Suppliers can have a significant impact on a company’ success because they play a central role in driving revenue.
Being able to work with reliable, high-quality suppliers can help a business grow at scale. Likewise, unreliable suppliers can create bottlenecks in a company workflow, and bring on social and environmental risks, which may have a more significant negative impact on clients and consumers than companies may realize.
The concept of Supplier Relationship Management (SRM) was first introduced in 1983 by McKinsey consultant Peter Kraljic in a Harvard Business Review and has become essential for the inclusion of human rights and environmental due diligence strategies through the supply chain.
The SRM concept relies on the idea that suppliers are business partners and, as such, this partnership needs to be strategic and growth-focused instead of reactive.
Choose suppliers that are cost-efficient, easy to work with and with moderate or low social and environmental risks, make business sense and maximize the value of the relationship.
Thus, having long-lasting, trusted relationships with dedicated suppliers should be a primary goal of any business that strives to succeed in the market and remains genuinely sustainable.
Reactive versus Strategic Approach
While in a reactive approach supplier relationship is handled in response to when a negative situation occurs. E.g. I remove supplier A from my list of suppliers once I find out that forced labour has been identified in their supply chain. In a strategic approach, supplier relationship is planned and starts even before an agreement is signed and continues after the contract with a clear and regular two ways communication. This approach ensures the competitive advantage of the company in the long run and certainly supports companies to be more effective in their human rights’ due diligence and responsible response to indirect negative impacts. Thus, a company that follows a strategic approach to supplier relationship management, will not run away at the first identified issue, but will work together with the suppliers to overcome it. Eventually, going through the crisis together will strengthen the business relationship and the credibility of both companies in the way they deal with human rights and sustainability.
How can companies in the food and feed supply chain successfully implement an SRM strategy?
As part of the Sectorial Roundtable for the Norwegian Salmon feed industry, the ProTerra Foundation is currently developing a Suppliers’ Code of Conduct and an SRM easy guide, to support companies that are part of the feed industry to address social and environmental risks and eventually strengthening their sustainability strategy.
Setting up an effective SRM will benefit members of the ProTerra Network to strengthen their sustainability strategy because it improves:
- Compliance: Better control mechanisms to ensure buying from most reliable business partners
- Visibility: Transparency and traceability in the supply chain to allow the early identification of social or environmental risks or occurrences.
- Procurement know-how: According to 2017 Global SRM Research Report by the State of Flux, people and their soft skills are the core of a successful SRM. Buyers within the company need to build their capacities and knowledge to incorporate social and environmental criteria in their daily procurement work. For that reason, the ProTerra Foundation will set a catalogue of training to support individuals or department to manage suppliers’ relationships.
Businesses should not underestimate supplier relationship management if they want to be successful. This is another proof of how sustainability is not just in fashion, but it makes business sense.
The importance of adopting responsible behaviour
According to the World Economic Forum report – Beyond Supply Chains – Empowering Responsible Value Chains, published in January 2015, “major catastrophes” such as the Rana Plaza factory collapse in Bangladesh in 2013, and evidence of child labour and unsafe working conditions in the extended supply chains of multinationals, have put significant pressure on chief supply chain officers to adopt responsible supply chain behaviours.
In the meantime, pressured by consumers who increasingly expect exotic and fresh food on their plates, the food supply chain continues to grow rapidly. This has widened the supply chain geographically, making it longer and more complicated than ever before.
Producers, manufacturers, distributors, logistics providers and other parties are under pressure to bring their products quickly to market, safely and in the best possible conditions.
This is a great challenge for companies that need to tighten relationships with their partners and lower the risks of their chain. Having good data about food products and its supply chain has been more important than ever. Likewise, sharing information at every stage of the food chain increases food security, strengthen brand integrity and enhances customer loyalty.
The World Economic Fund report, created in collaboration with Accenture (a global management consulting company, information technology and operations), has identified a set of companies that are implementing world class supply chain practices, considered the best from a commercial perspective, and, at the same time, improve environmental impact and local economic conditions, building “ethical supply chains”. These practices are called the “triple supply chain advantage”.
Beyond Supply Chains has identified a set of 31 proven supply chain practices. The report showed that companies applying these practices can:
- increase revenue by up to 20% for responsible products
- reduce supply chain costs from 9% to 16%
- increase brand value by 15%-30%
The adoption of triple supply chain advantage can also reduce carbon footprint by up to 22%, allowing companies to contribute to local development. Moreover, according to a study by Nielsen (a global measurement and data analytics company), consumers are becoming increasingly concerned about how their products are manufactured and supplied. According to the study, 55% of global online consumers in more than 60 countries say they are willing to pay more for products and services provided by companies committed to positive social change and environmental protection.
Over the last decades, we have seen several examples of global leading brands failing consumer expectations. These organizations rely on a vast network of global suppliers to bring their products to market, but, in the eyes of consumers, it is their responsibility to ensure that their practices have minimal impact.
Therefore, to meet the growing demands of customers, organizations must work closely with their suppliers. Furthermore, to achieve best sustainability practices, communication with suppliers must be collaborative and transparent, with stated common objectives and clear capacity to measure efforts.