Posted by: edwinrutten | March 12, 2010

How to implement Sustainable SCM-practices: by project or certificate?

Last Wednesday I visited a symposium called “Good Purchasing = Supply Chain responsibility“, organized by a coalition of NEVI, COS Nederland, MVO Nederland and two other partners. Two companies presented on the dilemma’s they experience in the implementation of sustainable practices along their supply chain. The first was a Belgian trading company in natural stone, the second a Dutch company that trades in spices and sauces. Both experienced difficulties with the following factors:

  • Differences in cultures and norms in countries of origin (e.g. adapt to local standards or impose Western standards?);
  • Long supply chains with many middlemen;
  • Limits to supply chain visibility (the more upstream, the more  difficult to identify the actual suppliers);
  • Lack of urge or money to improve in the countries of origin.

They differed somewhat in the drivers that lead them to sustainable supply chain practices. The natural stone company was operating more from an inside-out perspective (family company with an enlightened manager-owner), although some project-based customers also demanded sustainable products. The spices and sauces company made the SSCM-start mainly from a strategic perspective, envisioning large retailers shifting demand towards more sustainable products (differentiating factor!). This could be called the outside-in perspective. With the “big evil retailers” in mind, the company faced the following dilemma:

“Should we make the supply chain more sustainable by investing in our own projects at/from the source (local farmers at the country of origin) and/or should we invest in enrolling for certification schemes?”

I think this is an interesting dilemma that more companies will run into when being confronted with the challenges of SSCM. Let me share some of the pros and cons we came up with in our round-table discussion:

Projects Pro:

  • Creates real understanding of SC issues;
  • Possibility of really improving product-quality and process-quality from the source;
  • Helps securing supply by improving horizontal cooperation or vertical integration (e.g. starting local plants, excluding middlemen);
  • Creates tacit knowledge that cannot be easily copied by competitors;
  • Adds a story to your product (selling proposition).

Projects Con:

  • Costly when trying to make improvements along the supply chain and across the whole supply base (e.g. how to reach the 90.000 farmers that supposedly are your supplier?);
  • High risk of getting stuck in the process (dead-end projects);
  • Projects becoming person-dependent (just some figureheads participating in the projects, while the rest of the company is doing business as usual). 

Certification Pro:

  • Relatively easy and cost-effective to implement;
  • Independent third-party auditing, adding validity to your sustainability;
  • Recognition in the market, retailers will probably demand certificates, not fragmented projects.

Certification Con:

  • What type of certificate to go for? What might be the right horse to bet on?;
  • How independent are the so-called independent auditors?;
  • Does certification really lead to sustainability; does it cover the full scope of triple-P (people, planet, profit)?

I think it is a sound business case to invest in both. The certificates will provide your ticket into the competitive arena (minimal threshold, level playfield). In order to win in the competitive arena, invest in projects that will help you understand your own supply chain from the inside. This will greatly improve your knowledge on the factors that make or break your supply chain regarding people, planet and profit.

Real beauty (and profit) comes from the inside!


Responses

  1. Certification is certainly good and can lead to a competitive advantage for companies working with certified suppliers. However there are also some disadvantages. First of all, not only which certification to choose, but also the frequency of auditing is important. How can be guaranteed that a certified supplier also works by the criteria when there is no auditor on the premises of the supplier. Second, certification often implies that not-certified companies are “not good”. Certification can lead to a competitive advantage for the certified companies, and a competitive disadvantage for the not-certified companies, which can be unjustified.

    In my opinion sustainable companies should be pro-active in improving conditions of their suppliers. For example, not just state that there can’t be any child labour, but proactively present a good alternative, like free education.

    There is a long way to go to develop a sustainable supply chain, but sustainable companies can be and have to be in the lead to develop sustainable initiatives to improve the three p’s.

  2. Interesting dilemma! From a lean perspective I would suggest to aks the customer for which approach he is willing to pay for.


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