In our 2010 supply chain survey of 400+ U.S. manufacturers, IDC Manufacturing Insights asked "How important is driving environmental or social sustainability initiatives in the supply chain?" The good news is that 58% think it's important. Because this wasn't a sustainability survey, we don't ask them out right why sustainability in the supply chain is important. But we can see correlations to other issues that have high importance - like risk avoidance and risk management. &nb
We usually find that larger companies are more "sustainability mature"; in other words, sustainability at companies with more than 10,000 employees is usually many steps beyond regulatory compliance. Our data shows that companies that rated sustainability as important are more aligned with our results of large companies (versus all manufacturers) with a few exceptions. Where that alignment really comes through is in two supply chain initiatives, one of them being "Including risk and risk mitigation in service-level agreements with key suppliers".
Recently, Simon Ellis wrote about supply chain risk in Reassessing Supply Network Risk (Manufacturing Insights #MI222770, April 2010), where he reviewed his 2009 and 2010 predictions related to risk. As manufacturers manage increasingly complex, global supply chains with higher levels of outsourcing, it will be important to reassess the inherent risk from the supply network and decide what steps to take to address that risk. Ellis asks us "What will addressing the risk look like?" A recent IBM announcement answers that question, at least in terms of combining sustainability and risk management.
Just last week, IBM announced the beginning of a sustainability push now asking every supplier around the world to do the following:
- Define an environmental management system (EMS) that fits their business operations.
- Establish voluntary environmental goals and measure performance for, at minimum, energy conservation, greenhouse gas emissions, and waste management/recycling.
- Publicly disclose their results on an annual basis, beginning within one year from IBM's request.
- Cascade these requirements to any of their suppliers who perform work for them that is material to what is ultimately supplied to IBM.
To put this in perspective, IBM spent $40 billion in its supply chain in 2009, among almost 30,000 suppliers in 90 countries. Sustainability in the supply chain isn’t new for IBM. In 1998, IBM wrote to its suppliers to encourage them to adopt the new ISO 14001 EMS standard. In 2004, IBM published its Supplier Conduct Principles that suppliers were required to follow in order to do business with IBM. I spoke to Wayne Balta, IBM's VP, Corporate Environmental Affairs & Product Safety, for some more details on how this impacts its suppliers, large and small.
One of the comments Balta made really stuck with me - that IBM wants the supplier to have a system that works for them, after the spotlight fades. This more hands-off approach allows the suppliers to let them find the metrics that work best for their business, as well as allowing some flexibility to conform to industry or country practices. IBM isn’t completely hands-off; the requirement is now on the table, and IBM will provide assistance to the suppliers that need it, in the form of tools and mentoring such as a webinar on IBM's approach to EMS. Without one mention of the word risk, IBM follows through on a prediction we made a few years ago that related sustainability to risk - Your suppliers' problems will become your own, especially when they are related to sustainability.
Let us know how you're approaching the challenges of supplier management, especially related to risk and sustainability.