In brief:
The essence of successful supply chain management is ensuring that standards are shared throughout the ecosystem. Ideally, consistent standards can be achieved across the different tiers of suppliers, with clear communication of expectations on one hand, and capability to comply on the other. But interviewees believe most companies have yet to attain best practice, especially with deeper-tier suppliers.
Figure 16: Collaboration and connectedness tested
Less than half of respondents regard themselves as coming close to excellence in terms of having formal processes for enforcing contract standards, or communication and resolution of potential issues.
Interviewees further note that enforcing standards is difficult when it comes to indirect or deep-tier suppliers. While companies’ contracts with tier one suppliers may stipulate ESG standards, these seldom cascade further into the supply chain, where companies are likely smaller, with less capacity or incentive to adhere to sustainability requirements. While interviewees say they expect tier one suppliers would cascade sustainability requirements to their own suppliers, monitoring compliance can be difficult.
“We need to be able to convert this expectation into obligation as part of the partnership,” says Unilever’s Director for Sustainable Sourcing, Martin Huxtable. “You have a certain contractual relationship with your direct suppliers, and you need to make sure that contractual relationship as well as the nature and depth of the partnership has the wherewithal to drive the changes you need.”
Ironically, setting standards and shared objectives with external suppliers seems to be easier for companies than achieving internal alignment.
Things become even more difficult when it comes to collaborative strategic planning. At least three out of five companies report that they could be doing more to involve suppliers in strategic conversations on key industry issues and in product innovation. This shortfall suggests that they still do not recognise the importance of this form of collaboration.
Figure 17: Collaborative strategic planning
Both survey respondents and interviewees highlight the importance of industry collaboration – participating in industry bodies and associations – where companies cooperate with peers to set shared standards and lobby for legislation that would make doing the right thing easier.
Top tip:
Consider establishing and agreeing ESG standards with your suppliers. Standard Chartered can work with companies to identify the baseline standards that suppliers must meet. Sustainability standards should evolve and be updated periodically to ensure continuous improvement and proliferation throughout the system.
