Supply Chain Sustainability – Challenges and Opportunities

EY Trialogue Sustainability Forum

Overview

Organisational supply chains represent around 50% to 70% of corporates’ sustainability footprint [1]. Consumer goods supply chains alone account for more than 60% of global greenhouse gas emissions, 80% of water withdrawals and 75% of forced and child labour infringements [2]. With this picture as background, organisations are coming under increasing pressure to identify, manage and report on sustainability risks within their supply chains.

Furthermore, both the King IV Report on Corporate Governance for South Africa and the Global Reporting Initiative have increased focus on corporates’ material environmental and social impacts that occur within their supply chain.  Addressing supply chain sustainability challenges and opportunities requires more than just reporting. Rather, organisations need to work to improve supply chain transparency and create a fundamental shift in the way they engage suppliers and make sourcing and buying decisions.

Pannelists

  • Stiaan Wandrag – Sustainability and External Reporting Director, Tiger Brands – For more than two decades, Stiaan has worked in the field of sustainability within the pharmaceutical, petro-chemical and FMCG sectors.  He served as the Responsible Care Leader at the Dow Chemical Company and assumed responsibility for Environmental Management and Health and Safety. He then moved to Sasol, where he was the Head of Sustainability Advisory. For six years, he represented African business at the GRI’s Global Sustainability Standards Board (GSSB) and he is currently a member of the South African integrated reporting working group.  At Sasol he also supported the Supply Chain Function on requirements for suppliers such as training, auditing, monitoring and reporting of the supply chain. He recently joined Tiger Brands where he is responsible for defining their new sustainability strategy, including supply chain management and sustainability reporting.
  • Benjamin Gatland, Executive Director, Partner Africa – Benjamin has more than a decade worth of experience in supply chain sustainability, specifically centred around ethical trade and responsible sourcing. He currently fulfils the role of Executive Director at Partner Africa where he supports multinationals with their supply chains across 42 African countries, including supplier training and development; research into forced and child labour; land rights investigations; human rights remediation in supply chains; and developing strategies for ongoing monitoring throughout Africa. He has worked with the Coca Cola Company, Diageo, Walmart, Unilever, ABInBev, Heineken, World Bank and AngloAmerican. Prior to joining Partner Africa, Benjamin worked as the standards and certification manager for Fairtrade Africa, where he assumed responsibility for establishing Fairtrade tea, coffee, sugar, cocoa and flower value chains across Africa and setting Fairtrade standards for the continent.
  • Sanjay Premraj, Director in Procurement Africa, ABInBev – Sanjay Premraj is a professional engineer with more than a decade of experience in supply chain operations and procurement. He has operated at senior level at a host of large and global FMCG companies, including ABinBev (previously SABMiller) and Tiger brands. Currently he fulfils the role of Director in Procurement Africa at ABInBev where he is responsible for de-risking ABinBEv’s African supply chain, including driving localisation targets in line with B-BBEE and national legislation, supplier development through ABinBev’s supplier incubator and development of alternate supply partners. He is also responsible for driving the supplier quality and cost efficiency agenda through profit and loss improvements and applying lean manufacturing principles and strategies within supplier businesses.

Discussion

1.      Introduction – What is supply chain sustainability?

  • The creation of sustainable supply chains requires leadership engagement and buy-in, integrated business practices, supplier engagement and stakeholders (both internal to the business and externally). It the responsibility of every employee job not just the procurement department.
  • Supply chain sustainability depends on an organisation’s ability to adapt and evolve, to supply the right products at right time, meeting right quality standards.
  • There is no blueprint for the creation of sustainable supply chains, as all companies are different. Sasol, for example, is very integrated and own and /or have control over much of their supply chain (e.g. coal and gas). Other companies may have limited control or ownership of their supply chains. As such they have to draw boundaries and determine which suppliers are most material, or hold the greatest supply chain risks, and start working with these.
  • The earth’s resources are finite, as such, ensuring sustainable supply requires efficient use resources, and causing less impact through the production process. In order to minimise waste, and create an effective system, efficiency measures should be under taken in a structured manner over entire value chain. Energy efficient technologies, for example, can be used to optimise, minimise, and reduce the base line.

2.      Key external drivers/pressures for business to address supply chain sustainability

  • Consumer concern’s regarding how products are produced, what products are purchased and what the implications of such purchases might be have increased in recent years. This is prevalent all the way through the value chain from inputs, through the manufacturing stage, and up until the point at which the consumer decides to purchase the product. Many companies are under significant pressure in terms of international standards of conformity and commitments.
  • King and GRI have both increased their emphasis on sustainable supply chains in recent years. In addition, numerous standards and pieces of legislation such as the sustainable procurement standard, the Waste Act, and the carbon tax have been rolled out. While these have their place in guiding companies towards sustainable practises, they can merely become tick box exercises. The reality is that companies need to go beyond ticking boxes in order to achieve truly sustainable supply chains.
  • International legislation is driving supply chain legislation and impacts on South African businesses. For example, the UK’s Modern Slavery Act has a supply chain clause that big business must make public its efforts to stop the use of slave labour by its suppliers; the California Transparency in Supply Chains Act ensures that consumers have access to information about retailers’ and manufacturers’ efforts to eradicate such bad labour practices from their supply chains.

3.      Challenges:

  • Continuity of supply is already a huge supply chain issue for businesses. Drought and huge population growth mean that companies are already competing for a limited number of commodities to supply their business – this results in increased costs. The addition of sustainability requirements can therefore be seen by suppliers as an increased burden on their already difficult task.
  • Supply chain traceability can be difficult. Many South African businesses source product from overseas, and this is often bought through broker.
  • The business financial incentive system is often based on short term goals, rather than long term strategic sustainable goals.

4.      Going forward, what recommendations would you make to business in terms of addressing supply chain sustainability?

  • Start by determining the company values, as these will drive the business culture and practises.
  • Knowledge and competence of the board on key sustainability issues is essential. Boards drive the supplier standards, programmes, audits, and specific initiatives required to develop sustainable supply chains.
  • Training of all employees, and leadership from top management is required to embed environmental and social principals. Start with procurement department so that they begin to factor social, environmental and ethical factors into supplier decisions.
  • Sustainability should be driven from the highest level and built into every part of the organisation. Sustainability targets and measures should be set, and sustainability professionals recruited. Once measures have been put in place, it is vital for management to show the board what has actually been achieved with the budget. Visible, measurable impacts will ensure further buy-in and initiatives.
  • Start by engaging the most material (highest expenditure, or greatest risk) suppliers and building sustainability criteria into new supplier contracts.
  • Supplier audits can alert business to issues, but it is vital to then support and assist suppliers to fix the problem. Technology can be used to assist with supplier monitoring and training through web-based toolkits.
  • Packaging waste is often one of businesses’ biggest impacts on the environment. The creation of a circular economy with new revenue streams from waste would combat this. For example, elsewhere in Africa beverage products are sold in returnable packaging. Other opportunities around the circular economy include using by-products from the manufacturing process to create new value-add products. For example, the spent grain by-product from beer is used for energy drinks, protean bars, and cattle feed.
  • Develop local farmers by helping them to combat drought and issues with poor infrastructure, and thereby ensuring that they can provide a sustainable product supply. Assistance with equity funding, coaching and mentorship, solar power, boreholes etc. can be provided.

 

[1] Ecovadis. 2015. Building a Business Case for Sustainable Procurement: A 5-Step Guide
[2] The Sustainability Consortium & McKinsey.  2015. Greening Global Supply Chains – From blind spots to hot spots for action.
2018-12-03T13:09:08+00:00 June 14th, 2018|Sustainability, Sustainability Forums|