Understanding supply chain sustainability
Supply chains are dynamic. And increasingly, they're complex and global. This means suppliers can come from anywhere in the world and the risks associated with each supplier relationship can differ significantly.
To manage the risks that companies face from their supply chain, they need to put a clear strategy in place to ensure they know how their suppliers are performing when it comes to aspects such as standards, conduct, compliance and ESG requirements.
This page aims to help organisations plan a strategy and process for the collection, management, analysis and reporting of supplier data.
Gathering and managing your suppliers’ compliance data
It’s no secret that there is more data in the world than ever before. But have you ever wondered whether you are gathering the right compliance information from your suppliers?
What compliance data do you need to collect from your suppliers?
It doesn’t matter if you are starting to collect information about your suppliers or refining an existing process, it is important to establish the data you need to collect. With so much information available, you’ll need to decide which topics, questions and documentation are most valuable to you and your organisation.
The specific information can vary, depending on your industry, relevant legislative requirements and your organisation’s sustainability strategy. But, by understanding the data you need, you can tailor your supplier questionnaires to get the right information.
How are you going to manage your suppliers’ responses?
After you have decided what data you need to collect from your suppliers, it’s time to decide how to manage it.
The volume of data you have from your suppliers can quickly become unmanageable, without the right system in place. For example, if you are relying on spreadsheets, you can find yourself with thousands of responses, across multiple spreadsheets, and in incomparable formats.
An additional problem that organisations can face, is having different questionnaire responses held by different parts of the business. This can result in a poor understanding of overall supplier compliance, therefore increasing the risk to the business
Having a tool to manage your supplier data will help you overcome these challenges, and ensure that you’re getting answers from your data.
How are you going to engage with your suppliers?
Suppliers are being asked for similar information, in different formats, from numerous customers. This burden that is being placed on suppliers can jeopardise the response rate to your requests for information and dramatically increase the time spent chasing suppliers.
The more you can do to standardise the information gathered across your sector, the easier it will be to engage your suppliers. Secondly, by moving to an online solution you will simplify the process for suppliers and, with the right tool, make it more efficient and empower each supplier to proactively use their data.
By making the process as simple as possible for your suppliers, you also make it more straightforward for you.
Why do you need a structured process for collecting supplier data?
Collecting the supplier data you need is the first step to managing a supplier relationship. In fact, for many organisations, supplier data is a key source of information to inform key strategic business decisions. But, while many organisations currently collect data from their suppliers, the processes that they have in place are not always robust. Many rely on offline, manual approaches, which are time-consuming and inefficient. Here’s why your business can benefit from a structured process.
Engagement makes data collection easier and more manageable
Gathering the data you need to make informed decisions can be a challenge, even when it's just within your own company. Expanding this out to your suppliers can make it even harder to get the data you need.
Your suppliers may well be apprehensive about sharing their data with you. But having a clear and properly structured plan for engaging with your suppliers means that you can mitigate their worries, while also highlighting the benefits. Look for opportunities where you can use your data collection process to help your suppliers, as it will mean they are more likely to share their data with you.
It’s an opportunity for you to complete a detailed analysis of your suppliers
Thinking of collecting data from your suppliers as just a tick box exercise means you are missing opportunities to complete in-depth analysis and gain a deeper understanding of what is going on with your suppliers.
While a large part of engaging with your suppliers will involve collecting data, going beyond this means that you can monitor for compliance and understand any potential risks. This will make it easier for you to identify any potential problems with your suppliers and react to them before they become business-critical.
It can help make life easier for your suppliers
Imagine this situation, you’re a supplier and every single one of your customers requires its own set of data. Suddenly you have to respond to potentially hundreds of data requests. This means duplication of effort and a time-consuming, repetitive process.
Instead, if they were using a central online repository of all information that buyers want, it would mean that suppliers can reduce the manual input needed to recreate this information. They can use this system to share information with multiple buyers.
A Supply Chain Risk Management Checklist
Many factors continue to keep supply chain sustainability at the forefront of debate and it's important that organisations not just monitor, but account for and manage risk. Here’s how you can begin to understand the risks in your supply chain.
What are the risks in your supply chain that you need to understand?
This means looking at a variety of the risks that suppliers can present, including environmental and social. Companies that are reporting to various CSR frameworks, have to consider environmental impacts and supply chain risks. As part of CDP, for example, you report on the climate change risks for your organisation. Within GRI, you report on environmental impacts, including supplier environmental impacts and environmental assessments in the supply chain.
Therefore, if your suppliers are working in countries where there are climate change risks around, say flooding, or if you're working with raw materials, and those raw materials are at threat of depletion, then that's a business risk to the organisation. But there's also an environmental impact there that needs to be considered in terms of how your suppliers interact with nature, natural capital and ecosystem services to then provide their supplier services to you.
There is also a social pressure to consider. There are a lot of instances where companies have been in the media because of their supply chain issues, particularly in areas such as textiles and clothing. You've got organisations that have been thrown into the media spotlight around this, which has put social pressure on them to get a better handle on where their supply chain impacts are. Better than a reactionary approach to negative incidents is a process of proactive engagement with suppliers.
How can you ensure you get relevant information from all your suppliers?
In a lot of instances, organisations will already be asking the right questions or have most of the right questions. But because so much time is spent on gathering the information using an offline process, time to focus on the analysis of supply chain impacts is compromised. The traditional time constraints that are associated with collecting supplier information mean that organisations will tend to focus on their top-tier suppliers - the top 10 or maybe top 20 that they have a good relationship with.
But there needs to be a fundamental shift, so the process of gathering all of this information can expand to cover the whole supplier base.
A key part of this success is having really good relationships and contacts with your suppliers. It's no good trying to send questionnaires to info@companyX because you're likely to be ignored. Nurturing contacts and engaging all suppliers means you can get down to those smaller suppliers that you might not have necessarily considered before and ensure that you are investigating potential risks in all parts of your supply chain.
This isn’t necessarily the suppliers you're spending the most money with because sometimes the organisations you are spending less with can incur more operational risk involved when you’re dealing with them. In particular, those smaller ones that you might be spending less money on, particularly SMEs, in some ways, are more likely to need help with these areas of risk. The larger players that you're spending a lot of money with, are often large buyers themselves and therefore more likely to have the internal processes in place to understand and mitigate the risk in their supply chain.
The Evolving Supplier-Client Relationship
Managing supplier relationships is no longer just about driving long term derived value from your supply chain. Companies are increasingly facing challenges that require them to proactively innovate how they manage the key stakeholders in their supply chains. In some areas, by outlasting the competition, you can grow your business significantly. No matter how big or small, it’s becoming essential for businesses to keep informed and up to date with modern standards and legislation affecting supplier management operations.
The influence of environmental factors on supplier relationships
As a starting point, complying with legal requirements is a minimum. For most, if not all, organisations it is essential to have a constant flow of information from their suppliers, to make sure that even legally compliant organisations are not acting in a way that introduces risk. For example, even if a supplier is legally compliant, their operations can still be affected by an increased risk of flooding (or similar). Organisations, therefore, need to understand who will hold the liability, if any disruptions occur as a result of environmental factors and have the necessary data to support this.
External pressure on organisations
News stories get shared faster than ever before, which can lead to an uncomfortable level of transparency for some organisations. On top of this, individual companies can be targeted by social campaigners. These are people looking to influence and change a company’s approach to its supplier management. For example, it might be that a supplier is fully compliant with local requirements, but this is a different or lower standard to one expected. As a result, the buying organisation comes under social pressure to change or reform its supplier relationship to meet the required level.
Pressure coming from investors
Alongside the risks of environmental and social factors, there is growing pressure from the investor community. Investors are increasingly interested in business sustainability performance and also the benefits that can come from investing in forward-thinking organisations. Not having the evidence to prove to investors that due diligence on suppliers is being conducted could mean potential investors are less willing to commit, without the assurances they increasingly require.