By Martin Chilcott, CEO of Manufacture 2030
Article 3 of 4 - Management
“For 12 years, we’ve pioneered new ways to spread sustainable practices across manufacturing supply chains. We partnered with some amazing brands like Tesco, GSK, Asda-Walmart, Coop and Unilever… Not everything we tried worked, but a lot did, and we made it our mission to learn even more. This is the summation of those best bits.”
This is the third article in a four-part series written for an audience with a manufacturing supply chain. It’s perfect for you if you know what areas you need to focus on, have a Scope 3 target and you are now faced with a practical question of how best to achieve that target with confidence. But, it will still be useful even if you are working these things out.
In the first article, I gave an overview of the three steps that are essential to achieving your Scope 3 supply chain carbon reduction target.
To recap, those three steps were:
Measure: go beyond historical, enterprise-level data collection and measure in detail each supplier manufacturing site’s baseline carbon emissions (Scope 1, 2 and 3) and their estimated glidepath towards your target, based upon their reduction action plans.
Manage: use the glidepath data you have collected to understand the gap to your target and manage their progress to close that gap.
Improve: accelerate improvement by building the supplier’s capacity, focused specifically on closing their identified gap to your target.
You need to be able to do this at scale, hundreds and thousands of times simultaneously, and that will require technology.
In the second article, we took a deeper dive into 'measure' and provided nine lessons from 12 years of working within manufacturing supply chains to help you to get the right data, in the right way, from suppliers who are mostly happy to provide it. Now it’s time to consider how to use that data to manage your suppliers so you can be confident that they will achieve the target you’ve set them.
Common sense with a collaborative twist
What I am going to say is mainly common sense, but it is rarely carried out. That makes me think corporate procurement cultures are still mainly transactional in their relationships with their suppliers. What’s needed to really succeed is to develop a much stronger sense of partnership with your suppliers; a sense of joint ownership with them (and with your peers/competitors if possible). After all, the challenge you face is a shared challenge and the consequences of not meeting that challenge are also shared.
Three areas of focus
Managing your suppliers to achieve your emissions reduction target involves three critical areas for your organisation to focus on:
- Incentivising suppliers to prioritise emissions reduction.
- Using the data you have collected to:
- Segment suppliers according to the amount and type of support they need in order to get their glidepath on track to your target (the who to manage).
- Understand what specific actions each supplier can take to close their identified gap to your target (the how to manage).
- Encourage suppliers to self-manage by building a positive collective culture across your supply base whilst managing at a unit size that encourages personal and team accountability
We will address them one by one.
The main reason, in our experience, why suppliers do not take sufficient action to reduce carbon is that it is “not enough of a priority”. The good news is that, as their customer, you can change that, and if you have taken onboard the nine lessons from the previous article you will have already gone a long way to incentivising your suppliers to act. Invest the time necessary to get your internal and external communications right and set up your programme with your suppliers as co-owners of the outcomes and co-beneficiaries.
If you find yourself in the position where your suppliers are bigger than you and/or you purchase a relatively small part of their output, then you may need to act in concert with one or two of your peers to get attention and have enough muscle to lever change.
Once you are set up correctly other factors flow logically:
- Good and bad consequences - If this is as important as you say, then it must become a core part of your supplier scorecard and management. No one will believe you otherwise. There must be positive consequences for those who participate and progress and negative ones for those that don’t. I am not saying that you need to have ‘consequences’ in place from day one. You are on a journey with your suppliers and need to build confidence and take them with you, but make it clear that there will be consequences and soon.
- Understand the true cost - Consider working with your finance department to establish a financial metric that covers the additional cost of doing business with any given supplier if they are not tracking to your target. If your suppliers do not help you to achieve your Scope 3 target there will be financial consequences for your business (e.g. cost of capital will rise if you have ‘green bonds’). You may already have an internal cost for carbon. If so, you can use it to calculate the true cost of doing business with suppliers whose glidepath is not tracking to your target. Use that true cost in conversations internally as well as with suppliers.
- Avoid mixed messages - Make sure your procurement, sourcing and supplier management teams are fully onboard and briefed and double-check you are not specifying orders in such a way as to increase carbon unintentionally (e.g. through how you specify packaging or raw materials sourcing).
- Financial savings - It might seem obvious, but don’t forget to remind your suppliers, particularly the less advanced ones, that the majority of carbon reduction projects improve resource and financial efficiency. They might be leaving money on the table and you’re helping them to find it and keep it - remember the ‘Golden Rule’.
Using the data you have collected
If you have collected the right data (see article two – 'Measurement') you can use it for so much more than just reporting and compliance. It should give you the insight needed to know whom amongst your suppliers needs help (to get their glidepath on track to your target) and what they can do to close their specific gap.
- Use the data to segment your supply base to help direct your management efforts and target support with carrots and ultimately sticks. We sometimes segment the supply base according to their ‘carbon maturity’, and use a traffic light system on our dashboards to identify whether suppliers are on a fast enough glidepath to meet their customer's target.
- Use the data to identify what suppliers could be doing to accelerate and close the gap to target. The glidepath results from building an action plan, so compare supplier action plans and use the insights to direct suppliers who are in danger of falling behind to copy their faster-moving peers to add high impact initiatives (e.g. switching to renewable energy or lower impact sourcing).
Build collective culture and self-accountability
Whilst you are asking your suppliers to help you hit your Scope 3 target, you need to encourage a sense that achieving your target is not just a shared challenge but also a team and personal opportunity to make a mark. As suppliers, they are going to do this for you - yes. But, they are also doing it for themselves, for their team - being seen to play their part in a change that is inevitable and to everyone’s benefit.
One of the reasons I keep stressing measuring and managing at a supplier site level wherever possible, as opposed to just at an enterprise level, is because this encourages personal and team accountability. Manufacturing plants in particular develop a strong sense of team identity and accountability, and you want to leverage that. You want to measure and manage, wherever possible, at a human scale to encourage accountability and action.
Enabling suppliers and supplier sites to see where they sit in comparison to their peers and competitors through rankings, awards, badges and other ways of celebrating success are all useful mechanisms for building positive competition and accountability. They can all help you to get to a point where the pressure for improvement comes from within the supply base, as well as from you.
If you are not already doing this, consider establishing a dedicated supplier forum and advisory board for carbon reduction in your supply chain. This encourages collective ownership amongst suppliers and signals to your entire supply base how important an issue this is.
In some of our more advanced communities, positive pressure for change has got to the point where suppliers lobby their customers to be more ambitious and to recruit other customers into our programmes. Once you get to this point, you are in a great position to help your suppliers improve faster and accelerate carbon reduction to hit that Scope 3 target. 'Improvement' will be the subject of the fourth and final article in this series - coming soon!