UNEP, SustainAbility and the UN Global Compact recently co-published "Unchaining Value: Innovative approaches to sustainable supply" (2008; PDF - 152 KB). This report explores approaches to building capacity at the local supplier level and identify initiatives that encourage consumer demand for more sustainable solutions. Providing case study examples from the food & beverages and ICT sectors, its analysis also considers the challenges facing supply chains in the face of competition for limited natural resources. UNEP DTIE is building on its overview of international commodity initiatives and convening related producer and retail representatives in 2009.
Supply chain issues have taken centre stage in the corporate responsibility debate as more companies make use of outsourcing and the Internet enable pressure groups and consumers to trace practices globally. Globalisation and advances in information and communications technology have enabled greater outsourcing across national borders, often involving companies in developing countries that are not in a position to meet growing demands for more complex certified management systems. Their ability to make use of export opportunities is dependent on their ability to meet the requirements set by foreign multinationals and new management standards.
Common usage of the term "value chain" over recent years has also highlighted greater awareness of the demand-side of the production - consumption cycle and the challenge companies face in meeting new consumer demands (B2C and B2B). The term value chain is today commonly used to refer not only to the internal company dimension, but also the external dimension: both the upstream (supplies) and the downstream (distribution, use, return). It is a concept that covers business models such as product service systems (PSSs), concepts such as the 3R (reduce, re-use, recycle) with its reversed supply chain, as well as issues such as trace-ability and the use of labels to communicate information about ingredients and standards applied.
Against this background, UNEP has launched a new work area in cooperation with SustainAbility under the heading "Unchaining Value". The aim of this new partnership is to:
- Provide an overview and analysis of modernday challenges in global value chain management, in particular new models and approaches to build the capacity of suppliers to cope with issues such as traceability and use of international standards.
- Highlight emerging good practices in supply chain partnering, displaying cooperation between multinational corporations and their suppliers in emerging market economies to facilitate improved implementation, monitoring and communication of environmentally sound practices and social responsibility with a focus on selected industry sectors.
- Prepare, with support of the UN Global Compact, an initiative to display and promote good practices and innovations in advancing capacity building & technology support through global value chains.
Our initial research in this field is focussing on the food & beverages and the information & communications technology sectors. After a first workshop convened with company participants in Paris on 31 October 2007, an analytical report with feedback from interviews conducted will be published in late March 2008. Follow up discussions are being prepared for 2008, with an open invitation to interested companies and partner organisations to join "Unchaining Value".
Design and Management
Core action areas in supply and broader value chain management include product design and development, the design of the chain network, planning supply and demand forecasting, planning and managing inventories, pricing and margin sharing, as well as marketing and customer services. All of these hold often untapped possibilities for introducing environmental innovations that make perfect business sense.
Take design of the network as example. In the planning of distribution, transport and logistics, consideration can be given to greater use of carbon light transport modes, batch sizing that enables efficiency economies of scale, and sustainable solutions when exploring options such as home delivery or customer pick-up in the local neighbourhood.
Value chain management can be a key contributor in the development and implementation of recognised environmental and social responsibility principles. Efforts to "green" the supply chain have shown a growing body of experience over the last ten years. This can take the form of:
- Screening suppliers for environmental performance (for example making environmental rating part of the total rating of the supplier);
- Require an Environmental Management System (for example auto industry manufacturers are requiring ISO 14001 implementation and registration from suppliers, which affects thousands of suppliers world-wide);
- Setting purchasing standards (for example to bar the purchase of products containing toxic substances);
- Working collaboratively with suppliers on green design initiatives (including working with suppliers to reduce packaging and use containers that can be shipped back for re-use); and
- Providing training and information to build suppliers' environmental performance management capacity.
Social and environmental standards are increasingly a precondition for suppliers doing business for large companies. An increasing number of companies are also seeking to influence their suppliers' environmental practices.
A common way to integrate corporate responsibility into the supply chain is to set a Supplier Code of conduct with minimum requirements for suppliers. Thousands of companies have adopted such codes of conduct, aiming to do business with suppliers that have sound and responsible ethical, social and environmental practices. These codes usually cover issues such as child labour, forced labour, working hours, health and safety guidelines, discrimination, ethical standards and environmental guidelines.
Environmental guidelines ask suppliers to comply with all applicable environmental laws, regulations and standards such as requirements regarding chemical and waste management and disposal, recycling, industrial wastewater treatment and discharge, air emissions controls, environmental permits and environmental reporting. Some companies demand that their suppliers go beyond local regulations in terms of environmental performance.
Related to our emerging work on global value chains, we are following the emergence of new standards developed by organisations such as the International Organisation for Standardisation (ISO), including the expansion of the ISO 14000 series and the ISO 26000 process to develop a guidance standard on Social Responsibility (SR). UNEP participates in the ISO 26000 process and also uses this as an opportunity to promote the internalisation of responsible practices within both the private and public sectors. Core among these are the ten principles of the UN Global Compact.
Unchaining Value offers the opportunity to examine the use of standards, codes and guidelines in a partnership and innovative manner. Of special interest are new approaches that allow for integration, harmonisation, and moving beyond simple tick the box, compliance approaches to more collaborative, partnering approaches that enable collective learning, performance innovation, capacity building and technology support.
Coordination and Partnering
Companies are changing how they manage their supply chains. Rigid, arms-length, customer-supplier relationships are giving way to alliances with upstream and downstream trading partners. Direct interaction with supply chain partners enable companies to reduce total inventory levels, decrease product obsolescence, lower transaction costs, react more quickly to changes in the market, and respond more promptly to customer requests.
Many companies are redefining their strategy vis-à-vis their suppliers and downstream business partners, including retailers and distributors. These strategies are founded on long-term relationships, the involvement of business partners in projects at a very early stage of development, and the creation of common language and common working methods. Collaborative relationships, which are often termed partnerships, are characterised by information-sharing, longer term contracts and an emphasis on mutual gain.
Introducing environmental performance and broader sustainability management partnerships with chain partners can bring a range advantages, including improved ability to reduce costs (inefficiencies in the supply chain can waste up to 25 percent of a company's operating costs), improve risk management, enhance quality, improved innovation in product design & development (some 80 percent of product costs are determined during the design stage), improved reputation and brand image (avoiding environmental controversies), and responding to growing customer interest in environmentally friendly products and services. Overall, it implies joining an industry trend. More and more business leaders agree that supplying environmentally sound products and services is one of the most important industry objectives of the 21st century.