BUSINESS TO BUSINESS SUPPLY CHAINS – WHO CARES?
Cute children and baby animals. These are two of the most emotive subjects available to campaigners for sustainable supply chain practices. Whether it’s children being forced to pick cotton in Uzbekistan or orang-utans with dwindling natural habitat because of deforestation, heart wrenching stories are powerful advocates for change. Consumers can easily relate to the supply chains that influence these circumstances and shop with a conscience to reward companies who support the Better Cotton Initiative or RSPO palm oil. The images associated with these stories jump off the page and are loved by editors for their ability to get readers engaged and clicking through online.
Rewarding consumer brands with loyalty for ethical practice and influencing their sustainable behaviour through conscious consumption is important, but in terms of impact, it is business-to-business supply chains that could deliver the biggest wins. But communicating what goes on upstream in manufacturing supply chains requires much more imagination to make the subject matter cut through.
Think about an average lorry. Toyota reckons to have 30,000 components in each one of its cars. Let’s assume that commercial vehicles are in roughly the same realm. Even if the lorry itself promises to be fuel efficient and cut CO2 emissions, there are still questions about the supply chain sustainability of each of the individual components. But far fewer photo opportunities.
Data is one compelling alternative way to tell a story. Researchers at Stanford University carried out a large-scale analysis of corporate sustainable sourcing practices and shared their findings early in 2018. They found that more than half of the global companies surveyed make efforts to apply sustainability standards to their suppliers, but 70% of sustainable sourcing practices cover only a subset of input materials for a given product. Even more concerning (but perhaps not all that surprising) is that almost all sourcing practices addressed only a single tier in the supply chain, usually first tier suppliers, such as textile factories in clothing retail. Unsurprisingly this study has generated some useful column inches, but given the importance of the subject matter, it has hardly moved the media needle.
Without a vocal mass of consumers on social media voting with their shopping baskets, who puts pressure on B2B supply chains to be sustainable and ethical? NGOs, with their limited resources have traditionally been the ones to hold upstream companies to account. They have undoubtedly punched above their weight in terms of influence with the help of the internet and citizen journalism. But now that demonstrating contribution to the SDGs is a collective responsibility within the corporate world, there’s a bigger and infinitely better resourced lobby amassing scale, capable of exerting not just influence, but also hitting businesses where it hurts financially – the investor community. Pressure from this sector has helped generate traction in high profile media.
In December 2017, the FT reported that investors with more than $26tn under management have pledged to push 100 of the highest-emitting companies worldwide to do more to tackle the threat of climate change. About 225 institutions, led by funds including HSBC Global Asset Management and Calpers, the California state employees’ pension system, joined the Climate Action 100+ initiative, intended to co-ordinate pressure on companies to cut greenhouse gas emissions, and improve disclosure and oversight of climate-related risks.
UK giant Legal & General Investment Management (LGIM) last year voted in favour of 95% of climate-related resolutions in companies that it invests in, compared with an average of 21% from other institutional investors. Even more traditionally ‘passive’ investors, like the world’s largest asset manager Blackrock, have found their teeth, with CEO Larry Fink challenging companies to act with purpose in his now infamous 2018 letter. A quick google of ‘Larry Fink Blackrock letter’ returned 49,400 results, proof enough perhaps that money talks.
For smaller and private companies, where institutional investors hold less sway, there are other factors influencing their supply chain choices. B Corp, the ‘business as a force for good’ movement emanating from the US is spreading geographically and extending its reach from consumer facing small business into B2B and services businesses. Becoming a B Corp is a business certification that requires a supply chain audit as part of a holistic appraisal of operations and values. Danone and other corporations which have achieved B Corp certification (much harder as an established multinational) have been rewarded with huge amounts of positive attention across all media platforms.
All of this is good news for driving change at scale. But how easy will it be for businesses to seek out more ethical supply chain partners? Does conscience always cost more?
Technology buffs would argue that supply chain innovation is driving efficiencies that actually save companies money. In an article published at the end of 2016 which looked at this issue, the Wall Street Journal observed ‘The ability to measure and adjust performance relies on new technologies, as well as collaboration and communication with suppliers — and their suppliers. Technology and communication feed innovation. Innovation feeds growth.’ Investors in Blockchain start-ups would surely agree.
Although they are reported less in the mainstream media, there are many instances where B2B practices are creating entirely new product flows and commercial opportunities. Dubbed ‘web approaches’ these less linear and often asymmetrical partnerships span across large and small firms, corporates and start-ups, public and private, business and NGOs.
An example from the automotive industry is GM which is seen as a leader in supply web approaches by many. Its work in the supply chain has resulted in used water bottles being re-used in Chevrolet Equinox V-6 engine covers and air filters for 10 GM plants. A spin-off product developed in cooperation with The Empowerment Plan, a Detroit NGO is insulation for coats for the homeless.
Whilst sustainability reporting has become increasingly sophisticated and will become further standardised once GRI Standards become compulsory from July 1, media space to report on innovations like these is still scant, but awards are springing up that create a focus for specific supply chain innovation – such as the Global Good Awards for Sustainable Supply Chain, Edie.net’s Sustainability Leaders Awards and Business Green’s new Supply Chain Project of the Year category for 2018.
At best, business-to-business supply chains are shaping up to be catalysts for innovation that rewards companies with new revenue streams. But there is still a long way to go before every component or service is sourced as sustainably as possible.
The good news in terms of where the pressure is coming from is that there is a growing band of activist stakeholders from investors to procurement managers asking for sustainability assurances in contracts. Their influence is underpinned by positive role modelling of award winners and case studies in media. Added up, it certainly shows that B2B supply chains are getting more of the attention and spotlight they deserve.
Narda Shirley and Gong Communications are hosting a roundtable discussion, called ‘Business to business supply chains: Who cares?’, today (25 April) at The Crowd’s XComms event.
