Point de vue
[#4 Traceability] The pressing need for supplier dialogue in the transformation of supply chains
Article written by the Purchasing, Agri-food and Decarbonation teams at Sustainability team in Deloitte France: Maxime Ghafari, Léo Corbet, Adèle Caillière and Céline Kochinyan.
Legislative evolutions involve suppliers from all ranks of supply chains in corporations’ sustainable purchasing strategies.
Until now, for the purpose of creating responsible supply chains, brands made a habit of presenting their own sustainability requirements to Tier 1 suppliers, hoping that this would trigger a chain reaction and pass on to the entire supply chain.
Nowadays, consumer expectations and the strengthening of the principal’s responsibility over supply chains require companies to be more informed and share information on the origin, production process and impacts that characterize their products.
However, the constraints imposed by brands on themselves, especially through vigilance plans, are not sufficient to ensure efficient implementation by their suppliers. Tragic events such as the Rana Plaza accident that took place in Bangladesh in 2013 are proof that human rights norms are not respected and that purchasers lack visibility over the production conditions of their products. Opacity in supply chains only amplifies the lack of action levers available to brands to support the transformation of supply chains, hand in hand with suppliers.
Addressing the social and environmental risks in supply chains requires the co-construction of improvement measures directly with suppliers, once supply chains are known and traced.
I) Prerequisite: adapt dialogue modalities to Tier 1 suppliers
Asking suppliers to promote transformation objectives for an entire supply chain on their own is no longer sufficient. The main challenge today is to create true communities, gathered around coherent and permanent common goals and action plans, by engaging in dialogue with Tier 1 suppliers and facilitating discussion with their suppliers, the suppliers of their suppliers, and so forth.
It is a matter of rethinking governance and the balance of power in order to work together, ensuring competitive protection, if necessary, to facilitate the exchange of information between peers.
The mobilization of stakeholders in the supply chain implies an adaptation of relational strategies to each type of Tier 1 supplier:
- Strategic: at the strategic level, strong commitment is required from the purchaser and its transformation strategy to support key suppliers (purchasing volumes, substitutability, media exposure, business continuity, ESG risks…). Such suppliers will be the most involved in the approach and can be the standard-bearers that will generate adherence from others.
- Operational: this intermediary level implies less commitment from the purchaser but is focused instead on equipping the suppliers with the tools they need to deliver the transformation approach themselves so that they are able to convince their own suppliers.
- Tactical: at this level, commitment is rather limited and exchanges of information regarding the project and best practices happens regularly.
Classification criteria may vary depending on the supply chain and the nature of the purchaser’s business.
As a result, each supplier in the chain is specifically equipped with all the necessary tools to engage in dialogue with its own suppliers and appropriates the approach by passing it on to superior ranks. This empowerment enables suppliers to confront their own suppliers with the ambition level driven by the purchaser.
II) Supplier dialogue best practices: our insights
In collaboration with our clients, we have identified five major modalities to guide supplier dialogue, that may call on agile and necessarily evolving tools or practices.
First of all, let’s make a distinction between descending and horizontal communication lines.
- Descending communication lines: Newsletters are for instance useful tools to share information on the industry’s regulatory environment or the latest news regarding the supply chain. Webinars are relevant to address recent progress on the transformation approach implemented in the supply chain, enabling consistent dialogue with suppliers to collect and analyze their feedbacks regarding the project. Finally, creating a toolbox (training on the corporate duty of vigilance, carbon or biodiversity footprint calculation methods, etc.) that would be shared with the entire supply chain, translated in several languages and adapted to the cultural and geographical specificities of each considered location may strongly contribute to the project’s success.
- Horizontal communication lines allow suppliers to communicate between them and share their experience: seminars are relevant to imagine the sustainable future of a supply chain or material and can help anticipate future risks. Round-table discussions per type of supplier may equally facilitate the sharing of best practices and the onboarding of suppliers from superior ranks. When faced with suppliers reluctant to engage in the approach or struggling with reluctance from their own suppliers, personalized individual interviews are often required. They facilitate the understanding of encountered obstacles and enable purchasers to uncover solutions directly in collaboration with suppliers.
Contracts are the most obvious action lever to encourage suppliers to improve their practices. The agri-food industry for instance uses long-term contracts – multi-year or three-party – to give suppliers the necessary security in terms of orders, so that they can serenely invest in more sustainable practices (organic, local, etc.).
Environmental performance contracts, that originated in Anglo-Saxon countries and remain uncommon in France, are a powerful tool to address the requirements of the corporate duty of vigilance. Adding ESG performance clauses to contracts with Tier 1 suppliers, thus binding suppliers’ measurable ESG achievements to a penalty, a bonus or even a discount on the price, can trigger a domino effect on the supply chain. In order to reach its own targets, the Tier 1 supplier must count on its own suppliers’ results and is thus encouraged to instill a similar clause in their contracts.
Many brands are now used to launching co-innovation tours involving their purchasers, designers and Tier 1 suppliers to ideate on the best solutions to mitigate a given risk. Such solutions may be related to techniques, processes or reorganization.
The next step consists in (co-)financing a pilot phase meant to test the imagined solution and evaluate feasibility.
Such an innovation cycle may result in a common patent application, filed by both the purchaser and the supplier to share the intellectual property of the given solution.
Managing a lasting supplier relationship through dialogue is the cornerstone of supply transformation projects. The combination of traceability, risk analysis methodologies and the animation of supplier communities gathered around common goals will be the key to making supply chains more resilient in the long-term.
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