- Corporate Sustainability
- Supply Chain
Best Practices in Sustainable Supplier Engagement: Part 2
This blog was coauthored by Jeroen Scheepmaker and Caspar Noach.
More and more companies are setting ambitious sustainability targets for their supply chain. It strengthens the security of supply and it prepares a company for the upcoming low carbon economy—and both topics have high investor interest. Setting the ambition is a start but realizing the target is the challenge.
In part 1 of our blog series, Guidehouse, a Guidehouse company, discussed how to get commitment throughout the organization and how to select suppliers to engage with. In this second part, we will address the way in which companies can best collaborate with suppliers to reduce their impacts in their supply chain.
Supplier Engagement Starts with Open Communication
Open communication is essential for collaboration. You can share your company’s long-term vision with suppliers and ask them how they want to be engaged. Try to understand their position and stakes. Your supplier will feel heard and is more open to think along with you in developing an effective collaboration. It does not mean that you will concede all preferences of your suppliers, but it will help create ownership among suppliers and develop an effective supplier engagement program.
Make sustainable supplier engagement more marketable. Working on sustainability can be positioned as better marketing toward clients. Moreover, you can stress the business continuity benefits from security of supply. Supplier recognition and awards can also establish engagement.
Long-Term Relationships and Cocreation Are Effective Ways to Engage with Suppliers
Suppliers can be targeted in different ways to make your company’s supply chain more sustainable. The well-established Kraljic Matrix maps purchased products and materials against their financial importance to the organization and complexity in obtaining them from suppliers (see the figure below).
A sustainable supplier engagement program will be the best strategy to enhance the sustainability of strategic suppliers (“Strategic Items” in the figure) because there are limited or no alternative suppliers, and it is beneficial to build a long-term relationship with these suppliers. We also observe a trend of developing long-term relationships even with suppliers from commodities (“Leverage Items”), where the price is usually the main differentiating element. In line with this trend, companies select suppliers based on shared values and beliefs as this is a solid basis for developing joint projects.
The Kraljic Matrix
Incentivize Suppliers to Fit Them and Company Interests
Suppliers can be incentivized by using the carrot or the stick. How you choose to motivate your suppliers should fit with your company size, culture, and position in the value chain. The most popular ways to collaborate are being supportive/informative, inducing competition among suppliers, and enforcing (see the table below). Additional information on incentivizing suppliers can be found in the report, Best Practices in Scope 3 Greenhouse Gas Management.
Three Main Forms Used by Companies to Collaborate with Suppliers