“Trust, but verify” is derived from a Russian proverb. Former U.S. President Ronald Reagan famously applied this term with regards to nuclear disarmament. As with any negotiation, achieving a sustainable supply chain is possible with the right balance of “trust and verify”. However, market forces and leverage alone, do not bring about trust. Shared values and collaboration do. Thus, commonly held values regarding sustainability can create much more profitable supplier relationships when those values are put on the table and made part of the relationship. A company can literally watch the investments they’ve made in sustainability permeate through their entire value chain, bringing about greater returns for all involved.
In order to remain relevant in the highly competitive consumer electronics industry, the overwhelming trend has been toward outsourcing and offshoring non-core competencies, especially manufacturing and service, while focusing internal resources on core competencies such as design and sales. This trend has resulted in exposure to increased risks associated with long and complex supply chains that often extend into third world countries; where disruptions from natural disasters, social and political upheaval, terror threats and lack of enforcement of workers’ rights are commonplace.
Unfortunately, many companies are struggling to establish sustainable supply chains because of their unproductive attempts at a unidirectional approach of enforcement through leverage. These companies’ attempts to ensure supply chain sustainability solely through monitoring policies and compliance, have failed time and time again. This approach engenders the same trust issue as other forms of pressure. Only authentic collaboration – working toward mutual goals – ensures the development of a genuine, trust-based customer/supplier relationship that can foster a sustainable supply chain.
Partnering with suppliers to enact sustainable supply chains offers businesses distinct, downstream, competitive advantages that emerge from within their own operations. After all, the value chain starts with supplier inputs. There are five main benefits to such collaborative relationships:
- Protecting Against Reputational Damage: Stakeholder pressure from investors, shareholders, customers and nonprofits to extend accountability for a business’ sustainability into its supply chains has significantly increased in recent years, e.g., a record number of shareholder resolutions related to supply chain sustainability issued during recent proxy seasons. Additionally, the increasing pervasiveness of social media, resulting in increased and nearly instantaneous public access to information, has prompted most companies to ensure that they are viewed as committed to sustainable and responsible business practices with regards to ethics, labor, health and safety, diversity, and the environment. As a result, CSR concerns have become mandatory criteria for selecting suppliers. Brand owners have even found it necessary to take control of and run supplier management efforts. The publicity backlash resulting from perceived negative sustainability practices can be highly material; this is not a new phenomenon. Helping suppliers, who often furnish goods to other large customers as well, see the competitive/market place advantages that can result in their own growth and expansion can come from maintaining ethical workplace and environmentally responsible production practices.
- Reducing Environmental Impact and Costs: As companies engage suppliers, apply science and conduct environmental and labor studies across a product’s lifecycle use they are not only able to reduce environmental impact but can also reduce costs and improve quality. Reverse logistics and sustainability requirements have brought about more rigors in the ways suppliers are evaluated. In the electronics industry, whose direct footprint is relatively small compared to the footprint of its supply chains, it is imperative that OEMs engage their suppliers to lower the environmental and social impacts of the products that they sell. Apple, for example, launched its Clean Energy Program aimed at reducing its supply chain emissions as it accounted for nearly three-quarters of the company’s total carbon footprint. Most notably they partnered with Foxconn to source enough solar energy to power their iPhone finished product manufacturing at its Zhengzhou factory by 2018.
- Improving Continuity of Supply: In today’s complex web of sourcing, given the speed of product copycats and the rapidly changing business environment, it’s necessary for companies to ensure ongoing, on-time delivery of supplies to remain as competitive as possible. A 2011 earthquake in eastern Japan caused major disruption to the electronics industry after factories suspended operations for weeks; Sony saw similar minor disruptions affecting their camera production in 2016. Working with suppliers to develop robust and resilient supply chains that can withstand unforeseen environmental, social and political challenges is smart business for both customers and suppliers.
- Innovating Products and Services: Innovation is at the top of executive agendas across the world, yet very few companies effectively involve their suppliers in this endeavor. Rapid technology change in the consumer electronics industry has brought about increased regulation of e-wastes, and retailer demands for packaging footprint reductions, reduced hazardous material usage, and safe product disposal as aspects of sales agreements. In addition, collaboration with retailers or other customers to sense and shape consumer demand can enable decreased innovation times and reduce obsolete product inventory. Suppliers often represent a gigantic pool of untapped innovation potential that can help tackle the challenges associated with the fast-moving electronics industry. The array of company innovation needed is vast. By engaging suppliers in addressing the many challenges a company faces, companies and suppliers are often collectively able to solve some of these innovation challenges. If suppliers understand a company’s vision and long-term plans, they may be able to suggest changes and upgrades to the products or even their own processes and resulting material inputs, which have the potential to improve many areas of a company’s operations. In short, suppliers can be powerful allies to companies striving to accomplish innovation goals.
- Creating Partnerships or Global-Industry Standards: Companies that advance their knowledge of the footprint of their products by partnering with NGOs, and/or working to create global industry standards, empower them to stay ahead of any legislation or negative consumer sentiment that could impede their operations, and can make them more competitive in the marketplace. The Electronic Industry Citizenship Coalition (EICC) Code of Conduct was initially developed by several companies engaged in the manufacture of electronics products in 2004. Currently most major electronics companies apply this standard to their supply chains. The code establishes standards aimed at ensuring that electronics industry supply chain operations are environmentally responsible and conducted ethically.
Robust supplier/customer relationships and more sustainable practices cascade their benefits throughout the value chain. These benefits ultimately permeate through to the end consumer and to future consumers. The genesis of these many positive benefits is the efforts by customer businesses to reach out and create a relationship of trust with suppliers.
Suhas Apte, co-author of THE SUSTAINABILITY EDGE: How To Drive Top-Line Growth With Triple-Bottom-Line Thinking, is President of Apte Consultants and a partner in the Blue Earth Network, helping businesses discover breakthrough opportunities. Apte, who served as Global Sustainability Officer and President of European Family Care business at Kimberly-Clark, has extensive CPG industry experience and sustainability credentials based on a broad career working in Asia-Pacific, developing markets, Europe, and the United States. He has a degree in mechanical engineering as well as an MBA from the University of Pennsylvania’s Wharton School of Business.
Jagdish N. Sheth, co-author of THE SUSTAINABILITY EDGE: How To Drive Top-Line Growth With Triple-Bottom-Line Thinking is the Charles H. Kellstadt Professor of Marketing in the Goizueta Business School at Emory University. He has served on the faculties of Columbia University, MIT, University of Illinois, and University of Southern California. An expert on consumer demographics, the impact of technology on society, and the globalization of competition, he has been advisor to numerous corporations all over the world. He has published over 300 research papers and more than 30 books, and has a Ph.D. in Behavioral Sciences and an MBA from the University of Pittsburgh as well as a Bachelor of Commerce degree from the University of Madras.
For more information, and the authors’ easy to use, on-line Stakeholder Sustainability Audit tool, please visit www.thesustainabilityedge.com.