Companies run the real risk of failing to meet consumer and regulatory demands
Pressure increases on businesses: regulations and changing consumer demands are coming their way, demanding sustainability through transparency. And all companies face this challenge equally and mostly unprepared. The challenge is that regulations continue to emerge and evolve, resources are in short supply, and the supply chain remains opaque.
How can the industry achieve sustainability goals and remain economically competitive?
Anticipation! The industry needs to anticipate the growth of policies and consumer demands that require efficient and accurate data sharing. Creating a standards-based framework is the approach we want to evaluate here. Industry collaboration has the potential to remove friction and offer a unified approach.
We believe that in order to effectively connect the diverse landscape of regulation requirements per region and country with the even more unique existing company-specific logistics processes and IT architecture, a standardised middle layer is needed to enable a dialogue. This middle layer helps translate requirements into executable solutions adapted to each individual company and allows the flow of necessary data from each company to feed all decision points in a global supply chain.
The vision presented in the following series of posts is to have a complete end-to-end connectivity of the supply chain able to produce the required traceability and transparency data, enabling companies to meet today’s and tomorrow’s challenges. The seamless flow of data between all partners drives efficiency and brings insights that allow companies to make a real impact on sustainability processes like recycling, food waste, labour practices, sourcing, and decarbonisation. Most companies are behind in their ability to achieve this vision, to different degrees. Their supply chains remain only partially connected, consistent data sharing is nonexistent or largely insufficient, and members of their value chains are unaware or ignorant of looming regulations.
Unprecedented demands in the value chain are being driven by sustainability in practically every industry. While many companies that are outspoken about their sustainability practices give the impression that they have their objectives all figured out, many struggle to map their supply chains and evaluate their carbon footprints. The key challenge is to implement meaningful change regarding established processes and technologies across their value chains to obtain the data necessary to evaluate and move forward with improvements.
If your organisation has struggled with this, you’re not alone. An overview of the key sustainability challenges encountered by companies is provided below:
- Mapping supply chains to gather data for measuring and assessing carbon emissions as well as accurately and regularly reporting on sustainability commitments.
- Demonstrating supply chain ethics, ensuring suppliers are not involved in forced labour, conflict materials, nor enabling polluters.
- Measure, assess, and make efforts to reduce carbon footprints across products, packaging operations, and logistics.
- Accurately report compliance with sustainability mandates from suppliers and national regulations. e.g., the EU Ecodesign of Products Regulations.
- Maintain honest communication with consumers and avoid greenwashing.
- Meeting the ongoing reporting requests from consumers, the government, investors, etc. while attempting to maintain business continuity of operations and delivering strategies for growth and shareholder value.
- Solution providers are only selling parts of the sustainability challenge. Companies sometimes need to invest in 3–5 providers to become compliant (at a significant cost).
“ Standardised party and product identification is the key to unlocking seamless data sharing and transparency across value chains. Unfortunately, many of today’s trading partner networks are not using these standards. Few leaders recognise the immense challenge companies face when attempting to assess and measure their upstream supply networks. Trading partners need to identify themselves and their products in a standardised manner. This basic level of identification is necessary for sharing sustainability-related data at scale.” – Tim Marsh
So how does a company overcome these challenges?
In our experience and through discussions with industry members who are already on this journey, there is a framework for progress. The Framework Solution consists of the following elements:
- Identification: Identify parties (including locations) and goods purchased and sold. The first step is the identification of the trading partners and the products you buy and sell across your value chain. The good news is that this is easily solved. Today, there are cost-effective standards-based solutions for party and product ID that are designed to work across complex value chains on a global scale. These solutions, e.g., ISO or GS1, enable trading partners and solution providers to invoke a common language for data capture and sharing. It’s very likely your organisation is already using global standards for party and product identification. What’s not likely is that your Tier 2, 3, and 4 suppliers are using them. And there’s a chance that solution providers servicing all or parts of your upstream supply chain are, in fact, using proprietary means of party and product ID that won’t interoperate with yours easily. This will lead to translation costs between the systems, wrong information, and potentially wrong decisions.
- Data: Identify necessary sustainability data from different perspectives within the value chain. The key step is to identify necessary data considering both your organisation’s and your suppliers’ perspectives in the value chain. The importance of perspective lies in understanding where you are in the value chain, as it affects the effort required for capturing, sharing, and utilising sustainability data. For instance, suppliers near the beginning of the chain generate data needed downstream. Your position in the value chain also influences the effort in assessing your carbon footprint, with brand owners bearing greater responsibilities due to their upstream position. Initiating conversations with trading partners and customers is essential for identifying data needs based on your role in the value chain, often starting with addressing Scope 1 and 2 emissions before tackling the more complex Scope 3 assessments.
- Build Awareness and Educate: Develop materials to educate trading partners on how to effectively share sustainability data. While members of a value chain likely grasp the general concept of sustainability, understanding what it means to be a partner in sustainability is less common. Before delving into data discussions, it’s crucial that trading partners understand the ‘what’ and ‘why’ of your sustainability goals. Alignment in understanding, such as a supplier’s carbon footprint contributing to your scope 3, is essential. To facilitate this, your team should provide educational materials outlining the significance of sustainability, your organisation’s objectives, and expectations for trading partners. Some industry members extend support by educating their supplier network, sponsoring sustainability master classes, and fostering awareness among colleagues. This proactive approach ensures a shared understanding and commitment to sustainability throughout the value chain.
- Strategy and Governance: Establish a sustainability leadership programme with sponsors, direction, and appropriate resources to oversee the transformation. Internal governance is essential to long term success with your organisation’s efforts. We recommend sustainability objectives be embedded in your corporate strategy and operations. However this doesn’t mean governance can be set aside. Sustainability requires resource allocation just like any major initiative or program. It also requires participation from every aspect of your business, e.g., from every functional area including sourcing, product design, quality and compliance, finance and policy & communications, etc. As such there will be competition for these resources from existing programs and change management projects. Governance helps ensure the leaders, teams and individuals responsible for the work won’t be conflicted and prohibited from making progress.
- Assess, Measure and Adjust: Continuously assess and adjust sustainability efforts, taking into account what works and what doesn’t. We recommend taking a circular approach to product development and design as a foundational aspect (aka Life Cycle Analysis). Great resources for this already exist from industry consortiums and not-for-profit think tanks like the Ellen MacArthur Foundation. You will likely utilise a solution provider to support the capture of measurement data from your suppliers and operations on your carbon footprint reduction efforts. They will play a key role and can help make this daunting task achievable. However it’s also important to measure and assess the progress of your organisation in order to support transformation to a more sustainable enterprise. This means taking stock of what is working, identifying what organisational structures facilitate or hinder progress and adjusting over time. Sustainability is everyone’s job, but having leaders within the organisation that are proficient in the subject matter is essential for success.
- Actionable steps: Identify the sources of compliance pressure. Create a roadmap to address these needs. Communicate the roadmap to stakeholders.
Can’t we just bolt on a sustainability or traceability platform, mine our supply chain for the data, and then do our tracing, assessments, and reporting?
Maybe. You are unlikely to succeed since achieving more sustainable value chains requires business transformation. Many internal and external stakeholders and company functions are involved in enabling capabilities in sustainable production and consumption. Business operations are affected; how you conduct procurement, production, and distribution all need to be improved to accommodate the required data capture and sharing. It is a transformation in which you improve, augment, and modernise your business processes, systems, applications, and supplier connections to achieve long-term results.
OK, we can’t bolt it on, we need to build it in. What’s first?
The answer to this is the first step in the framework. But first, some perspective. We think it’s helpful to take the perspective of a key stakeholder group for enabling sustainability, i.e., the solution provider community. They see your challenges and the complexity that can arise from the choices you make. Their perspective is valuable because they have to make things work within a complex environment between your organisation and that of your suppliers and trading partners.
In a nutshell, it is important for businesses to strategically integrate sustainable practices into their core business processes in order to achieve long-term success as they navigate the challenges of compliance, traceability, and sustainability. Businesses can take a transformative step by adapting the Framework Solution.
In order to successfully navigate this complex journey, collaboration with solution providers is essential as they bring invaluable insights and knowledge. So, when businesses adopt an all-encompassing strategy, they strengthen their resilience and make a significant contribution to a sustainable and responsible future.
Unveiling the Power of Product Data Transparency:
A Path to Sustainability Excellence
Join us in upcoming posts as we delve into the realm of sustainability and unveil the transformative role of Product Data transparency. Transparency, the cornerstone of any effective sustainability strategy, holds the key to unlocking a more sustainable future. However, achieving transparency across the complex supply chain can be a daunting task.