As sustainability expectations for tech hardware supply chains surge, technology firms are increasingly challenged to synchronize supplier performance with their expanding ESG commitments. Fostering and refining relationships with suppliers emerge as pivotal strategies to enhance supply chain ESG performance. In doing so, companies fortify supply chain resilience and bolster efficiency, productivity, and cost-effectiveness while mitigating labor disruptions. Moreover, these efforts have paved the way for cultivating business value through heightened market share and premium pricing.
Citing equity research conducted by Goldman Sachs, it is evident that organizations adopting such approaches have reaped substantial benefits, enjoying a 16% valuation premium over competitors and a 3% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to counterparts lacking such practices (14% vs. 11%).
To progress towards sustainability excellence within supply chains, companies can embark on a five-stage journey outlined below. Commencing with the crucial step of mapping and familiarizing themselves with suppliers, organizations can steadily advance towards aligning ESG objectives and procedures throughout the entire value chain.
Achieving a Sustainable Supply Chain
1. Understand Your Suppliers:
The initial step in this journey is to gain a comprehensive understanding of your suppliers. In the rapidly evolving technology industry, grasping the intricacies of the supply chain is vital for managing sustainability and business performance. Relationships between original equipment manufacturers (OEMs) and contract manufacturers, along with final assemblers, often involve deep collaborative design and scheduling. However, the real challenge lies in managing the extended supply chain, beyond direct suppliers.
The technology industry faces heightened risks in these extended tiers. Unlike the direct relationships with primary suppliers, visibility and control over secondary and tertiary suppliers diminish significantly. This lack of transparency and oversight exposes tech companies to various risks, including environmental, social, and regulatory non-compliance, which can significantly impact their operations and reputation.
Organizations like IBM have expanded their focus beyond the immediate circle of direct suppliers to mitigate these risks. This involves comprehensively mapping the entire supply chain, identifying key players at each tier, and understanding their sustainability challenges. By adopting this approach, IBM reports a 95% increase in efficiency in handling global supply chain challenges.
2. Evaluate Your Suppliers:
The influence of tech giants can be profound in the value chain. By establishing stringent sustainability criteria and expecting suppliers to adhere to these standards, they can initiate a ripple effect throughout the entire supply chain. Evaluating suppliers, especially those beyond the first tier, is crucial. It enables technology companies to gain insights into their suppliers' business practices, transparency, and vulnerabilities.
To actualize this, tech companies must encourage their suppliers to conduct thorough assessments based on Environmental, Social, and Governance (ESG) criteria. These assessments should prioritize material issues within the tech company’s value chain and develop comprehensive emissions inventories. The goal is to ensure that every tier of the supply chain is aware of the company’s ESG goals and actively works towards achieving them.
Hewlett Packard has prioritized embedding high levels of sustainability in its product design and operations. The company aims to improve the energy performance of its product portfolio by 30 times compared to 2015 levels by 2025. HP has set a goal to reduce its manufacturing-related supply chain emissions by 15% by 2025, focusing on engaging suppliers to set science-based targets for their operations.
3. Enhance Supplier Performance:
In sustainable supply chains, the technology industry stands out for its unique approach to collaboration, driven by rapid innovation and digital transformation. Integrated digital tools and platforms are revolutionizing supply chain collaboration in the tech sector, enabling enhanced communication, efficient data sharing, and real-time monitoring of supply chain activities.
Tech companies that foster a collaborative relationship with their suppliers can provide constructive feedback that improves supplier performance. This, in turn, enhances transparency, circularity, and market positioning. To achieve this level of collaboration, technology companies should regularly conduct third-party audits of key suppliers at all levels of the supply chain to minimize risk, increase transparency, and ensure compliance.
While the audit evaluates against ESG criteria, it also creates an opportunity for capability building, enabling suppliers to improve ESG performance over time. Many tech companies are investing in training and skills building within their supply chains to accelerate the transition to better ESG performance.
Verizon has been proactive in promoting sustainability among its suppliers. The company's management of supplier relationships includes regular monitoring and improvement initiatives to ensure compliance with ethical, environmental, and social standards. Such initiatives often involve detailed assessments, audits, and continuous engagement with suppliers to foster a culture of sustainability and responsibility.
4. Align Goals and Perform:
In the technology industry, comprehensive supply chain management is increasingly recognized as crucial for aligning suppliers with corporate ESG targets. However, the responsibility of suppliers and OEMs goes beyond mere compliance - it involves deeper collaboration on material issues and ESG criteria, fostering a culture of shared responsibility and sustainable growth.
Implementing a comprehensive risk assessment framework is essential for making informed sourcing decisions. This framework should encompass various factors, including environmental impact, labor practices, and regulatory compliance. Legislative mandates, such as California's SB 253 and SB 261, underline the importance of risk frameworks by requiring companies to disclose their GHG emissions and climate-related financial risks.
Preparing for regulations such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), Dell Technologies has developed a strategy encompassing impact areas such as climate action, circular economy, inclusive workforce, trust, and digital inclusion. Dell has set nine key goals for 2030, demonstrating a commitment to ESG through their operational model and governance process. The company is conducting a double-materiality assessment to include environmental and social impact assessments, reflecting the expansion of internal functions involved in the process. This approach is essential for meeting the demands of regulations like the CSRD, which require detailed disclosure on sustainability issues, risks, and opportunities, including quantitative metrics and objectives.
5. Transform Your Business:
To truly excel and meet the evolving challenges and opportunities of today's market, tech companies must demonstrate a long-term commitment to monitoring and collaborating across all tiers of their supply chains. This involves engaging with suppliers and driving progress towards ambitious sustainability goals, including reducing scope 3 emissions and water usage, increasing circularity, and adhering to stringent disclosure and reporting standards.
Supplier relationships need to be governed by a robust model for supplier management. By utilizing mapping, engagement, monitoring, and planning tools, companies can create an agile supply chain better equipped to deal with geopolitical uncertainty and changing supply and demand dynamics, while also managing ESG risks and opportunities.
CommonShare empowers you to collaborate directly with your suppliers to gain a detailed understanding of product composition at the material and batch-lot level. Its platform offers a comprehensive solution for suppliers to streamline their supply chain mapping processes and unlock new opportunities for growth and sustainability. With its user-friendly interface, robust features, and commitment to innovation, CommonShare is transforming the way suppliers manage their supply chains in today's dynamic business environment.