Can responsible procurement mitigate supply chain risk?

Mark Plant
posted by Mark Plant
4 December 2014

Mark Plant, CEO, EcodeskResearch published last month found on average 49 per cent of firms had suppliers who could continue supplying in the event of a disaster in one location, but 51 per cent of suppliers could not do so “within a reasonable time frame”.

The report said that the most popular risk mitigation strategy was choosing strong suppliers. This makes perfect sense (why would anyone really want to choose a weak supplier?), but how do you know who those strong suppliers are and are they really strong when it comes to local compliance and meeting company social and environmental policies and ethics?

Perhaps the majority of businesses don’t really care as long as the price is right and the supplier is not going to go out of business tomorrow, but think about it for a minute. What if knowing suppliers’ environmental and social data could give a company a real insight into the true nature of that business? What if this data could highlight potential risks – excessive use of water in a potential drought area, excessive use of wood from unsustainable forest regions or high energy use driving up costs and so on? The potential for non-financial data to be used in risk mitigation is substantial.

Interestingly research from DNV GL and the research institute GFK Eurisko on more than 2,160 professionals from businesses in different sectors in Europe, the Americas and Asia found that when choosing a supplier or making buying decisions, 96 per cent of the companies consider sustainability aspects, with low environmental impact as the most important aspect (56 per cent).

It’s not as if sustainability is a nice-to-have element of the overall business strategy either. Research consistently shows that the ‘greenest’ companies outperform rivals in terms of stakeholder value. The recent CDP Climate Performance Leadership Index showed that leading businesses debunk the myth that carbon reduction policies are an economic burden.

While the United Nations Global Compact refers to supply chain sustainability as “traceability”, it’s important to consider that supply chain risk will only increase as environmental conditions grow more uncertain. Local resource scarcity and regulations to combat it will have a greater bearing on how suppliers operate in the future. Will suppliers cope with these changes or flout local laws? Only a responsible procurement policy can really start to tackle that question.

Mark Plant is CEO at Ecodesk

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