Why the manufacturer/supplier relationship is changing
A recent Grant Thornton LLP survey of food and beverage companies found that manufacturers are significantly ahead of distributors and retailers at the sustainability game. In fact, while 44% of surveyed retailers reported not even being sure if their suppliers were sustainable, 80% of manufacturers believe their customers expect a sustainability focus. Even more, 80% consider it critical to their growth.
Manufacturers are far ahead in innovation and sustainability because they were targeted by the sustainability movement early on — to reduce packaging, use recycled packaging products, switch from plastics to biodegradables, etc. Because they have actively pursued sustainability since the early days, manufacturers know that these new initiatives can grow their business and attract customers.
Until very recently, says Robert Schwartz, National Performance Improvement Leader at Grant Thornton, the “relationships” between manufacturers and their supply chain were not important to the end user. “The customer didn’t care,” he says. “It was about being on time, with good quality, and coming in on budget.” Those three elements are still crucial business drivers across the board, but now sustainability is becoming more and more important to end-use buyers who are willing to pay more for a sustainable product.
This means the future will include a new element in the supplier-manufacturer relationship: collaboration.
5 questions to consider when changing suppliers
Switching to a new vendor may be the perfect time to establish a baseline for your sustainability goals and related expectations. Procter & Gamble, for instance, offers a very comprehensive Supply Chain Environmental Sustainability Scorecard that may be of help to you. But first, a simple screening process can be surprisingly effective when it comes to weeding out the bad bets. Here are some questions to consider, as you take a new supplier’s sustainability temperature:
: What is your company’s policy on environmental sustainability? Who is in charge of implementing your programming?
: What steps have you taken over the past three years to increase sustainability, and what are your resulting key performance indicators?
: Where and how do you source your raw materials?
: How do you deliver the final product to your partners? What is your transportation carbon footprint?
: What is your company’s five-year plan to increase sustainability and decrease your footprint on the planet?
Why strong relationships with suppliers matter for your sustainability goals
“Collaboration between manufacturers and their suppliers is imperative for competition,” says Schwartz. With better, more sophisticated technology, seamless integration is now possible across the supply chain. Automatic trigger points allow businesses to reduce “fire drills” and get products to market more quickly and efficiently. In this environment, then, “relationships are crucial, to make sure that all three elements of competition — schedule, cost and quality — are aligned,” says Schwartz. Simply put, companies that don’t get this right won’t compete in the future.
If a sound supply chain depends on sound processes throughout the whole chain, where does sustainability fit into the picture? Simply put: Making changes to increase green production will, by the very nature of the enterprise, require streamlining and a radical rethink of the entire production process. And there’s only one way to get there from here: innovation.
Investing in innovation
Innovation has always been a major driver of business growth. It also is at the core of the sustainability movement, from devising new ways to streamline the manufacturing process, to creating green, less wasteful packaging. Additionally, companies are beginning to associate the two concepts — innovation and sustainability — and use them to increase long-term profitability. As reported in Grant Thornton’s sustainability survey, the most frequent corporate sustainability initiatives revolved around developing ways to reduce energy consumption (66%), recycling (66%), production waste (53%), and packaging and unused product (46%).
Manufacturers today are innovating to attract sustainable suppliers — which is a complete about-face from the previous balance of power. For example, Unilever — a sustainability powerhouse — has actually created the Unilever Sustainable Living Lab, which brings together representatives from governments, NGOs and businesses to review everything from sustainable sourcing, production and distribution, consumer behavior and change, to waste and recycling. In its first outing, the Lab attracted 2,200 registrants from 77 countries.
Track suppliers with the right metrics
According to Schwartz, there are three important metrics to determine success or failure in any initiative: schedule, cost and quality. It’s important to create a baseline for your suppliers right away, as soon as you form a relationship or initiate sustainability efforts. It’s surprising, he says, how few businesses take this first vital step. “If companies have good information — and most companies don’t — they can quickly learn how vendors and suppliers are performing, and attack the issues.” And by spending that money to fix the problems, they will in turn make more money by having more effective and streamlined processes and procedures.
All this leads back to sustainability. By reducing the carbon footprint, not only is a company doing right by the planet, but it is doing right for itself, through savings from more efficient fuel and heating and cooling systems, as well as less wear and tear. Making seemingly small process changes at the supplier and vendor level quickly adds up to a more sustainable business and financial growth.
Do due diligence on vendors’ sustainability claims
“Never take someone’s word for it,” advises Schwartz. “Ask their existing customers and verify everything during the initial vetting process.”
Can the supplier provide proof, for example, of compliance with conflict mineral regulations? Or, do they have demonstrable metrics around their transportation fleet’s fuel efficiency? Can they provide proof of purchase for upgraded, green HVAC or other equipment? If a potential supplier is reluctant to allow customer access, that’s an enormous red flag. Citing industry confidentiality is never an excuse for obfuscation. You can agree on what is important for you to know, without anyone having to disclose trade secrets.
It’s imperative to get C-suite buy-in, of course, both for social and financial reasons. However, drivers of sustainable change may be much more likely to be found among the middle ranks. The innovators are often — but not always — younger and hungrier, and more apt to see things in untested ways. So, because the innovators will likely be challenging the status quo, they are unlikely to be senior executives. In fact, they’re quite likely to be in the lower ranks, those for whom sustainability is of great importance. They are process-improvement number-crunchers or whiz-bang tech geeks who can see the domino effect of change and the ultimate financial win at the end-game.
Companies at the top of the sustainability movement know that teaming up with their suppliers is key to creating a sustainable supply chain. And the whole house falls if there is one brick out of place — consumers’ confidence can be shattered by a discovery that, say, one element of a supply chain is a polluter, or that the manufacturer had an opportunity to use a greener packaging but chose not to do it. The good news is that companies on all rungs (and on both sides) of the supply chain are fast moving toward making real inroads in the sustainability work that’s yet to be done.