Responsible supply chains – Why now?
Changing market dynamics from rising commodity prices to tougher regulatory environments are increasing the importance of sustainability; meanwhile, consumers are demanding and willing to pay more for sustainable products. Implementing responsible supply chains promises significant competitive advantage and higher business performance. Over the years, industry players have evolved from compliance-driven to more holistic sustainability strategies. In fact leading companies have embraced sustainability as a measure of excellence within business performance.
A new type of responsible supply chain
By moving to holistic strategies, both cost leaders and differentiators undergo a paradigm shift where driving profit and socio-environmental outcomes are seen as complementary, rather than contradictory.
This is what we call the “triple advantage” – realizing societal, environmental and business benefits at the same time. It is a win for society and a win for companies. For example, Coca Cola locally sources beverage ingredients from 50.000 farmers in Kenya and Uganda for its locally produced and sold fruit beverages. This doubles the farmer’s income while improving the quality of the fruit and reducing transportation cost and carbon exhaust.
Accenture and the World Economic Forum have developed a set of pragmatic, proven supply chain practices that enable responsible supply chains. Below are several examples of consumer goods companies getting it right.
Sourcing locally from local (micro suppliers)
Instead of doing it purely to drive down costs and risks, CPG companies are taking a more holistic approach and using local sourcing to strengthen their brand image and to drive growth.
SABMiller’s brand, Eagle beer, produced by Nile Breweries Uganda, is one example of how local sourcing can help gain advantage for communities. In 2001, Nile Breweries faced strong competition that threatened to stymie ambitious growth goals. SABMiller decided to launch Eagle as a low-cost beer, and source the sorghum used in its production from local farmers. As part of their smallholder relationships, Nile Breweries committed to longer term contracts and price agreements.
For farmers, the success of Eagle means more stable income and access to medical care and funding to achieve their own growth goals.
Collaborating with the competition
To achieve their own triple advantage, Nestlé together with PepsiCo, combined parts of its supply chain for its fresh and chilled food products in the Belgian market. The horizontal collaboration approach not only addresses low truck fill rates, but it also exploits retail customer overlaps. One key success factor was to create a legal framework between the two companies to safe guard anti-trust compliance. A third party-party supplier was chosen to bundle physical logistics shipments, while keeping sensitive information separated.
Leveraging digital technologies
There are a number of ways digital can contribute to the triple advantage. Nestlé’s key suppliers are required to provide information on their supply chain back to the origin for the products they supply to Nestlé. The intent is to gain a comprehensive picture of the extended supply chain down to the farm level. Nestle targets a 40% traceability of the volumes of its key commodities until 2015.