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.
As you can imagine, this makes the role of procurement quite an important aspect of 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?
In short: how can you make sure you get the suppliers on board that will help you succeed with your impact reduction plan?
Step 1: Measure your supply chain’s baseline performance.
When it comes to measuring the carbon 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), and scope 3 emissions (all other upstream and downstream emissions that are not owned/not directly controlled by your company).
As we explained in the introduction, scope 3 emissions often account for the biggest contribution to your overall environmental impact (up to 90%) and are usually considered to come from the supply chain of the company. Indeed, 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 prevent guessing 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.
However, there are multiple ways in which you can approach your suppliers. Of course, this approach should fit with 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. You can search for suppliers based on shared values and mission statements- which often form a solid base for developing joint projects or strong relationships.
Of course, here you can also look for suppliers that offer similar products, but have credible information/environmental data to prove their sustainability. For non-critical suppliers, think of cleaning products- sourcing for these alternative products is the easiest.
Step 4: Set sustainability or circularity targets in collaboration with suppliers
After you’ve agreed with your suppliers on a reduction strategy based on shared value, you can 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.
With these targets in mind, define a common baseline and decide on a policy should your baseline be adjusted.
If you set targets with your suppliers, try to let them align with Science-based targets to ensure they fit with the Paris Agreement targets. These targets will help you stay on the right track and make sure you’re working towards the overarching climate goals. Here it’s crucial that you understand the actions that with help you achieve these KPIs in order to be able to monitor them.
Setting targets with your suppliers is very useful, as they will help you build sustainability into your business’ procurement processes and operations. Are these targets manageable? Do we keep on track? Can we deliver? Monitoring such sustainability targets will help you with finding suppliers in the future.
Step 5: Monitor the improvements throughout your supply chain.
Once you have new- or adapted suppliers as part of your supply chain, it’s important to see if what you’re doing is actually working.
Are you actually reducing your environmental impact? Does your adapted supply chain help you in your progress towards carbon neutrality?
Always. Keep. Monitoring.
Here 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 will be able to reflect if your environmental measures are effective or not. Indeed, through annual monitoring, you will be able to steer your sustainability strategy if needed and identify possible new opportunities for improvement.
Questions on how to how to measure your baseline performance and make your supply chain more sustainable? Our specialists are here to help. Do not hesitate to reach out!