It’s clear that the need to meet Environmental, Social and Governance (ESG) goals is not going away and it’s a matter of “when” and not “if” many companies, industries or contracts will begin to demand disclosure of important, strategic ESG factors.
It’s also clear that no one enjoys an audit – and it feels like you can never be too prepared to have your supply chain practices analysed and scrutinised in great detail.
With net zero, decarbonisation, and emissions suddenly being included in audit requests, what can you do to get ahead to not only ace the audit and reduce audit anxiety but to begin to make step-change improvements in your ESG goals?
These are our four crucial steps to success…
The first step in any ESG program is to undertake a discovery phase and a situation analysis to understand your current supply chain universe and to cleanse, normalise and categorise your data correctly for comparison.
This initial phase helps provide a huge amount of perspective on your current supplier base and what you know about them, and perhaps more importantly what you don’t know about them.
It all starts with the context of the challenge – so if that’s reducing emissions or using more local suppliers to reach “social” objectives, you must ensure that you have the data and the ability to analyse that data to give you the insight you need for the next step.
Work out what you need to know – then assess what data we need to be able to know this.
The next phase of the project is to enrich the supplier data you have with the metrics you need to start to make insightful, data-led decisions.
If the “discover” phase is finding out what you do know, don’t know and need to know – the enrichment step is the part where you develop a process to fill in the gaps.
This is where platforms like SopurceDogg come into play. We make it easy to create fields for criteria you’re looking to collect and analyse. It sends out communications to suppliers to onboard them or fill in this detail in their self-serve portal and store all the data in a single source of truth database in the cloud. It’s simple to use and easy to share too.
Not all suppliers are created equal.
What we mean by this is that the impact on any ESG metric is proportionate to a great number of factors. Two key strategic factors are spending levels and emission levels.
For example, if a large amount of your spending is with a small handful of suppliers, their influence on your ESG metrics will be vastly disproportionate to the 50 or so smaller-spend suppliers you may have. This identification process helps you and your team prioritise actions and allocate the correct amount of workload to specific parts of the supply base – tiering them by levels of importance.
Another example is emissions based. A large amount of spending may be in areas that are not particularly carbon-producing or energy-intensive, but you may have some materials suppliers, say in the steel industry, that produce a disproportionate amount of carbon compared to the rest of your supplier portfolio.
Identifying this is hugely important and influential. You can pick your battles effectively and trying to force arbitrary carbon emissions reduction goals on professional service suppliers is churlish compared to the benefit in your ESG credentials from working more closely with the steel supplier. The professional services suppliers may however be important from a “social” point of view – so focusing on their diversity, equity and inclusion policies may be a better solution.
As you’ve probably inferred from the above, the final stage is to develop and implement plans to address the ESG priorities in the supply chain.
The first sub-step is to create some kind of matrix or hierarchy of suppliers to help categorise them into high and low impact and then begin to draw up different processes based on their importance to your ESG objectives. This could be done in categories based on ESG metrics themselves, the propensity for improvement, the industry or the type of supply – you just need to pick a criterion and standardise.
Once you’ve achieved this categorisation and structure, you can then begin a programme to influence suppliers through incentives and disincentives. You’re trying to encourage good behaviour and performance that helps you achieve your ESG goals. This has to be balanced against also working for everyone commercially, it’s not adding to the already-straining workload and it’s a mutually beneficial program. It shouldn’t feel like a carrot and stick approach that is forced on the supply chain, moreover an opportunity for everyone to win more work as more clients demand ESG excellence.
It’s safe to say that the “develop” phase is greatly enhanced by using a supplier relationship management platform like SourceDogg too, where clarity and transparency is boosted so that everyone knows what they’re working towards and constructive supplier collaborations can take place.
We know that audits can be anxiety-inducing, time-consuming and nigh on impossible without the right data to hand – especially as ESG factors are new measurement criteria beyond standard supply chain practice.
That said, we believe this four-step process helps offer perspective into how we’re seeing our clients succeed whilst simultaneously implementing a supply chain management software platform like SourceDogg to do all the heavy lifting outside of messy Excel sheets and impenetrable shard drive structures.
Did we miss anything from the list? Perhaps there’s another step we haven’t considered?
We’d be keen to hear from you and if you’re interested in managing your ESG excellence the smart way, then our team would love to show you around the platform in a personalised demo.