A company's success is tightly intertwined with the quality of its supply chains.
Although companies have traditionally measured themselves solely on the basis of commercial value, those that balance commercial advantage with environmental impact and benefits for local economies can realize a multiplier effect – which we refer to as a triple supply chain advantage. Attaining this triple advantage is possible, as witnessed repeatedly in the research that underpinned the report, Beyond Supply Chains – Empowering Responsible Value Chains, which Accenture Strategy executives prepared in collaboration with the World Economic Forum.
This article will further discuss what is meant by responsible or ethical supply chains, the benefits companies can deliver and levers companies can pull to realize greater profitability while implementing environmentally sound practices and benefitting the economies where they operate.
Operating ethically and profitably are no longer mutually exclusive concepts. More importantly, business has reached a tipping point where establishing ethical supply chains are no longer just “nice to have”. They are a necessity in today’s business world.
Leading companies are balancing commercial advantage with two factors: environmental advantage and the supply chain contribution to local economic development. This is what we call the triple advantage.
As reported in Beyond Supply Chains Empowering Responsible Value Chains, companies that apply a decision framework which prioritizes practices with the potential to create a triple advantage can increase revenue by up to 20 percent for responsible products, reduce supply chain costs from 9 to 16 percent and increase brand value by 15 to 30 percent. Furthermore, adopting the triple advantage can shrink a carbon footprint by up to 22 percent while enabling companies to contribute to local development.
Obstacles Impeding Creation of Ethical Supply Chains
The fundamental problem lies in the ways that decisions are made and the perceived barriers to investing in supply chain improvements. According to the UN Global Compact – Accenture CEO Study on Sustainability, many programs fail because organizations find it too difficult to justify investments in sustainability, and they find the business case too hard to quantify. Why? Perhaps in part because even the identification and exploitation of the full range of sustainability options that can drive value for business and society are not necessarily obvious.
Furthermore, supply chains are complex. It is not just a matter of taking responsibility for what your company is doing. Companies also are held responsible for the actions of their subcontractors when they fall out of compliance with regulations or act in a non-ethical manner.
But companies cannot afford to be held back by deliberating a traditional cost-benefit analysis. Social media has forever changed the business landscape. It is unmasking situations that socially conscious consumers, activist investors and up-and-coming talent, who find the prospects of working for a company that is anything but sustainable, distasteful. That is upping the ante for companies that fail to “walk the walk” and establish ethical operations.
Establishing Responsible Supply Chains: Identifying the Key Levers to Pull
Even so, only 33 percent of CEOs believe that business is doing enough to foster sustainability. To begin “walking the walk”, supply chain executives need to gain transparency when it comes to the multitude of levers they have to pull to establish sustainable supply chains. In the past, too many relied on “trial and error”. Thankfully, as the concept has matured, decision support tools have been created that can help.
The majority of CEOs (87 percent) recognize that sustainability represents an opportunity for growth and innovation. It’s also becoming a differentiator for leading companies that have embraced a holistic, strategic approach that delivers more value to stakeholders through distinctly different ways of operating that also contribute to public perception of their brand.
To make the business case for investing in practices that contribute to a triple advantage, leading corporations consider short and long-term financial effects. For instance:
1. Generating revenue growth by creating new business models, developing
new markets and innovating to develop new products and services;
2. Taking steps to reduce costs, whether it involves becoming more energy
efficient, innovating with suppliers and customers or streamlining their
3. Enhancing the brand and the company’s reputation by becoming known for
creating sustainable innovations, thereby lifting employee morale and
improving talent retention as a result of sound labor practices; and
4. Protecting their social license to operate by mitigating risks while gaining
recognition as a responsible company with sustainable business practices.
Collaboration: A Place to Start
As companies begin to “walk the walk” of sustainability, collaboration to the extent that it should be embraced, albeit foreign to many corporate cultures, is important. It is not just about collaborating with peers across the enterprise. Companies also need to consider collaborating across their extended value chain from suppliers and sub-contractors, to their sub’s sub-contractors and even the end consumer or competitors.
The more a company collaborates, the greater the opportunity there is for companies to find new ways of getting social, adopting environmentally sound practices and realizing economic gain. For instance: Consider an electronics company that wants to shrink the size of a product. The collaboration starts with the engineers who need to re-think the product design. But there are ripple effects down the line as a product takes on a new shape to address changing customer needs and wants.
Suppliers need to be informed; packaging needs to be reconsidered. The products require less space for shipping so alternatives need to be considered. It might even make sense to share cargo space with a competitor. Retailers also may need to reconsider displays and shelving to accommodate the product, while the targeted consumer will need to be communicated with about the more energy-efficient aspects of the product.
The net-net, as illustrated with this example: The more a company collaborates, the better able it is to find new ways of attaining commercial, environmental and local economic gain. Leading corporations “squeeze out” even more value from the triple advantage by collaborating with competitors.
Walking the Higher Road in Pursuit of the Triple Advantage
While it is true that consumer pressure, fueled by social media, is driving commercial organizations to do more than pay lip-service to the global socio-economic impact of their supply chains, this paradigm shift is really a structural change in the way that companies gain and maintain competitive advantage.
Leading companies have “walked” the first steps toward a more holistic approach to that supply chain that can drive profitability while also generating socio-environmental benefits. Others need to join the journey. Doing so promises significant competitive gain as they realize the triple advantage that delivers benefits to local economies, protects the environment and contributes to profitability while boosting their company’s performance.
Mark H. Pearson is a senior managing director in Accenture Strategy. He has more than 25 years of experience in consulting, during which time he has focused extensively on supply chain management and helping clients design operations that contribute to their competitive edge.
Accenture Strategy operates at the intersection of business and technology. We bring together our capabilities in business, technology, operations and function strategy to help our clients envision and execute industry-specific strategies that support enterprise wide transformation. Our focus on issues related to digital disruption, competitiveness, global operating models, talent and leadership help drive both efficiencies and growth. For more information, follow @AccentureStrat or visit www.accenture.com/strategy.