The global landscape of sustainable procurement legislation is rapidly evolving, with countries like Canada, the UK, and the EU implementing regulations that compel companies to delve deeper into their supply chains.
While understanding environmental and human rights risks for tier 1 suppliers (your direct suppliers) can be challenging enough, extending this comprehension to tier 2 suppliers (your suppliers’ suppliers) and beyond seems nearly impossible.
Follow these 3 actionable steps to get started with supply chain risk visibility. Disclaimer: we’re not saying it will be easy.
Step 1: Manage Expectations
Even if you diligently follow the steps outlined in this article, let’s face it, you will never fully understand your supply chain.
While you may grasp certain critical categories well, companies claiming to possess "full visibility" into their supply chain are often either engaging in greenwashing or lacking a comprehensive understanding of its implications. (Alternatively, they may indeed possess absolute knowledge, if it is your case, please reach out to us - we'd love to be friends!)
Given the globalised nature of supply chains today, attaining visibility across all procurement categories proves exceedingly challenging. With some companies boasting over 100,000 tier 1 suppliers, evaluating millions of tier 2+ suppliers becomes logistically impractical.
Like many other sustainability endeavours, comprehending the risks inherent in your supply chain is an ongoing journey necessitating continual refinement. Hence, the first step entails openly acknowledging this reality both internally and externally: instead of striving for unattainable perfection, prioritise the pursuit of continuous improvement.
Step 2: Establish Priorities
Rather than immediately focusing on individual suppliers, conduct your risk assessment at the category level. Consider the overall impact and likelihood of risks within each category's supply chain, extending beyond your direct suppliers. Take into account various factors such as geography, production processes, worker demographics, and raw materials utilised.
This approach will provide an initial indication of where the highest risks may lie. While it may not be flawless, it serves as a foundational step in prioritising amidst numerous procurement categories and a vast supplier base.
Once you've identified the highest-risk priorities, assess your capacity to enact change within these supply chains. Evaluate:
The potential for improvement: Are you or your suppliers already implementing effective practices in this category? If so, it may not require immediate attention.
Your commercial leverage: What level of negotiating power do you hold with these suppliers? Are alternative materials available? Are suppliers in a monopolistic position? Based on these considerations, determine which categories to address first for understanding suppliers beyond tier 1.
Step 3: Apply Different Approaches According to Your Leverage
a. You have high commercial leverage in this category: collaborate with your suppliers
In this scenario, suppliers are attentive to your needs and inclined to engage in cooperative efforts to meet your requirements. This presents an opportune moment to gather extensive insights and initiate risk assessments for tier 2+ suppliers.
For increasing supply chain visibility and collecting information, you have several possibilities.
There is a plethora of software and online platforms that provide supply chain visibility and risk assessment. They all have different business model. Some platforms allow you to upload spend data, leveraging known commercial data and trade routes to make informed assumptions. Conversely, other platforms necessitate individual registration and payment by each supplier's suppliers, resulting in additional workload (for you and your suppliers) and extended implementation times (count in years here). However, this approach tends to yield more reliable results.
Alternatively, if financial resources are limited or you’re not sure yet which platform is right for you, you can also start by using good old Excel. Despite its simplicity, Excel effectively serves the needs of well-defined categories with a limited number of tier 1 suppliers. It has been working for years for ensuring compliance with the Dodd-Frank Act through the use of the CMRT (Conflict Minerals Reporting Template), long before traceability emerged as a buzzword.
b. You have low commercial leverage in this category: collaborate with your peers
Now what should you do if you have high risk and high potential for improvement in a category but a low commercial leverage?
In these instances, leveraging collective strength becomes imperative. Given the interconnected nature of global supply chains, failure to identify negative human rights and environmental impacts serves no one's interests.
To bolster your commercial influence with a supplier, consider partnering with peers to collectively represent a larger share of the supplier's revenue and pool data. This collaborative approach alleviates the burden on suppliers, streamlines the data collection process, and fosters a sense of collective responsibility.
Additionally, conducting joint audits and curating a list of approved suppliers for a given category enhances transparency and accountability within the supply chain.
We have outlined three essential steps for identifying and mitigating sustainability risks in the upstream supply chain beyond tier 1. Begin with managing expectations and acknowledging the complexity of achieving full supply chain visibility, while emphasising the importance of continuous improvement in risk assessment. Then prioritise based on impact and leverage. Finally, tailor your approach to your commercial influence. By breaking down these steps, you will be able to navigate the challenges of sustainability risk management effectively.
As a procurement and sustainability professional embarking on the journey of enhancing supply chain visibility and mitigating risks, it's crucial that you recognise that this is a long-term endeavour requiring commitment and persistence. Therefore, our call to action is to prioritise efforts towards gaining deeper insights into your upstream supply chain, fostering collaboration, and implementing sustainable practices systematically.
Additionally, for expert guidance and support in navigating the complexities of sustainable procurement and risk mitigation, consider reaching out to us at info@beeaware-consulting.com or using our contact form. BeeAware Consulting is dedicated to empowering organisations to build resilient and ethically sound supply chains, driving positive environmental and social impact.
Comments