In brief:
The world is changing. Supply chains are becoming a more material source of short to medium-term risk, with the power to damage not just production, but also brand reputation and sales. Ultimately, they might even affect a company’s long-term viability.
From the impact of COVID-19 on business and consumer needs and practices, to tariff wars between the US and China, the uncertainty of Brexit, and the rise of ESG issues, supply chain risk has become harder to manage. For instance, COVID-19 is creating new societal practices that have implications on consumer demand. Lockdowns, for example created new ways of working that drove a surge in demand for consumer electronics resulting in a global shortage of semiconductor chips. For the car industry, this has had significant financial implications, with Ford warning that a semiconductor chip shortage could knock USD2.5 billion from its 2021 earnings.1
Our research shows companies are in a state of heightened awareness about supply chain risks. They’re seeking to take a more holistic approach. On average, nine in 10 of our survey respondents confirm the importance of each of five new indicators analysed, with only environmental soundness and transparency for indirect suppliers lagging slightly at eight out of 10 respondents (see Figure 2). Over 50% rate most elements as highly important. This is consistent, regardless of a company’s size or the region where it’s based.
If you are not sustainable then you're out. You have to know how to rapidly adapt to what’s happening around you. You need to know how to automate. So, adapt sustainably, or else you’re out.
1 Ford says chip shortage could knock $2.5bn from earnings. Financial Times. 4 February 2021.
Figure 2: Heightened awareness of new indicators
Figure 3: A consistent view across regions
Relative to other regions, however, African companies accord the most importance to environmental soundness and transparency for both direct and indirect suppliers (see Figure 3). The treasurer of a global fast-moving consumer goods company (FMCG) in Nigeria contextualises the issue: “There is always reputational risk when an organisation does business in an unethical manner. Equally, if you have suppliers that do business in an unethical manner and you do business with them, you can’t be absolved of the activities of the supplier. So as a responsible organisation, we need to think about the reputational risk that we would have when looking at how we do business with our suppliers.”
Figure 4: Views vary significantly depending on the sector
Broadly speaking, all industry sectors surveyed also confirm the importance of all indicators. Notably, however the strength of opinion differs by sector. Telecoms companies accord the new indicators greatest importance, while oil and gas, and automotive give them the least.
Unilever: Beyond sustainable sourcing
For the most progressive companies, sustainability runs through the whole organisation, not just the procurement function. This is the case for global consumer goods giant Unilever. With over 2.5 billion consumers using Unilever’s products in over 190 countries, it takes sustainability seriously.
At Unilever, sustainability is not just a function, it’s enshrined in the purpose of our company; our purpose is to make sustainable living commonplace.
Thus sustainability is not a separate function, rather, it’s part of every function and employee’s day-to-day existence. For instance, the procurement function leads a wide range of sustainability initiatives to bring the company's purpose to life.
Sustainable sourcing is embedded in our procurement organisation. At Unilever, we don’t talk about sustainable supply chains, we talk about sustainable business.
This research shows that companies around the world are fundamentally taking a broader approach to building resilient supply chains. We have a dedicated Environmental and Social Risk Management team, and have developed partnerships with key players in the ecosystem for sustainable trade, like government and industry bodies, regulators, ESG ratings companies, FinTech companies and sustainable suppliers to help our clients on their sustainability journey.
