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Sustainable Sourcing

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What is Sustainable Sourcing?

Sustainable sourcing is the integration of social, ethical and environmental performance factors into the process of selecting suppliers.

Sustainable sourcing is critical across all industries. As supply chains continue to expand globally into developing countries, seeking lower costs and greater production capacity, they expose companies to an even wider array of risks. These risks include the possibility of supply disruption, cost volatility, threats to brand reputation and challenges related to compliance with local laws and regulations. Companies must meet the growing expectations of stakeholders (customers, shareholders, employees, non-governmental organizations, trade associations, labor unions, government observers, etc.) and take responsibility for their supplier’s environmental, social and ethical practices. Thus, companies are increasingly incorporating sustainable sourcing into their procurement and supply chain management process to better understand and manage risks while tapping into significant opportunities.

The ultimate goal of sustainable sourcing is to build strong, long-term relationships with suppliers. Improving performance on environmental, social and ethical issues is vital to developing such relationships. Working toward this has become an extension of a company’s commitment to corporate responsibility and, as such, a key component of the overall business structure and model. Effective supply chain management can foster and build competitive advantages for companies, especially in sectors like food and clothing where production is mainly outsourced.

Building a Business Case for Sustainable
    Procurement: a 5-Step Guide

Basics

1: Develop and integrate sustainable policies into the supplier selection process
Typically, procurement leadership develops a vision that aligns with their company’s responsible business policy. Specific procurement policies are then developed to integrate sustainability values into the various processes and criteria for supplier selection and management.

2: Set and communicate clear expectations for suppliers

A company must make its expectations clear when engaging a supplier. This is usually done through a code of conduct and integrating expectations into contracts, supplier interactions and communications (such as RFx templates).

3: Integration into buying practices
Provide the vision, training and tools for buyers to integrate sustainable sourcing into their practices and procurement decisions. This may include new software, CSR and responsible business training, and an updated management plan. Internal change management programs convey to the corporate buyers the impact their buying decisions will have at the factory level and promote cooperation between corporate buyers, the supplier sales team and units of production when planning production schedules.

4: Educate and support suppliers in setting their own business standards
As part of the process, companies should encourage suppliers to develop responsible practices on their own. Educating suppliers on the business and community benefits of practicing responsible business entails topics such as productivity, quality, community support and engagement, recruiting, employee turnover and contract renewal. Lastly, it is important to work collaboratively with suppliers when structuring objectives for their responsible business performance.

5: Ongoing monitoring of supplier CSR performance
Ongoing monitoring and the use of assessments and audits are essential to maintaining a supplier’s environmental and social performance. Using multiple sources of data and input from stakeholders is vital for gaining a balanced, thorough view of their performance over time. Companies may be able to greatly accelerate their program and save costs by seeking out related initiatives in their industry sector where they can partner with their peers to develop common approaches for assessing and monitoring suppliers.

6: Manage stakeholder expectations and reporting on practices
Transparency is the final step to building and maintaining stakeholder trust. The program should produce supplier performance information that can be included in annual CSR reporting.

Moving forward

If implemented effectively, sustainable sourcing can drive growth. To move forward, a company must:

  • Check basic facts about the social and environmental legislation in the countries of production of prospective suppliers;
  • Inquire about the level of enforcement in these countries to assess production risks;
  • Check whether prospective suppliers qualify for independent certification of conformity with recognized social and environmental standards;
  • Clearly define your expectations to suppliers, make it clear that compliance with all applicable laws is a minimum;
  • Explore potential risk areas with suppliers and agree on the desired level of performance. If necessary, use a supplier code of conduct as a benchmark for compliance and incorporate supplier requirements into commercial contracts;
  • Raise awareness among your purchasing officers of the impact that their purchasing practices might have on production at the factory level;
  • Carry out assessments of suppliers’ facilities and practices, including thorough, independent monitoring or by organizing on-site visits and worker interviews;
  • Learn about sectoral initiatives that can support assessments and provide information and training to suppliers on responsible business practices.

How Companies Are Moving Forward With Their Sustainable Sourcing Programs

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