A Guide to Supply Chain Engagement
’Supply chain engagement’ is quickly becoming the most saturated topic in sustainability. With fluffy ideals of ‘collaboration’ tossed around every conference agenda, webinar and article - most sustainability professionals are stressed by and frankly sick of the phrase ‘we need to engage our supply chain’.
We’ve designed the EPICS framework for supply chain engagement - which is being deployed by some of our largest customers.
This guide covers our approach for building and scaling a supply chain engagement program. While we aren’t saying this will be easy, or quick, we hope it can add more structure and a clear path to value in a notoriously complex and nuanced problem.
Educate and Align Business Stakeholders
Why you need to engage your supply chain (the abridged version)
For most companies, ~50-80% of their emissions will come from their upstream Scope 3 (their supply chain). This means taking your suppliers with you on your decarbonisation journey is the only way to really meet your net zero targets. However, requesting and processing data from your whole supply chain is messy and time-consuming. The business might ask ‘Why should we bother?’
To lay the groundwork for success, build a strong foundation for your program - with a clearly defined vision & KPIs, and empowered program owners:
1. Vision and strategy:
Three of the core business drivers when it comes to supply chain engagement are:
Decarbonisation: Capture improvements already made by suppliers and identify & track new opportunities to decarbonise, helping you reduce Scope 3 emissions and meet targets.
Compliance: Meet requirements for supply chain disclosures and due diligence (e.g. CSRD and CSDDD).
Claims Substantiation: Make defensible product claims externally (e.g., proof of decarbonisation to customers/ consumers).
Your first step is to educate the business on the benefits and business risks of each. Speak to stakeholders to identify which driver resonates the most with your business, and set it as the north star aim for your program.
2. Internal set-up:
Where a supply chain program should sit will vary by organisation. We tend to see two types of setups working particularly well:
a.
Up-skilling the procurement team to own the problem
b.
Setting up a dedicated subgroup within the procurement team e.g., the supply chain sustainability team
In the long term, you want sustainability to be a horizontal business challenge, cutting across all functions and embraced as part of the core workload vs an add-on.
3. KPI definition:
Run “Vision, Goals and KPIs” workshops with executive presence from procurement, buyers and program managers. Over a multi-year timeframe, set goals & KPIs. For example:
Y1: Capacity building e.g., set up workshops with X number of suppliers and set up a supplier awards scheme to highlight sustainable improvements
Y2: Data Coverage e.g., collect primary Emission Factor data associated with purchases from the top 80% of suppliers by spend volume (you’ll often find a small number of suppliers account for the majority of your spend and emissions)
Y3: Improvements e.g., reduction in Scope 3 emissions or an increase in supplier participation in data sharing and collaboration
Integrating sustainability into regular KPIs vs separate goals helps to put sustainability at the core of the business.
4. Upskilling procurement professionals.
For Procurement to really buy into this there needs to be:
Clearly defined incentives to get up to speed on sustainability: for the business and for the individual (see call out box below).
Selected tools: e.g., Initially - a simple framework of questions for procurement to discuss with their supplier contacts; Eventually - a centrally defined Carbon Price that must be incorporated into procurement decisions (e.g., 100 tCO2e has a price of X in my business)
Point of need education & resources: tailored materials that provide procurement professionals with the precise knowledge they need to meaningfully speak to suppliers on sustainability topics (e.g. understanding regulations affecting their category, and the range of decarbonisation levers available)
“Big picture” education: e.g., Cambridge Business Sustainability Management Course for those who want to take their understanding to the next level.
Internal Engagement Unlocks (tried and tested):
Executive sponsorship: There needs to be sponsorship and buy-in from Leadership (e.g. Chief Procurement Officer). Best practice should be a joint statement with the CPO/CSO.
Financial incentives: Remuneration linked to sustainability KPIs e.g., for procurement, % increase of suppliers sharing sustainability data YoY.
Career Incentives: Position sustainability as an open forum for involvement.
Example: To drive internal engagement, Perfetti van Melle launched their “Sustainability Academy”, hosting a monthly one-hour webinar series, delving into their key sustainability priorities. To encourage participation, they offer incentives: the chance for five colleagues to win coveted spots for the Cambridge University Business Sustainability Management course.
Prioritise and Cohort your Suppliers
Once you’ve set your program aim, and got buy-in from your procurement team - you need to prioritise your key suppliers (you won’t be able to engage everyone!) and segment them into cohorts. There are a few ways to view this:
Qualitative Categories (the gut feelings)
1.
Strategic Importance
Prioritise based on the strategic importance of:
a.
The supplier - is it a long-term supplier relationship?
b.
The category of goods - are the goods associated with your brand or production/ operations? i.e. coffee will be strategically important for Starbucks.
2.
Sustainability
What is the supplier's current level of data maturity? Can they share corporate or product footprints already?
3.
Willingness
How prepared is the supplier to share information? Does someone in your organisation manage the relationship with this supplier already?
Quantitative Categories (the hard facts)
1.
Emissions Materiality
With secondary emissions data, identify which suppliers comprise most of your scope 3. In many cases, 90% of your emissions will come from less than 5% of your suppliers.
2.
Supplier Category
An industry-aligned category that reflects procurement structure i.e. dairy suppliers. Prioritise based on how your procurement team purchases and the materiality of each category.
3.
Spend
Rank suppliers based on how much you spend with them, and prioritise the largest spend categories.
4.
Revenue
Assess how much your spending contributes to supplier revenue, and prioritise suppliers where you have large purchasing power. They should be more incentivised to engage.
Example cohorts:
Sustainability of mature dairy suppliers e.g., those who have set SBTs or are PACT compliance
Top 10 largest glass suppliers
Incentivise Key Suppliers
Supplier engagement rates are notoriously low for a reason; it’s not in their interest to participate. Participation rates can vary drastically depending on your communication techniques (e.g., making participation mandatory vs voluntary) and the incentives you put on your table.
Think to yourself how you can make it worthwhile for your suppliers. Our suggestion: embed incentives into the procurement team’s BAU.
The incentive matrix
Supplier Contracts
We’re seeing businesses increasingly bring in two types of covenants into their supplier contracts:
Requiring the supplier to share emissions data and targets. This is becoming standard practice across several of the largest retailers (e.g., Amazon). This will likely evolve into a year-on-year improvement requirement (with a combination of carrot and stick). Committing to a multi-year contract or off-take agreement is a great way of incentivising collaboration and reductions over time. The biggest benefit is not the supplier having the industry-lowest emissions for a product in Year 1, but rather being able to give you data YoY that shows continuing reductions, lowering your Scope 3 emissions.
Limiting the supplier’s ability to sell emissions reductions to third parties (e.g., offsets/removals). This is necessary to protect the company’s ability to benefit from the in-value chain reductions that they have already assumed in their emissions reduction plans.
Capture & Track
Current approaches to supplier engagement are expensive, time intensive and (let’s be real) have limited returns. Most sustainability professionals struggle with a few key, very relatable, supplier data collection challenges:
Low response rate - your suppliers are overloaded with surveys
Variable data quality which you can’t trust - there is a huge variety in your supplier environmental maturity
To overcome these challenges, build a supplier-centric engagement program. What does this even mean you may ask….?? It requires you to put the supplier’s experience front and centre. Let’s look at this in practice:
Invest in supply chain upskilling, switching from a zero-sum mindset to a win-win mindset.
Lower the barriers for suppliers to share data, by using digital, interoperable tools that can easily integrate with other systems (e.g., Altruistiq) instead of painful pdf/excel/word surveys.
Establish a cadence for continuous data sharing and reduction tracking e.g., monthly/quarterly/annual cadences to capture reductions in emissions e.g., if a supplier moves to renewables.
Use supplier-focused communication techniques e.g., tailor incentives and messaging to the supplier’s category, external drivers (like regulations), contractual status and data maturity.
Bake supplier data capture into commercial BAU:
1.
More supportive supplier contracts e.g., longer duration, better payment terms.
2.
Sustainability blended procurement models e.g., impact-weighted pricing and negotiation
PACT
The PACT Pathfinder Framework is a new standard developed by the WBCSD (same organisation which created the Greenhouse Gas Protocol) and leading consumer brands like Unilever, P&G, Nestle and Continental AG.
PACT helps businesses develop a better understanding of the emissions of their products through the calculation and exchange of standardised primary product footprints across the value chain.
Benefits of PACT-enabled data exchange: Reduces time spent completing and sharing multi-format data requests, and protects sensitive input data, as only the emissions output data is shared. The guidelines also ensure comparable and consistent calculations.
Example: Meadow Foods, a dairy supplier to Unilever calculates and exchanges them via API PACT conformant Product Carbon Footprints with Unilever. This has become an important aspect of their relationship
Scope 3 Decarbonisation
Capturing and tracking data solves for data, but not for collaboration (the dreaded word). Here are some tips to move from ‘supply chain measurement’ to ‘Scope 3 decarbonisation’:
1.
Communicate your sustainability strategy and targets (e.g., SBTs) with suppliers e.g., via workshops and webinars.
2.
Encourage suppliers to set reduction targets and SBTs (think back to that incentive piece).
3.
Help suppliers build out their business case for decarbonisation (you can check out our guide on this topic Making the Internal Business Case for Sustainability)
4.
Put money on the table for insetting. Example initiatives include mass renewable energy shifts, regenerative agriculture, and EV fleets.
N.B.: Protect your reductions. Write terms into your contracts to limit your supplier’s ability to sell them to a third party.
Supplier programs, whilst resource intensive (we understand your pain), will likely achieve 70 - 90% of any given Net Zero goal. Nailing your approach, whilst no mean feat, is a critical step to meeting your Net Zero goals. This framework will help you maximise the value of your supplier engagement program.