Sustainable Supply Chain- Performance Enabler

“We have implemented a dedicated Supplier Sustainability Development Program (SSDP) to raise awareness and take our engagement forward in the area of sustainability. SSDP follows the approach of training, onsite assessment to identify areas of improvement and continuous monitoring,” highlights Kanishk Negi, Global Supply Chain Sustainability Manager, ABB (ASEA Brown Boveri).

What aspects, according to you, make up for the sustainable supply chain?

Sustainable supply chain means having suppliers who share the same vision as you when it comes to doing business. It means having business partners who operate in an ethical manner, respect human rights and fair labor practices, operate in a safe and environmentally sound manner, the materials used are conflict free and in compliance with various international legislations and also communicate same standards to their sub-suppliers. Sustainability a way of operating and inextricably linked to how business is done.

What crucial importance does this hold in the current economic scenario? Can it be a roadblock to growth?

We are living in a changed world today and cannot follow economic model that drove growth engine in the past. Today, there is greater awareness about the impact of unbridled economic growth and excessive resource consumption. It is clear beyond doubt that we have breached nature’s carrying capacity and if we do not change the way we operate, the life on the planet will be significantly and irreversibly impacted. 

There is also huge focus on how we treat our fellow colleagues. People who work with us in the factories, shop floors, etc., and are the spokes of the wheel of progress. Whether they get the dignity, respect and rights, they are entitled for or get trampled under the giant bubble of economic growth. These realizations have led to several stakeholders relooking at the way things are done. On the regulatory side, we are seeing increasingly stringent laws being introduced which extend the scope of responsibility of a corporation from the boundaries of its factories to further into supply chain and product use phase.

Some such recent regulations include the UK Modern Slavery Act, French Corporate Duty of Vigilance Law, Dutch Child Labor Due Diligence Law, Anti Trafficking Provisions of US Federal Acquisition Regulation, Dodd Frank Act-US, European Conflict Minerals Regulation, several country specific legislations around use of materials (similar to REACH and ROHS) etc. These regulations have global implications and make it extremely crucial for companies to take ownership of not just their own operations but also be on top of how their suppliers operate.

Increasing pollution levels have led to severe crackdown by public agencies on companies who violate or operate without proper consents and approvals. We are seeing increased instances, especially in emerging markets, where there was traditionally greater tolerance for these practices. In the past few months, several companies have been shut down or penalized for not adhering to local regulatory requirements. Such instances have not only impacted these local companies but also the supply chain of the global companies to whom they were supplying.

It is wrong to say that focus on sustainability will be a roadblock to growth. On the contrary, it will ensure better, stronger and more robust growth by reviewing focus on often ignored areas, leading to discovery of newer areas of efficiency for companies and to take on challenges that we are seeing now in business operating environment. These developments are also changing the priorities of business. Investors and customers are now introducing several sustainability requirements as a pre-requisite to do business. It is clear that going forward only businesses that are factoring these requirements and integrating safeguards into their operations will have preference in the global market space and those who do not will see increasingly shrinking demand. Sustainability can be a strong pull for efficiency improvement and newer business relationships.

How can such initiatives be the real game changer for the industry as a whole?

Sustainability essentially means doing things in a better, resource efficient and compliant way. Usually in the blind rush of financial growth, the question of how it is achieved and the cost at which it is achieved gets ignored. Several malpractices gain acceptance, like operating without proper permits or licenses, violating statutory parameters etc. Now with focus on stricter performance, especially in areas of labor, environment and health & safety, these malpractices are no longer a way of doing business. The stricter operating environment presents an opportunity of improvement by forcing an internal review, identifying inefficiencies and using innovative approaches to address them. More so since it is driven by external forces like customer, public agencies, etc., it is business critical and cannot be pushed back or ignored.

Some approaches that have proven useful include review of capacity utilization, workforce deployment, synergies of value chain within the organization, safety indicators, waste management, etc. To better understand: ad-hoc planning, casual management of shop floor and high safety incidents not only hurt employees but also impact delivery schedules and erode productive man-hours. This increases stress on lead time and potential quality issues. When addressed, these can result in more efficient processes and lesser disruptions leading to improved productivity and better cost management. In a similar way, monitoring working hours to prevent working beyond legal limits and correlating it with the production schedule and output can help identify bottlenecks in skills, machines or planning that need improvement. Similarly investing in cleaner technologies can significantly improve resource efficiency and have significant financial incentives. These benefits can be easily quantified leading to better economics and a robust manufacturing sector.

Kindly highlight some of the initiatives taken by you to make the supply chain sustainable.

In our supplier relationships, sustainability performance is as important as commercial performance. We strongly believe that one leads to the other and they can’t be separated. Emphasis is given throughout the supplier lifecycle on upholding the sustainability performance. Our Supplier Code of Conduct (SCoC) communicates these expectations to existing and potential business partners. It is even part of our contractual agreements. In addition to English, the SCoC is available in 15 major international languages.

However, a policy is only as strong as the implementation. In order to ensure that principles of our SCoC are adhered in practice, the sustainability performance of potential business partners is evaluated at the stage of initial selection along with other business parameters. Any scope of improvement is communicated accordingly and in case of serious observations the suppliers may have to undergo an extensive sustainability evaluation. The performance on sustainability parameters has implication on the overall decision, whether the supplier can be part of ABB supply chain or not. To ensure that focus on sustainability does not change during business lifecycle, it is part of our routine evaluation of supplier performance. Hence, emphasizing on the continued adherence. The outcome of these evaluations impact the overall decision on business and strategic partnership.

We have also implemented a dedicated Supplier Sustainability Development Program (SSDP) to raise awareness and take our engagement forward in the area of sustainability. SSDP follows the approach of training, onsite assessment to identify areas of improvement and continuous monitoring. It assesses business performance on 42 parameters, linked to our Supplier Code of Conduct, broadly classified under the areas of general management, working conditions, health, safety and environment and associated key local regulatory requirements. Special training material is developed, which correlates local regulatory requirements with the 42 parameters. The suppliers are trained through a variety of face to face or remote training sessions. They are then visited to identify areas of improvement and remedial actions are implemented. Suppliers are also supported by a variety of specialized training and coaching sessions including topical trainings associated with some chronic challenges. Combination of all these measures make sure that supplier sustainability performance is always in focus and adherence is never compromised.