The Truth Will Out: Supply Chain Management

The following post is part of a CSRHub series focusing on 10 trends that are driving corporate transparency and disclosure in the coming year. To follow the discussion of each trend, watch for posts on the CSRHub blog every Wednesday.

By Bahar Gidwani

A company’s supply chain generally controls 60 percent to 70 percent of its costs. Companies that manage their supply chains will perform better because they have lower costs, more flexible product cycles, and/or higher quality products. When a company includes sustainability into its corporate strategy, it may need to also build sustainability into its supply chain strategy.

One of the first groups of companies to realize this fact was retailers. Tesco, WalMart and 91 other major companies and non-governmental organizations (NGOs) formed The Sustainability Consortium (TSC) to help prod their 100,000-plus suppliers to improve their performance on dimensions such as carbon use, water use, recycling, child labor and diversity. (Click here to see a list of the companies in TSC that CSRHub rates.) Sedex, in the UK, has done similar work with a set of 482 companies and more than 25,000 of their suppliers. Industry associations such as the Sustainable Apparel Coalition and the Electronic Industry Citizenship Coalition are also publishing and promoting standards of conduct within their area. NGOs such as Trucost and the Carbon Disclosure Project led pioneering studies that proved that sustainable supply chain management could lead to massive reductions in waste and improved product quality.

Most companies have built extensive supply chain software systems that they share with their suppliers. However, these tools often don’t cover the “soft” data that companies need to manage sustainability issues. A number of software and service companies have responded to this need. They include RampRate, SAP, Enablon, CSRware, Source44, Scope5, Summit Energy, InFactory Solutions, Samba Energy, EcoVadis and Earthster. From our discussions with these companies (several are CSRHub partners), we know that several have more than 40,000 users already, for their products.

When we add up the number above, we conclude that at least 100,000 small and medium-sized enterprises (SMEs) are in at least one sustainability-related supply chain management program. In order to properly manage and report their own progress, many of these companies will need to ask their suppliers to also join these programs. Until some kind of overarching standard is created, there is a risk that supplier companies will be bombarded with inconsistent demands for sustainability data from all sides.

The Global Reporting Initiative (GRI) has launched a Global Action Network for Transparency in the Supply Chain (GANTSCh) Program. It helps large firms with complex supply chains collaborate with each other, and build capacity among the suppliers to measure and report their sustainability performance. The UN Global Compact (UNGC) is trying to organize and harmonize the programs via its Sustainable Supply Chain website. And, private groups such as Underwriters Laboratories Environment are developing rigorous standards that can be disclosed and relied on at both the product and company level.

Still, it will take years before the millions of companies who are touched by supply chain issues have adopted these standards, implemented good software systems and brought their own suppliers into these systems. Those of us who use publicly disclosed data to help measure sustainability performance will be advocating for more disclosure and transparency on the great information these system will contain. Both suppliers and customers may be uncomfortable with releasing this data, for legal and competitive reasons. We can hope that as more customers demand compliance, supplying companies may decide it makes sense to use standard internal reporting systems such as GRI, ISO 14000  or ISO 26000. They may also commit to the UNGC (about half of those who have committed to UNGC are already SMEs). These disclosures will both give us the data we need to rate and help us gage the benefits that the supply chain trend produces.

Bahar Gidwani is a Cofounder and CEO of CSRHub. Formerly, he was the CEO of New York-based Index Stock Imagery, Inc, from 1991 through its sale in 2006. He has built and run large technology-based businesses and has experience building a multi-million visitor Web site. Bahar holds a CFA, was a partner at Kidder, Peabody & Co., and worked at McKinsey & Co. Bahar has consulted to both large companies such as Citibank, GE, and Acxiom and a number of smaller software and Web-based companies. He has an MBA (Baker Scholar) from Harvard Business School and a BS in Astronomy and Physics (magna cum laude) from Amherst College. Bahar races sailboats, plays competitive bridge, and is based in New York City.