As we’ve reported in our recent white paper on supply chain sustainability scorecards, there is increasing pressure and demand on suppliers to comply with sustainability initiatives. This is true for suppliers to Walmart, Unilever, and Procter & Gamble, just to name a few… not to mention similar initiatives underway in the Federal government supply chain under Executive Order 13514.
But aside from compliance with the demands of buyers, what other benefits are there for suppliers to participate in sustainability initiatives? Is it really worth it for suppliers to implement their own sustainability strategy and programs?
The answer is yes. Here are the top three reasons why sustainability beyond the scorecard makes sense.
1. Sustainable Business Practices Reduce Your Risks and Liabilities
None of us will soon forget the BP oil spill in the Gulf of Mexico. For more than three months in 2010, oil poured forth from a deep-sea drilling operation into the pristine waters of the Gulf, vastly impacting both marine and human life, attracting international attention, and virtually bankrupting BP and its related suppliers, all of whom came under fire for mismanaging both the drilling operation and their response to the disaster.
While this is an extreme example of negligence, the White House oil spill commission found BP and its supply chain partners Halliburton and Transocean guilty of cost-cutting decisions and lack of safety procedures that allowed the spill to occur. We could point to many other examples where cutting corners and focusing only on bottom line profit to exclusively drive business decisions resulted in loss of human life and environmental disaster.
The implementation of sustainable business practices, which include both environmental and social responsibility, helps to reduce these potential risks and liabilities by improving product quality, improving product safety, improving employee health and safety, protecting communities where business operates, and increasing consumer confidence. Companies that have sustainability embedded in their operations consistently keep pace with or outperform their peers according to the Dow Jones Sustainability Index.
2. Sustainability Improves Employee Engagement
Employee engagement is a hot topic. The Gallup organization has found a positive correlation between employee engagement and improved productivity, increased profitability, and higher earnings per share and considers engagement to be a leading predictor of financial success.
What defines employee engagement? Engaged employees have a strong emotional bond with the company they work for which leads them to more fully perform, resulting in direct business benefits including reduced turnover, higher productivity, and lower absenteeism along with indirect benefits such as creativity, innovation, intellectual capital, high performing work teams, reduced workplace conflict, and more.
You know an engaged employee when you see one. This is the coworker who is involved with, passionate about, and committed to their work and the success of the company they work for. An engaged employee isn’t just satisfied with their job; instead, they experience a more complex social and emotional attachment that leads them to deliver top-notch work that consistently results in higher productivity and performance.
Sustainability is gaining momentum as a way to help further engage employees. People tend to feel emotionally engaged when it comes to their fellow human beings and the environment. The introduction of sustainability in your company taps into this emotional engagement and increases worker commitment. Targeted sustainability efforts focused on suppliers have been shown to result in improved worker-management relations, enhanced retention, and a stronger ability to recruit.
Productivity gains are another tangible benefit of introducing socially and environmentally responsible business practices as a means to further employee engagement. BSR found an ROI of $3 to every $1 invested when a health clinic was introduced into a garment factory in Bangladesh. The clinic led to an 18% reduction in absenteeism and a 46% reduction in staff turnover.
3. Sustainable Business Increases Your Bottom Line
I’ve already mentioned several ways that sustainability can potentially improve your bottom line, including increased consumer confidence and improved productivity, increased retention, and reduced absenteeism as a result of employee engagement. But perhaps the most substantial way sustainability impacts your bottom line is through the real, tangible savings you can see as a result of improved efficiencies.
One primary goal of supply chain sustainability programs is to reduce the consumption and waste of energy, water, natural resources, and raw materials throughout the supply chain. Not only does this benefit the environment and the communities where businesses operate, but it can also have considerable impact on expense. In 2011, A.T. Kearney, as reported by the Carbon Disclosure Project (CDP) found that 25% of suppliers engaging in climate change actions were able to achieve cost savings by reducing their greenhouse gas (GHG) emissions.
Supply chain sustainability initiatives can also drive innovation–a nice by-product of increased employee engagement. Changes to product design, development, and manufacture, or to packaging, shipping, and distribution processes can result in major cost savings. Take Pepsi-Cola for example, who was able to save $44M annually simply by switching from cardboard to reusable plastic shipping containers. In addition, this allowed them to conserve 196 million pounds of corrugated material annually.
Finally, sustainability is a tangible way to improve your competitive advantage. One reason that supplier scorecards are becoming more prevalent is that buyers use good sustainability performance as a sign of strong overall management. Companies with strong management tend to perform higher on such indicators as quality and on-time deliveries. As a result, buyers are showing greater preference for companies that have strong corporate social responsibility performance. Your ability to implement and improve your environmental and social performance will result in improved relationships with your buyers and improved opportunity to capitalize on new markets and clients.
It’s time to move beyond compliance. Environmentally and socially responsible business practices have the potential to significantly benefit your company by reducing risk, increasing engagement, and improving competitive advantage while simultaneously satisfying your buyer’s scorecard requirements and maintaining valuable supply chain relationships.