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Market News

 April 10, 2007
Sustainability commitments and supply chains

 Tempe, Arizona (GLOBE-Net) -- Corporate executives have identified environmental and social sustainability as value creating strategies, but many lack the formal direction and processes to follow through on such commitments, finds a new survey of Fortune 100 companies. In pursuing sustainability, the supply chain becomes the 'litmus test' for value creation, and supply management is the enabler, concludes management consultant firm A.T. Kearney.

The results of show that while a majority of North American firms questioned (almost 60 percent) have a documented corporate-level sustainability strategy, just over one-third (36 percent) have adopted a formal sustainability strategy for the supply management organization - a crucial step in ultimately being able to deliver on their sustainability promises.

The study, undertaken by A.T. Kearney, in conjunction with the Institute for Supply Management, surveyed 25 North American Fortune 100 companies across a variety of industries to assess corporate sustainability practices and understand how sustainability is impacting businesses. Corporate sustainability is defined as the promotion of economic development (e.g., profits and job creation), environmental stewardship (e.g., energy conservation and pollution reduction), and social well-being (labor standards and community impact).

The research revealed that most firms have recognized the value of adopting sustainable practices, whether to strengthen their brand or to differentiate products. Companies understand that sustainability management is a top-line issue, rather than just a compliance issue. Sustainability provides companies with an opportunity to improve their corporate image and differentiate their products.

Since most firms have not adopted a supply management sustainability strategy, it is not surprising that many do not have sophisticated internal organizational processes to promote sustainability management. Just over half of the companies in the survey provide written guidelines to help supply management staff address sustainability questions, and just over 40 percent provide training on sustainability management.

"Supply management organizations have to support the corporate sustainability strategy by ensuring their company's suppliers extract their materials from sustainable sources and employ fair labor practices, said Daniel Mahler, A.T. Kearney vice president and leader of the Sustainability Study. "They are the 'litmus test' of the commitment."

The Importance of Supply Chain

The study showed that today 50 percent of companies will deselect suppliers for not meeting sustainability criteria. Five years ago it was rare that a company deselected a supplier because the partner failed to meet formal criteria of being "green and ethical."

More than half the companies in the survey include sustainability metrics in the evaluation criteria of supply management executives. Examples of sustainability metrics include eco-efficiency of materials and packaging, fair labor practices throughout the supply chain, a quantification of the carbon footprint, and accounting for full lifecycle costing. Currently almost one-in-two companies either reward suppliers with good sustainability practices or engage in joint process improvement initiatives with those that do not.

Although a majority of companies still do not have robust supplier relationship management practices for sustainability, A.T. Kearney predicts that this will change dramatically over the next year as the number of companies rewarding supplier sustainability practices will increase by 50 percent and almost two-thirds of firms will either engage in joint process improvement with their suppliers or track a robust set of sustainability metrics for their major suppliers.

Financial Benefits of Sustainability

Some of the companies in the survey indicated that they are already beginning to see the financial benefits of focusing on sustainability including increased customer demand for sustainable products, improved employee morale, greater brand strength and enhanced marketing opportunities for environmentally friendly products.

"Supply management organizations should not only focus on being compliant with new green standards. They can also pro-actively engage the supply base to drive sustainability-related innovations that can lead to pricing premiums and access to new markets," said Mahler.

The study indicated that over the next 12 months there will be a dramatic shift as corporate supply management departments play catch-up across all aspects of sustainability. Perhaps most telling is the increase in the number of firms that indicated that in the future they will be much more likely not to select suppliers that fail to meet formal sustainability requirements.

"Supply management executives should ask whether their company has adopted a comprehensive sustainability strategy, supported by the appropriate policies, processes, organization, incentives and suppliers, or whether it has simply adopted a set of related practices that are unlikely to unlock complete value," said Mahler.

The report can be found here.



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