April 9-16, 2007

Survey finds supply management is weak link in sustainability chain

A survey of 25 Fortune 100 North American companies has found that while a majority of them (almost 60 %) have a documented corporate-level sustainability strategy, just over one-third (36%) have adopted a formal sustainability strategy for the supply chain-a crucial step in ultimately being able to deliver on their sustainability promises.

The survey, carried out by the AT Kearney management consulting firm in conjunction with the Institute for Supply Management (ISM) assessed corporate sustainability practices in firms across a variety of industries to ascertain how sustainability is affecting their businesses. Sectors represented included industrials, transportation, consumer goods, retail, pharmaceutical and unspecified "other." The purchasing power of the surveyed firms ranges from less than $100 million to between $5 and $9 billion (U.S.).

The study confirmed that most firms have recognized the value of adopting sustainable practices, whether to strengthen their brand or to differentiate products. Companies understand that sustainability management is a top-line issue, not merely a compliance matter. Risk management and efficiency were cited as other objectives for corporate sustainability strategies.

The supply chain, however, is the "litmus test" of a company's commitment to corporate sustainability. "Supply management organizations have to support the corporate sustainability strategy by ensuring their company's suppliers extract their materials from sustainable sources and employ fair labor practices, said Daniel Mahler, AT Kearney vice-president and leader of the Sustainability Study.

Since most firms have not adopted a supply management sustainability strategy, it is not surprising that many do not have sophisticated internal organizational processes to promote sustainability management. The survey found that just over half of the companies reported that they provide written guidelines to help supply management staff address sustainability questions, and just over 40% provide training on sustainability management.

In the near future, the study forecasts that being "green and ethical" will no longer be an option for all participants in the supply chain. In only five years, the percentage of companies deselecting suppliers for not meeting sustainability criteria has risen from 17% to 60% and will shortly rise again to 70%, says the study.

The survey findings pointed to a dramatic change within the next 12 months in the way many companies engage with their suppliers. Perhaps most telling is the increase in the number of firms that indicated that in the future they will be much more likely not to select suppliers that fail to meet formal sustainability requirements.

Roughly half of reporting companies said they currently either reward suppliers with good sustainability practices or engage in joint process improvement initiatives with those that do not, and nearly three-quarters said they will be doing so within a year. The percentage of firms requiring third-party certification for major suppliers is expected to double, from 22% to 44%, while the percentage that track a set of sustainability metrics for major suppliers will rise from 39% to 65%.

Examples of sustainability metrics include eco-efficiency of materials and packaging, fair labor practices throughout the supply chain, a quantification of the carbon footprint, and accounting for full lifecycle costing.

As a result, corporate supply management departments will be scrambling to play catch-up across all aspects of sustainability. "Supply management executives should ask whether their company has adopted a comprehensive sustainability strategy, supported by the appropriate policies, processes, organization, incentives and suppliers, or whether it has simply adopted a set of related practices that are unlikely to unlock complete value," said Mahler.

Some of the companies in the survey indicated that they are already beginning to see the financial benefits of focusing on sustainability, including increased customer demand for sustainable products, improved employee morale, greater brand strength and enhanced marketing opportunities for environmentally friendly products.

The report, "True and Profitable Sustainability Management," may be viewed on the AT Kearney Web site, www.atkearney.com. Based in Tempe, Arizona, AT Kearney has operations in 32 countries; its Canadian branch is in Toronto.

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