15 Jun 2017, 09:31 — 14 min read
Incorporating sustainability in supply chains can not only help retailers address the environmental and social challenges, but can also help them build their brand reputation, reduce the cost of operations, enable access to new markets, generate more business and become fit for the future. According to a survey conducted by the retail Industry Leaders Association (RILA) for its 2015 Retail Sustainability Management report, 92 per cent of the respondents think that sustainability is a source of innovation.
The following steps could facilitate retailers in incorporating sustainability in their supply chains.
Step 1: Building internal stakeholder support
Developing a strong business case, including various business drivers, strategic focus and benefits to the business, could enable a retailer to attain stakeholder and key management support for inculcating sustainability in a supply chain.
In addition, it could help retailers build understanding about the internal and external landscape of operations in their organisations. Retailers would be in a better position to identify and assess the adverse impacts on environment and people, associated with their supply chain. It could also facilitate companies to identify high priority challenges related to their supply chains and evaluate several risks and opportunities for the firms, which would lead to generating respective stakeholders’ commitment towards sustainability.
Step 2: Establishing objectives, expectations and code of conduct
Clearly stated objectives and expectations from a company’s sustainable supply chain programme could help attain strategic direction and define a retailer’s commitment. It is important to outline objectives to manage short- and long-term expectations from the implementation of sustainability approach in a supply chain. Objectives should be detailed and could cover a wide range of subjects, including:
It is essential that an ethical code of conduct be formulated, which needs to be followed throughout the organisation and by all the suppliers engaged with the company. Internal policies and procedures could also be developed to simplify the implementation of the supplier code of conduct by staff and suppliers. The guidelines for company staff and suppliers can be revisited at regular intervals, with regular updation as and when required.
Step 3: Supply chain mapping and priortisation
A retailer could map its entire supply chain to understand the risks involved at each stage. The mapping exercise cannot be limited to the first-level of suppliers, and should involve the entire value chain starting from the sourcing of raw materials until consumption by end customers. Some of the ways that could be adopted by retailers for inculcating sustainable practices at different stages of their supply chain are mentioned below:
Sourcing/procurement: Sourcing is an important aspect in the retail supply chain. Practices followed in sourcing raw materials have a significant impact on the environmental and social aspects of a supply chain. Apart from ensuing compliance to the laws and regulations related to environment, labour, health, safety, etc., sustainable sourcing also requires companies to determine that raw materials used have a minimal damage/impact on the environment and local communities.
However, retailers typically do not engage in direct sourcing; the process becomes tough for them to assess the sustainability of third-party procured raw materials. Hence, retailers and stakeholders have understood to collaboratively work with each other to achieve sustainable sourcing.
There are several global agencies/organisations that provide certification of sustainability attributes to suppliers, to help retailers to source their raw material from certified partners only.
The membership of several non-profit organisations could help suppliers authenticate the sustainability of their production process and responsibility towards the environment. The retailers could then use maximum certified material to increase the proportion of sustainable sourcing in their supply chain.
Some organisations also use metrics, such as the Issue– Material matrix, to evaluate the risks associated with their sourcing activities.
Represented in the following page is a simplified Issue–Material matrix model, which is used by several organisations in different forms, to compare raw materials or sources in terms of their impact on relevant sustainability aspects. Leading retailers, globally, generally align their organisations and processes with programmes, which encourages energy conservation and sustainable practices. The retailers benefit from the expertise offered by the programme and stay abreast with the global leading practices.
Manufacturing and processing: According to the United Nations (UN), sustainable manufacturing helps in meeting the needs of the present without compromising the needs of future generations. At the same time, it also means using those manufacturing processes that are environment-friendly and socially acceptable.
Some of the practices that can help integrate sustainability in manufacturing include reducing emissions of greenhouse gases, reducing water consumption, and reducing wastage of materials and energy, following the international labour standards (no forced or child labour), promoting women employment and gender equality, etc.
Distribution: A distribution process, which includes storage, order processing, packaging, vehicle loadings and delivery to the customer, is one of the most important parts of a retail supply chain. Incorporating sustainability in distribution would mean adopting practices that would facilitate storage and movement of goods in a way that results in lowest possible environment and social impact.
Firms should follow best practices that could help in the reduction of energy consumption and CO2 emissions during the entire distribution process.
Retail operations: Retailers can introduce sustainability by reducing the use of energy through application of LED lights and ensuring proper maintenance of heating and cooling systems in retail stores, super markets, hypermarkets, etc. They could also save materials and resources by redesigning packaging and introducing reusable packaging. The increasing efficiency in stock and inventory management would help reduce spoilage and wastage. A number of large retailers are addressing the principle challenges of eliminating wastes from their supply chains and also intend to achieve ‘zero waste’ through various initiatives.
An integrated waste scorecard could be an effective quality control tool to connect waste collection vendors and store managers to ascertain possible gaps and provide reports on recycling and donation on a daily/month/yearly basis.
After gaining a thorough understanding of a supply chain through the mapping exercise, retailers would be better equipped to identify the priorities in their supply chain.
As a next step, they could identify which parts of their supply chain are most susceptible to severe risks pertaining to environment, human rights, labour, ethics, etc. The risk impact and its magnitude could be evaluated based on the country/geography, nature of the business, type of relationship with the supplier, etc. The retailers can prioritise and target their sustainability efforts based on the company’s assessment of severity and criticality of the risks associated with their immediate and extended supply chains.
Step 4: Supplier engagement
After identifying the scope of the sustainability programme and the priority focus areas, retailers need to engage with their suppliers to collaboratively address the sustainability challenges in their supply chain. Supplier engagement is an essential process, which helps in developing a shared mindset towards sustainability issues, building supplier ownership about sustainability, and implementing various sustainability initiatives for reducing environmental and social impacts of the supply chain. Engaging with suppliers facilitate the retailers to clearly communicate the company’s sustainability expectations and code of conduct. This enables a detailed risk and impact assessment, evaluate sustainability performance, and devise solutions and strategies for various sustainability-related risks.
Retailers could develop customised training programmes for their suppliers to increase awareness and communicate sustainability requirements, and further demonstrate ways to effectively reduce the environmental and social impacts of various supplier operations. They could also train suppliers about the leading practices followed around the globe, which can help suppliers increase their efficiency while reducing environmental footprints.
Step 5: Industry collaborations
Many a times, retailers face issues in designing and implementing sustainable processes owing to the complexity and scale of the company’s supply chain. Collaborating with relevant industry groups could help instil the industry leading practices and standards in a retailer’s supply chain.
Additionally, association with industry groups could help increase the effectiveness and efficiency of a retailer’s sustainability efforts by extending the company’s reach, avoiding
conflicting messages, resource pooling and reduction of duplication. Some examples of such groups include the Sustainable Apparel Coalition, the Electronic Industry Citizenship Coalition and the Sustainability Consortium.
Step 6: Monitoring and evaluation
Monitoring and evaluating performance against the sustainability performance goals set by a retailer is vital for the company’s commitment to continuous improvement.
A monitoring system could be used to collect information on how well a retailer and its suppliers are performing on sustainability practices and help ensure to achieve the compliance with the codes of conduct established by the retailer. Companies could use several tools for monitoring and measuring performance, such as self-assessments, audits and benchmarking.
Several retailers have designed their own metrics to enable accurate evaluation of their progress against the goals identified. For instance, an American footwear firm created a ‘Green Index’ environmental rating system to measure and communicate critical aspects of environmental performance to product design and development team in an easy format.
Key recommendations for retailers to improve sustainability
1.Top management’s commitment to sustainability is one of the biggest factors to push an organisation’s supply chain towards sustainability. The management needs to be more dedicated and sincere towards achieving sustainability in supply chain practices and consistently pushing for improvement.
2.Focus more on sourcing maximum material from suppliers that are accredited by non-profit organisations committed to promote responsible production and trading of commodities. A special consideration should be given while sourcing soy and palm oil, as their production has a massive impact on environment and endangered animals live in forests.
a. Extensive scope for Indian suppliers to acquire Round Table Responsible Soy (RTRS) credits to ensure sustainable production process
b. Suppliers need to continue enrolling for Roundtable on Sustainable Palm Oil (RSPO) certifications.
3.Initiate the usage of comprehensive global frameworks for reporting sustainability progress to improve the quality of reporting. Although the use of GRI G4 framework has increased in the country, the overall reporting approach in the country is quite statutory based than wide-ranging. Hence, the retailers (especially non-listed) could be more industrious to adopt widely used standards to cope with evolving regulatory necessities around environmental and social parameters.
4.Develop understanding about sustainability in supply chain and its benefits on the triple bottom line (3BL) parameters. The efforts could either be driven by non-profit organisations or NGOs, or by the government at multiple levels in collaborations with global industry leaders.
5.Develop deep business relationship with suppliers by effectively communicating sustainability requirements and indicating methods to effectively reduce the environmental and social impact of various supplier operations. Converting suppliers into partners would provide a number of benefits to both the parties to understand each other’s requirements.
6.Introduce integrated control measures in the form of technological tool connecting stores and suppliers/vendors to track and manage sustainability progress. This will help the members to ascertain process inconsistencies and a core committee/management could develop an actionable strategy to improve sustainable footprint.
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Article source: STOrai Magazine