The Impact of Supplier Experience Management on ESG Initiatives
Starting its life as a corporate social responsibility initiative introduced by the UN, the Environmental, Social and Governance (ESG) movement has had a significant impact on investment trends over the past twenty years, with sustainable investments totalling more than $35 trillion according to the Global Sustainable Investment Alliance.1
As part of a framework for delivering against the UN’s 17 Sustainable Development Goals, ESG initiatives have shifted to the top of the agenda for almost all organizations, as issues in areas such as climate change, sustainability and inclusion increasingly take center stage both politically and in the minds of consumers.
For example, according to a recent Deloitte study, 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns. Meanwhile, in Germany, the new Supply Chain Act means that companies with 3,000 employees or more will be truly accountable for the exploitation of workers in their supply chains. The list of new initiatives and associated compliance requirements will undoubtedly continue to grow rapidly.
This article will explore the connection between, and benefits of Supplier Experience Management on ESG and how they affect and complement each other, including:
- The intersection of ESG and Supplier Experience Management
- Creating better partnerships through transparency and communication
- Data-backed decision making
The intersection of ESG and Supplier Experience Management
All the new initiatives create a data challenge. How can an organization ensure that tens of thousands of suppliers are adhering to and remaining compliant with the increasing number of initiatives? Many companies are still using outdated tools to manage their suppliers, which creates issues with visibility, control and efficiency. This is where ESG and Supplier Experience Management intersect. Ultimately, the company is reliant on the supplier to provide the information that is required and to keep it up-to-date. In order to ensure that this takes place, it is vital to ensure that the experience for suppliers is as frictionless as possible.
Costas Xyloyiannis, CEO of HICX, explains, “Who do you depend on for a lot of the different corporate initiatives that are being put into place? Everyone is now constantly surveying their suppliers, or asking them to report on diversity spend, or carbon footprint, or to provide information on the suppliers’ suppliers – all these types of things. So, if you do not sort out the feedback mechanisms for them, it creates inefficiencies all round. So, the experience and the data go hand in hand. It is all about finding a way to have the processes in place in which your data gets better and better. Better experience means better data, and better data means better experience.”
Establishing an environment in which it is easy for each supplier to complete the unique, required tasks at the time necessary, amid a backdrop of increasing information requests, is crucial for maintaining supplier engagement. Receiving the information is vitally important for measuring the progress or success of corporate initiatives.
Mary Beth Lang, Chief Supply Chain and Procurement Officer at Kaiser Permanente, in a webinar on Understanding the ROI of World Class Supplier Experience Management, underlines the importance of collaboration with suppliers in order to achieve their goals.
“It is a partnership. Sustainability really is top of mind. We’ve looked at our scope one emissions, so that we can be carbon neutral, and we were able to achieve that last year – but now we’re starting to tackle scope three emissions, which is a very different discussion, and we will rely on our supplier partners more and more to achieve the bold goals that we’re trying to adopt,” she explains.
Meanwhile, as CPOs shift their focus to ESG initiatives, they have also started to pay far more attention to other areas which they can influence, such as impact spending and the use of local or diverse suppliers. Organizations are advised to have at least one dedicated person where possible within the function who is committed to matters relating to impact spending, such as helping suppliers ensure that their employees are earning a living wage.
Creating better partnerships through transparency and communication
At the core of Supplier Experience Management is keeping the supplier’s perspective in mind at all times.
For instance, suppliers from one global region might have a different idea of what sustainability might mean to one organization versus another, as all regions and jurisdictions have differences at a local level which can impact interpretation. It is important to be clear on overall aims and objectives, to be able to communicate why they are important and to help suppliers to achieve them, which requires efficient communication and transparency.
The same can be applied to innovation. Innovation will have different meanings to different companies, suppliers and categories. It could mean deploying a new technology, implementing more efficient procedures or simply finding ways of making cost savings. However, innovation is not free. An overabundance of focus on cost-savings can frequently mean that innovation is stifled as a trade-off, and more valuable opportunities are therefore lost.
Costas reiterates, “Innovation is about having two-way dialogue with suppliers and open communication.”
Data-backed decision making
When it comes to addressing the most urgent environmental issues, business leaders need access to good data. When supplier information is accurate, complete, current and devoid of duplications, it can act as a single source of truth – making it easier to record and aggregate any interactions that have taken place with suppliers. This involves managing the content and information that they have provided in relation to ESG subjects. When this happens, the buying organization can see the full scope of activities associated with every single supplier, which translates into a rich stream of information that can be queried or analyzed.
Executives can use the insights yielded from this process to make informed decisions around which areas they should tackle first, for example, palm oil or sustainable forestry. Organizations can then start investing in the right partners and solutions – such as supporting communities or boosting innovation efforts – to together make a truly positive impact on the supply chain.
Mary Beth Lang concludes, “What we found within our supplier base is that many of them do business with each other. And so, as we have built our diverse supplier community, they have become a community among themselves.”
This article is based on Chapter 5, How does SXM help with other corporate initiatives, such as ESG?, of our Preparing for Supplier Experience Management whitepaper.