Measuring sustainability across the entire supply chain

procurence procurence. supply chain assessment

MEASURING SUSTAINABILITY
IN THE SUPPLY CHAIN
18/12/2011 Measuring Sustainability in the Supply Chain

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New challenges for CSR

Monitoring Sustainability

Sample project implementation

About Meercat Suite and Procurence

Copyright© Procurence Sp. z o.o.

Source: Procurence Measuring Sustainability in the Supply Chain Slide 2

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Consumers are getting more educated in terms of sustainability - companies should
quickly get ready for the increased demand for transparency.
New challenges

Sustainability isn’t about the fuzzy
“we care about people and the
environment” statements any more.

Consumers and analysts
increasingly demand hard evidence
to support your claims and hold you
accountable for the actions of your
suppliers.

Are you doing enough?
Do you have the right tools?


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Only companies with an adequate level of internal visibility can properly inform the public
about their activities.
Source of data for sustainability reports

■ basic data
■ certificates
■ audits
■ self-assessments


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Consumers want credible (usually externally validated) and detailed information about
sustainability in organisations.
Defining „acceptable evidence”

COVERING THE WHOLE CREDIBLE DETAILED
SUPPLY CHAIN EVIDENCE INFORMATION

... not just internal People mistrust corporate What gets measured,
processes and direct sources – you need gets managed.
suppliers. external authorities.

■ internal activities ■ international certifications ■ “devil lies in the details” –
■ direct suppliers (ISO, etc.) need for an in-depth
■ credible NGO-certifications evaluation not mere
■ 2nd+ tier suppliers compliance statements
(e.g. FSC, etc.)
■ global guidelines (e.g. ■ actionable information
Global Compact) ■ sustainability stories


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CSR departments will have to work hand-in-hand with the purchasing / SCM department to
achieve the desired levels of transparency in the supply chain.
Implications for CSR departments

NEED WITH A CLOSER
RESPONSIBILITY FOR NEED TO MANAGE
CO-OPERATION WITH
THE WHOLE SUPPLY CHAIN NGOs & PARTNERS
PURCHASING / SCM

■ at the minimum, mandatory ■ Help transform data into ■ Need to find credible
evidence of basic action (more resources). sources of external data
compliance from the whole ■ Supplier development and benchmarking.
supply chain know-how ■ Need to prove that
■ reliance on self- ■ Pre-selection of suppliers sponsoring activities are
assessments to lower the based on their sustainability “heartfelt” and not mere PR
cost of data gathering approach – need to adjust (evidence for the change).
SOPs



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Companies should start with ensuring compliance and then focus on pro-activeness.
Stages of sustainability management

MATURITY OF SUSTAINABILITY MANAGEMENT 

ignorance compliance pro-activeness

EXAMPLES

who are your 2nd+ tier compliance with setting new
suppliers? international standards: social,
standards? environmental, measuring and
economic managing social and
compliance with locally pro-active, environmental impact
local laws? setting good of each product: “end-
example? to-end” transparency



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As the sustainability management matures, ties with suppliers will become closer.
Depth of co-operation as organisations mature

MATURITY OF SUSTAINABILITY MANAGEMENT 

ignorance compliance pro-activeness

hands-off self-reports on-site audits development active co-operation
CLIENT-SUPPLIER RELATIONSHIP 

■ Frequent on-site audits remain ■ Supplier development across the supply
to-date the best method of ensuring chain are challenging and are best delegated
sustainability compliance in the supply from tier to tier.
chain ■ Active co-operation and transparency across
■ Self-reports play a supporting role to keep the supply chain remain an exception, but
the costs down can be achieved, e.g. Icebreaker Baacode



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Sustainable organisation need to monitor performance of their suppliers and partners in
addition to adjusting their internal processes.
Performance monitoring

PERFORMANCE DIMENSIONS
NGOs

Ecological Economic
SUSTAIN- SUPPLIERS
YOUR
ABILITY
COMPANY / SUPPLY
CHAIN
Social
MONITORED
ENTITIES

Source: European Commission


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Sustainability assessments are usually performed in the same fashion as quality and
purchasing audits, sometimes they are repeated for better effect.
Sustainability assessment process

Plan

Perform

Evaluate

Develop


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Sustainability assessments do, however, offer more of a challenge than other audit types
because of the nature of what is being assessed.
Specificity of sustainability assessments

■ More public exposure ■ Geographical dispersion
■ Quality / purchasing issues are ■ need to use local teams or local NGOs
usually not-contentious and remain to keep costs down
hidden from the public eye ■ increased communication burden
■ Good documentation & governance ■ need a standard approach world-wide
are crucial to ensure comparability of results
■ More focus on 2nd + tier of suppliers ■ Fast changing environment (last audit was
■ need to have the up-to date “so last year.”)
documents showing the compliance ■ need for a higher assessment
of the local suppliers – evidence frequency
mandatory

Need for an IT system that support the process – monitoring, performing and evaluating assessments


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Potential risks in CRS non-compliance often lie in the details and that is why it is not
enough to merely look at the aggregate scores.
Multi-dimensional evaluation

■ Single “sustainability score” insufficient,
since it can cover up major risks and non-
compliances
■ Managers must have a quick overview of
the supplier’s status from multiple
perspectives

■ Functional scores help narrow down on
problem areas
■ Further dimensions help identify the level
of risk or gain associated with the supplier
(compliance – processes – proactiveness)
■ Criteria can also be used to steer the
network by providing short- and long-term
goals


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Companies must be careful in selecting the right NGOs and audit companies to ensure
integrity and reliability of the results.
Quis custodiet ipsos custodes? (Who guards the guardians?)

■ Reliability of the NGO partners influences
the perceived reliability of assessment NGOs
results
■ Need for clear selection criteria – NGO
selection on basis of a “social tender”
■ Need to regularly audit the NGOs to ensure
appropriate standards of governance, SUPPLIERS
methodology and labour force YOUR
COMPANY / SUPPLY
■ Need to document all supplier-related CHAIN
communication in an easily accessible form
in case of future investigations

MONITORED
ENTITIES


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Sustainability and supplier audit projects should ensure that your organisation is capable
of dealing with the task and can extract maximum benefits.
Suggested sustainability / evaluation project approach with key results

KEY RESULTS KEY RESULTS KEY RESULTS

List of focus topics Resources and Audits of key
DEVELOPMENT
and key suppliers, processes in place. suppliers, self-reports
timeline and project Clear for the rest. COMMUNI- risk mitigation
plan responsibilities. CATION strategies,
continuous flow supplier
TRANSPARENCY of information in development
Identify and assess supply chain
SET-UP a suppliers, evaluate
Sustainability impact
ORGANISATION
SET
PRIORITIES
and targets
for sustainability
and audits
Improvement measures
Communication set and monitored.
platform, sharing of Common sustainability.
information with 2nd & standards across the
3rd tier suppliers. supply chain.
KEY RESULTS KEY RESULTS


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Setting the right priorities is a key factor that ensures successful implementation despite
capacity constraints.
Determinants of project PRIORITIES

Corporate
FEASIBILITY & CSR
strategy

Cost of
Commo-
preven-
dities
tion

Priority
Topics &
Suppliers
Supplier
Cost of
location
monito-
(geopoli-
ring
tics)

Likelihood
/ Impact INITIAL
SELECTION Copyright© Procurence Sp. z o.o.


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You need to build a strong organisation to make sustainability part of the process
landscape and not just a one-off exercise.
Important elements of a Sustainability ORGANISATION

 Top management buy-in  Process guidelines
 Cooperation CFO, CPO,  Integration with other
head of QM #1 processes (RfX, inventory
#3
Change management, sourcing)
 Sustainability Processes
culture
management  Escalation rules - how to
 Integration with ERM ensure risks noticed in time?

 Members, co-ordinator  Common standards for all
 Specification of subsidiaries.
responsibilities
#2  Reporting: target groups,
#4
Team & contents, frequency
 Identify internal Controlling
stakeholders
stakeholders (know-  Enforcing compliance
how, highest impact) (rewards & punishments)


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You should steadily increase the level of transparency in your supply chain, but be careful
not to overstretch your resources.
Defining and implementing supply chain TRANSPARENCY

WHAT YOU NEED INCREASING TRANSPARENCY
WHAT YOU NEED

■ Clear roadmap as to what
level of transparency you DEPTH SCOPE
want to achieve and can
afford.  Direct suppliers  Name & address
 2nd tier suppliers  Environmental
■ Monitoring of progress / KPIs,  3rd tier suppliers assessment
 complete supply  Social performance
e.g. % network covered by chain  Financial rating
each type of evaluation. Copyright© Procurence Sp. z o.o.
 Quality & commercial
assessment
Typical target coverage: 80-90% of direct
suppliers (by spend). Don’t forget about small,  Few key suppliers  Operative rating
specialised suppliers!  All relevant (delivery on time, etc.)
2nd tier supplier coverage: all key, identified ~80%
suppliers  Mapping flow of goods
of relevant, basic sustainability information on at
least 30%
 Risk assessment
“Key” = Prio 1 suppliers
Relevant suppliers – all suppliers that pose a significant risk impact (Pareto principle)


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Bi-directional communication within the supply chain – including formal reports and
informal information exchange – is the cornerstone of sustainability management.
Types of COMMUNICATION

Indicate Discuss Share external Reward
performance expectations information co-operation

■ Always provide ■ Tell your suppliers ■ Share and ■ Punish
suppliers with exactly what you encourage the underperforming
information about expect from them. sharing of suppliers, but …
their performance. ■ Create “premium” sustainability and ■ … make the
■ Benchmark standards to indicate risk information punishment less
suppliers against future expectations. severe for those
their peers. ■ Encourage the who inform you
sharing of risk about potential
information (raw problems.
materials prices & ■ Make rewards part
availability, logistical of your policy (e.g.
disruptions). extra RfX points)


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You need to push the boundaries of professional sustainability management upstream –
in this way your suppliers increasingly take the operational burden away from you.
Key DEVELOPMENT steps

Short-term Mid-term Long-term
■ Create audit questions with ■ Design audits to include ■ Let the suppliers
improvement measures in mind. “premium” criteria that develop their own
■ Identify practical and realistic show your network what supply base in the
improvement measures. you’ll expect from them in same fashion you
3-4 years’ time. developed them.
■ Always based on a cost-
benefit-analysis, no “automatic” ■ Improve the capabilities ■ Share audit and
development. of your suppliers. assessment results of
■ Divide issues into “must” and ■ Determine standard common 2nd tier
“nice-to-have” to establish processes, document suppliers to promote
development priorities. and share them. efficiency.
■ Teach your suppliers.
■ Audit results should always have
consequences.


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Best-practice supplier evaluation and risk management tool
Benefits of Meercat

audit / self-
partner and supplier
assessment / risk drill-down
contract develop-
data ex- management reports
database ment
change

■ fast implementation – ready to use in 2-3 days
■ covers all assessment processes (risk, quality, sustainability)
■ covers the complete supply chain (suppliers - direct, and indirect,
distributors, retail points
■ suppliers have direct access to their results
■ unlimited suppliers and users to enhance communication
■ standalone tool with optional ERP integration


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Meercat supports all the main functions required for implementing of a successful
supplier evaluation scheme
Supported processes


NEW SUPPLIER SUPPLIER SUPPLIER NETWORK DEVELOPMENT
ACQUISITION INFORMATION ASSESSMENT AND COMMUNICATION

supplier self- supplier development
supplier database
registration audits tasks

contracts, supplier self-
initial evaluation risk profile
certificates, photos assessment

regular data
supplier
black list reporting exchange
classification
(forecasts, etc.)


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Procurence is an innovative start-up offering flexible SCRM sorftware solutions.
Procurence advantages

Why Procurence? Trust our know-how
Know-how Current clients
■ Set-up by experienced purchasing consultants
and risk management professors, who
implemented evaluation and risk processes for
top multi-nationals
Speakers at trade conferences
Excellent customer service
■ Turnkey solutions – just log-on and start using
the software, we take care of the rest

Flexibility
■ Meercat can be adjusted to suit your exact
needs, all within weeks



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If you have any questions,
do not hesitate to contact me.
Matt Zaleski, CEO
+48 601 45 32 45
+49 151 240 84734


procurence sp. z o.o.
ul. Dereniowa 2/6 • 02-776 Warsaw • Poland
tel. +48 22 219 5400 • fax. +48 22 203 5084
info@procurence.com • www.procurence.com
Measuring Sustainability in the Supply Chain

Measuring sustainability across the entire supply chain

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