Over the past few months, since stepping into the role of CEO at the Supply Chain Sustainability School, I've been asking questions about Australians’ knowledge of their supply chains.
Not just questions like “do you know where your stuff comes from?” but “how much do you think your suppliers know about their environmental impacts?” and “can you tell me what your ‘supply chain’ looks like?”
So whilst the school exists to provide the building blocks of free sustainability education to the construction and infrastructure sectors, I’ve been asking about supply chains in general – which country things come from, what modes of transport have been used, and which products (if any) can actually verify their supply chain. For many organisations, the lack of knowledge is startling, and this is an area of major risk. I believe Australia is faring pretty poorly in this area.
As outlined in EY’s recent report, Let’s Talk Sustainability, “the last decade has seen an increase in external scrutiny over how large corporations engage with their supply chains. While the origins of this stem from the well-known ‘sweat shop’ exposés of the 90’s, the scope of issues has evolved considerably in recent years. A long list of disasters and shocks from the collapse of Rana Plaza in Bangladesh, appalling tin mines in Indonesia and the horsemeat scandal in Europe has exposed the inadequacy of traditional supply chain governance. While many international companies have been working to implement and improve their supply chain management approaches, Australian companies have lagged behind.”
So few people actually know where their things come from, whether those are consumer goods or construction materials. Many have indicated that supply chains are ‘the next big opportunity.’ So what are some issues of price and risk, and what are the next steps you can take?
When it comes to price, there are many who simply think that ‘cheap is good’ and in some cases that can be right. If Farmer A is selling apples at the market more cheaply than Farmer B because there is a glut of apples on those trees right now, that might indeed be good. But often something cheap is cheap for a reason – because you are not actually paying the real price for it. The labourer who’s working long hours in poor conditions is paying for it through low or no wages, the natural environment is paying for it because of the pollution left behind that might be so hard to restore, or the owners of the natural resources are actually paying for it because of price-fixing.
So it’s time to start asking a few uncomfortable questions. Why is something cheap? It could be because the supplier has managed to achieve maximum efficiencies in every aspect of what they do, or it could be because there’s something ‘not quite right’ in some parts of the production line. Do you really want to know? Can you really afford not to?
This knowledge, or lack of it, is a major risk. According to Deloitte in their 2016 Chief Procurement Officer (CPO) survey, whilst “procurement risk is on the increase,” cost reduction remains the top priority for CPOs and “sixty two per cent of CPOs do not believe their teams have the skills and capabilities to deliver their strategies.” These figures are echoed in this year’s Hackett CPO study, which shows that although “market risk is increasing,” their top priority for 2016 is still to “reduce and avoid procurement costs.”
So decisions are made primarily on price, not on long-term suitability, knowledge of supply chain implications or exposure to risk. Is that the reality of business today? But whilst both of these surveys show the major focus on cost-cutting, procurement teams are struggling with organisational strategies and market risks are increasing.
But take heart that there are some great examples of small, medium and large businesses looking through their supply chains to redefine what best practice means to them. Sydney-based clothing label We Are Harper knows where everything is made, with products certified by the Fair Wear Foundation. Good Environmental Choice Australia (GECA) member Solopak has been examining every link in their supply chain, particularly around its Earth Renewable cleaning products. And Mirvac is forging ahead with Vendor Codes of Conduct, Procurement Policies and an annual Supplier Report. What can you can do right now? Well, start with three things:
Start asking questions about your supply chains. These can be simple, yes/no questions, or more complex ones.
- Do you know where products and materials come from and how they were made, and how do you verify this? Is this done by yourself or by a third party?
- Are quality control and sustainability built into your supply chain, or does inspection and correction occur after the fact?
- Can you measure the environmental impacts of your supply chain, what do you do with this information, and how does it relate to organisational goals?
- Do you develop and circulate surveys or questionnaires to suppliers and then collect and make use of the results?
- Do you have a process of constant supply chain review that looks for opportunities to improve efficiency and quality?
- How can you minimise your supply chain risks, avoid socially negligent suppliers, and plot a pathway to more sustainable outcomes?
Find out what you know and what you don’t know, and discover the amazing free and paid resources that already exist. The Supply Chain Sustainability School is one, providing free sustainability education online. The School gives you access to over 250 free resources, and you can complete a free and confidential self-assessment to identity your company’s strengths and weaknesses.
From there, you’ll be provided with a tailored action plan to help grow your knowledge and shift behaviours in areas that affect not only your supply chain, but your industry sector. You’ll be able to track your progress, receive the regular school newsletter, complete follow-up self-assessments, re-assess your action plan, provide feedback to the school on new topics you want to learn about, and attend free events run by the school and its partners.
It’s time to verify your supply chain, and you can start by engaging with third party certification schemes that verify products and materials such as GECA or GreenTag GreenRate, finding out more about the Steel Stewardship Forum or Forest Stewardship Council (FSC), or certifying your development using Green Star or infrastructure project using the Infrastructure Sustainability rating tool.
Depending on who we are, what we do, where we live and how we work, we might not have a whole lot of choices in our lives. But we can certainly start to make more active choices around the things we buy, the food we eat, the materials we use, and the purchases our organisation makes.
Can you look me in the face and tell me you know where the timber in your building came from? Can you assure me of the conditions within the factory where your shoes were made? Can you promise me that the water used in your production process was in line with your organisation’s environmental targets?
It’s time we took a closer look at the supply chains that get everything to us, from our morning coffee to our evening meal, and from the clothes on our back to the buildings and infrastructure that underpin our lives.