources/why-people-are-the-key-to-building-a-sustainable-supply-chain?gclid=CjwKCAjwrcH3BRApEiwAxjdPTfnGsRg58SHkb-5TbER5CyHJJQc6ogjq8QYYD4KDhlOC4gzdZECUBRoCcsEQAvD_BwE

https://www.bsr.org/reports/BSR_UNGC_SupplyChainReport.pdf

  • Thank you for sharing Sneha! Aligning Tiers in orchestration and provenance is a wicked opportunity. Value for many in purposeful purchasing will become common practice as companies understand the power they have in spending to do well and do good.

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