It has become clear that the role of supply chains on companies’ environmental impact is often very high. Up to a point, where 90% of your total environmental impact can occur in said supply chains.
This impact percentage from your supply chain might seem impressive – however, it also opens up many opportunities for substantial impact reduction.
This makes the role of procurement an important aspect in reducing a company’s impact.
- Are the products that I am shipping actually sustainable?
- Are the manufacturers of the materials/ ingredients I use in my production process sustainable?
- Should I have a better look at my key suppliers?
Step 1: Measure your supply chain’s baseline performance.
When it comes to measuring the environmental footprint of an organization, greenhouse gas emissions (GHG) are split up into three categories according to the GHG Protocol:
- Scope 1: direct emissions from your own controlled sources;
- Scope 2: indirect emissions from purchased energy;
- Scope 3: all other indirect upstream and downstream emissions that are not owned/not directly controlled by your company.
Scope 3 emissions often account for the biggest contribution to your overall environmental impact (up to 90%). A big chucnk coming from the supply chain of the company. So, although you do not directly own or control these emissions- they are highly connected to your company’s activities.
So, before you start with finding sustainable suppliers- it is highly advised to first map out all the steps in your supply chain and list your suppliers per step. Once you have your supply chain clear, you measure your company’s baseline performance (this will include the scope 1, 2, and 3 emissions we just mentioned) and connect all the steps within your supply chain (scope 3) to credible environmental data.
This will ensure efficiency and transparency in knowing which suppliers might cause the biggest impact. And prevents miscommunication and inefficient impact reduction efforts based on loose assumptions.
Step 2: Find the environmental hotspots in your supply chain and connect them to specific suppliers.
Once you have mapped out your supply chain, you will have an overview of the environmental impact per-process in your supply chain (image 2). This means you can start looking for the environmental hotspots within your supply chain. Which process(es) accounts for the biggest impact? Could it be the raw materials for the production of your product?
Once you have this data, you can connect it to the suppliers within these processes. It’s often the case, that just a small number of suppliers can be responsible for the largest impact in your supply chain’s greenhouse gas emissions.
What is the reason they result in high-impact hotspots? Is it their production process, or are the core ingredients impact intensive? Time to start engaging with your ‘hotspots’ suppliers.
Step 3: Find opportunities to ‘creating shared value’ with suppliers and build a reduction strategy.
Now you have the environmental data of your impact hotspots and know which suppliers account for said impact- the next step is to sit down with your suppliers and identify possible improvement opportunities for both of you.
The goal here is to create shared value. What could your suppliers do in order to become more sustainable, that benefits them as well? What are the business opportunities they can get out of it?
Read more about Harvard professor Michael Porter’s approach to creating ‘shared value’ in Business right here.
Try to understand their position and stakes and search for ways to make supplier engagement more marketable for your suppliers. For example, you could challenge your suppliers to use more expensive renewable materials, and in return, you can offer them a long-term contract,
Developing a long-term relationship with your key-suppliers, allows you to create strategic improvement scenarios and provides a backup that can help both of you succeed in this sustainable improvement process.
Different collaboration types with suppliers
There are multiple ways in which you can approach your suppliers. And the approach should fit the size of your company, your company’s culture and values, and your position in the supply chain. In the table below you can find the most common collaboration approaches described (Image 3).
If you are searching for new suppliers, take a good look at your environmental data and set certain selection criteria for yourself. These criteria can be based on shared values and mission statements- which often form a solid base for developing joint projects or strong relationships.
You can also look for suppliers that offer similar products, but have credible information/ environmental data to prove their sustainability. For example, with non-critical suppliers (think of cleaning products) sourcing for alternative products is the easiest.
Step 4: Set sustainability or circularity targets in collaboration with suppliers
After you agree with your suppliers on a reduction strategy based on shared value, start setting up fitting sustainability key performance indicators (KPI’s). These targets will help you and your suppliers evaluate your progress and track supplier performance. Next, define a common baseline and decide on a policy should your baseline be adjusted.
If you set targets with suppliers, make them Science-based targets to ensure they fit with the Paris Agreement. This helps you stay on the right track and ensure you work towards the overarching climate goals. Here, it’s crucial you understand the actions that with help you achieve these KPIs in order to be able to monitor them.
Step 5: Monitor the improvements throughout your supply chain.
Once you have new- or adapted suppliers as part of your supply chain- see if what you’re doing is actually working.
Always. Keep. Monitoring.
We advise you to set up your monitoring process by using your supply chain targets as the starting point. By continuously monitoring your upstream and downstream environmental impact (image 3), you can:
- Reflect if your environmental measures are effective or not. Indeed, through annual monitoring;
- Steer your sustainability strategy if needed and identify possible new opportunities for improvement.