Businesses can win at ESG by empowering suppliers

By Costas Xyloyiannis
Too often the quest to meet ESG standards ignores suppliers but, with the greater opportunities that data offers, we see the process becoming sustainable

In the early 2000s I was a recent software engineering graduate. Along with a friend and fellow graduate, I landed some project work with a major pharmaceutical company. The CEO, who had just signed up to the UN Global Compact, needed to know how sustainable their supply chain was. He tasked the Chief Procurement Officer (CPO) to audit their suppliers – some 150,000 of them.

Back then already, supplier data was a struggle. The CPO needed to know who all these suppliers were and whether they complied with a list of principles the company had committed to. It was our job to develop the platform from which this could be determined. Long story short, the CPO was able to gain the visibility which he required. This meant that he could demonstrate compliance at board level, making the project a success.

It was exciting for us to witness the role that data played in making supply chains more visible. In the 20 years that have followed, we’ve had the opportunity to explore this topic with some of the world’s biggest brands. If there’s one thing I’ve learnt from this experience, it’s that good supplier data is a function of good supplier engagement. And importantly, the reverse is also true.

Experience in, equals data out

Today, environmental and social governance (ESG) questions have become mainstays on the corporate agenda. As we learnt when starting out, success in these areas requires visibility into supplier data. Traditionally, CPOs have faced the challenge of collecting and maintaining supplier data. In the current climate, there’s an opportunity for the broader business to support this area. What it takes is for leaders to fundamentally rethink the experience they offer to suppliers.

Receiving supplier data for ESG is straightforward, in theory. Suppliers own it. Manufacturers need it. The resolution would be simple, but for the technology which governs how the parties work together.

During the Covid-19 pandemic, digital transformation in procurement accelerated. Adoption of best-of-breed technologies was triggered and now, the average supplier must login to at least 8 solutions to serve a single customer. Apart from the burden on suppliers, each login also represents a data entry point. This data gets spread across systems and quickly becomes duplicated, outdated and inaccurate. Suppliers find it difficult to view and manage. Yet this is the data which big brands, with thousands of suppliers, use to inform their ESG decisions.

Expecting suppliers to login to too many solutions, is one of many ways in which businesses complicate the relationship. And it’s one of many ways in which they hinder the upkeep of good supplier data. Ultimately, supply chain visibility suffers; and so does ESG.  

Forward looking businesses are evolving their technology strategies to remove operational friction. This encourages a more satisfied supplier base that can do better work and provide better data; an environment in which ESG can thrive. 

Known as Supplier Experience Management, the principle is becoming increasingly popular amongst procurement leaders. It champions the idea of treating all suppliers like partners with their own business objectives, rather than as resources from which to just extract value.

The broader business must buy in

Successful Supplier Experience Management requires a procure-tech strategy which simplifies the supplier relationship. When finetuning this approach, CPOs must don their “supplier-first” and “data-first” hats. Can an environment be constructed in which suppliers can access many solutions with very few clicks? Concurrently, can they have fewer data entry points? By fixing the flow, procurement can help suppliers to help the function.

And executives can help procurement to help the enterprise. Leaders who foster a culture in which supplier experience is valued, are crucial to making supply chains more visible. ESG stakes can be high, and CPOs can do with the right level of support.

When delivering a procure-tech strategy, CPOs need budget to purchase technology and upskill people. The challenge lies in analysing ROI. Finance can help by understanding the value which a supplier-based digital transformation could offer, intangible as it may be. Integrating third-party technology can also be a challenge. IT leaders can help to transfer knowledge from successful integrations elsewhere in the business, such as from customer-facing teams.

Being in a position to operate sustainably requires the entire business to partner with the entire supplier network. Leading manufacturers recognise that their businesses need suppliers – all suppliers. A supplier-centric approach seeks to address the entire base of suppliers, not just a strategic few. This is the most reliable route to a transparent supply chain and better ESG results.

Supplier experience benefits everyone

The good news is that offering suppliers a better experience has a knock-on effect. Every department in the enterprise that uses supplier data is strengthened. In addition to sustainability outcomes, this also enables a resilient business model.

The uncertain landscape rising from events such as Covid-19, natural disasters and war in Ukraine is forcing businesses to rethink how they build supply chains – from focusing exclusively on being efficient and lean, to building resilience.  

Gratifyingly, quality supplier data has benefits beyond ESG. It also powers cyber security, fraud prevention, reputation management, and other key items on the corporate agenda. Better supplier relationships can advance the broader business too. As in employee engagement, treating suppliers well can increase their productivity and loyalty. A recent HICX survey found that suppliers are 20% more likely to prioritise orders and go the extra mile for a “customer of choice”; a status worth having.

At the end of the day, suppliers who are treated better can provide better data. And companies who empower their suppliers to provide better data, can generate better ESG results. When leaders improve how their businesses work with suppliers, they unlock collaboration. Then the relationship can flourish to its full potential. It’s from this vantage point that businesses can help protect the planet.

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