BA 850
Sustainability-Driven Innovation

 

Supplier Scorecards and Requirements

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Understanding How Organizations "Push Down" Strategies

As we seek to understand the landscape of organizations, actions taken, and underlying strategies, supplier scorecards can help us to understand the steps actively taken to "push down" their sustainability strategy into the supply chain. This tends to be an excellent measure of how far along the sustainability path an organization is, as it tends to be the more advanced that have rigorous supplier sustainability scorecards, with the most advanced being those that integrate sustainability measures into the core of their supplier ratings. When those scores determine how much business a given supplier may receive and how protected they are from supplier trimming efforts, it takes on a very different feel than an "optional" supplier sustainability scorecard.

If you are unfamiliar with supplier scorecards, there are a range of manifestations as wide as you could imagine. The common thread is that the intent of supplier scorecards is to help an organization understand key supplier relationships and high performers, and similarly, to signal low performers that could be eliminated from the supplier list. Ultimately, it is up to the organization to dictate what they include on a supplier scorecard depending on their needs and emphasis, and could include anything from on-time delivery measures to ratings of responsiveness.

Why this is so important to us is that by understanding what is on a supplier scorecard and what the organization emphasizes, we can gain a view of the "scoring rubric" of what the organization holds most important. We understand what is important to the organization by understanding what they make important to suppliers. In most cases, these scorecards are an excellent barometer for how true an organization is to their stated strategy.

In many cases, for those organizations which have not added sustainability reporting requirements to supplier scorecards, we can see the paths already being established in GRI reports. Some organizations will clearly state their timelines for supplier sustainability requirements in their GRI filings, while others may allude to the fact that they will seek and measure supplier sustainability efforts in the near future.

While the specifics tend to not be public, here are a few samples of what organizations have to say in regard to supplier sustainability requirements:

PPG's supplier sustainability requirements:

PPG expects suppliers to evaluate and maintain sustainable processes and raw material sources throughout their supply chain and supplier base. PPG's preferred supplier criteria includes vendors that demonstrate world-class sustainability practices and marked improvements regarding their respective organization’s sustainability within the markets they serve. PPG will foster and maintain a sustainability culture with our suppliers, encouraging these suppliers to innovate and develop new products requiring less intensive material and energy consumption, along with leveraging their collective strengths to meet PPG’s sustainability goals.

WPP's supplier sustainability requirements:

Selecting preferred suppliers
We evaluate all potential new suppliers against a set of business requirements before they can become a WPP supplier. These include assurance of supply, quality, service, cost, innovation and sustainability. Our sustainability criteria cover six areas: policy, senior responsibility, materiality and issues identification, reporting, supply chain and anti-bribery and corruption.

Alcatel-Lucent:

Sustainability is increasingly a key consideration in the way we select and manage our suppliers. For example:

  • Suppliers must have a "satisfactory" sustainability rating to become a preferred production supplier.*
  • General or product/service-specific sustainability requirements are integrated into suppliers’ bids and tenders, and account for a portion of the total scoring and selection criteria.
  • Sustainability performance is one of the eight areas of the supplier scorecards used during business reviews with our suppliers (see section 4.2).
  • * "Preferred" suppliers are those sources for a given purchasing family that we consider first for new projects. Our objective is to concentrate our spending on these suppliers. Preferred suppliers take priority for incorporation into new designs and must be used for purchase orders whenever possible.

Siemens:

Sustainability requirements – as a guiding principle for our supply chain management – are an integral part of all relevant supplier management processes – such as supplier selection, supplier qualification and evaluation, and supplier development. We require all of our suppliers to comply with the principles of our Code of Conduct for Siemens Suppliers, which include, besides others, respect for the basic rights of employees, strong safety and health and environmental protection standards as well as zero-tolerance on corruption and bribery. We also require them to support its implementation in their own supply chains. We have established and continually further develop a risk-based system of appropriate processes to enable us to systematically identify potential risks in our supply chain. It consists of sustainability self-assessments by suppliers, risk evaluation conducted by our purchasing department, sustainability questions within supplier quality audits and sustainability audits by external auditors. To further encourage sustainable business conduct throughout our entire global supply chain, we are committed to building our suppliers’ competence and intensifying knowledge transfers related to sustainability.

Of all of the developments in sustainability we will discuss, the addition of sustainability measures to supplier scorecards may be one of the most direct and tangible ways we will see sustainability spread across organizations in the near future.

Much of this may act to shift how sustainability is framed in organizations.

Frames for Sustainability: "Active Reward" Versus an Emerging "Passive Detriment"

The "Active Reward" Frame

During our time together this semester, we have examined organizations that lead in sustainability across a range of concerns, from community involvement to profitability to waste reduction. What we may see in these organizations–and many of those leading in sustainability–is they share a very active approach to sustainability, and one which is highly biased toward seeing the rewards of sustainability.

Let's briefly examine the titles statements of leading sustainability reports I chose at random. Emphasis is mine:

  • "Local Citizen: Making Sustainable Progress Possible One Community at a Time" - Title of Caterpillar's 2014 Sustainability Report
  • "Creating Shared Value" - Title of Nestle's 2014 Sustainability Report
  • "Finding the Upside" - Title of Abbott Laboratories 2014 Global Citizenship Report
  • "At the BMW Group, we believe that sustainability means investing in our future." - Headline of BMW Chairman Dr. Norbert Reithofer's Letter in BMW's 2014 Sustainability Report
  • "Enhancing personal well-being," "Building stronger communities," "Protecting the environment" - Coca-Cola's definitions of their 2020 Sustainability Commitments
  • "Reaching Further" - Title of Biogen Idec 2013 Sustainability Report
  • "Making Progress, Driving Change" - Title of Unilever's 2013 Sustainability Report

This is just a very brief sample of messages, but it acts to help illustrate what is currently a dominant frame in sustainability: To receive the benefits of sustainability, whatever they are, it will take effort. Thus, we see many active, driving, aggressive-type frames. We can call this the "Active Reward" frame for sustainability, one which we see almost everywhere in organizations, NGOs, people, the media, and elsewhere.

What is important about this frame is it creates a belief that if one is not compelled by the "reward" of taking on sustainability, they simply need not be "active" in those efforts. The core operations of the business are unchanged if they do not engage in these seemingly extracurricular activities.

The "Passive Detriment" Frame

What we may begin to see with the emergence of sustainability requirements in suppliers is a new frame for sustainability–one where there will be a very tangible and significant detriment to the organization if they take a passive approach to sustainability. In essence, the integration of sustainability requirements in supplier scorecards will begin to establish new frames for sustainability:

  • 'We will lose preferred supplier status if we do not perform on sustainability criteria.'
  • 'Not reporting on sustainability will close doors to potential new business.'
  • 'Our core business will suffer if we do not meet (company's) supplier criteria and are dropped."
  • 'If we do not meet the criteria, X% of our revenue will be at risk."

While enterprising and innovative organizations will continue to see the more positive and benefit-oriented "Active Reward" sustainability frame, organizations which are passive will begin to see the negative effects of inaction.

We can only imagine what the passage of a carbon tax would do for the creation of a "Passive Detriment" frame in organizations.

Five word summary - Requirements will change organizational frames