Prioritizing ESG Compliance in the New Supply Chain.

Over the past two and a half years, manufacturers have been forced to compete for available supplies, struggle with delayed delivery times and manage employee health amid the pandemic.

In May of 2022, Ivalua surveyed more than 200 senior executives who lead procurement for manufacturing companies in the U.S. and United Kingdom. Unsurprisingly, 97% of those surveyed saw significant disruption in their direct materials supply chains.

Understanding the depth and breadth of the supply chain crisis is essential. COVID-19 jump-started the problems, but other factors have extended it longer than originally imagined.

During the early months of the pandemic, people trapped at home spent more money on goods than on services. This excess spending on products led to increased demand that many manufacturers couldn’t keep pace with, especially as they managed labor shortages. Yet another significant blow was dealt by Russia’s attack on Ukraine.

This geopolitical unrest further extended supply chain problems. Manufacturers fought over a shrinking pool of resources while scrambling to restructure other critical components of the supply chain. For example, the Russian attack accelerated fears that China could invade Taiwan, further raising concerns about the availability of chips and other necessary materials.

The supply chain crisis will likely continue into the foreseeable future. And while there’s hope for relief, there’s also the realization that the ecosystem won’t revert to its pre-pandemic state. With this in mind, manufacturing organizations are placing top priority on modernizing procurement technology.

According to the survey, 76% of manufacturing procurement leaders use supplier management software to optimize supplier relationships and meet go-to-market deadlines. However, these same procurement leaders reported that technology gaps continue to exist. In particular, they’re looking for solutions that provide more visibility into supplier risk, integrate source-to-pay processes with existing systems, and support more comprehensive spend reporting.

There’s also a growing need to build sustainability into the supply chain process. More customers are demanding that brands meet higher environmental, social and governance (ESG) standards. In particular, Millennials and Gen Z consumers will choose brands based on values associated with corporate social responsibility (CSR).  Sixty-nine percent of respondents in a Forrester CSR study reported that their organizations have generated increased sales as a direct result of CSR initiatives.

Supplier relationships are becoming a crucial source for metrics and proof points on this front. As highlighted in the survey, procurement leaders want more visibility into suppliers and the ability to effectively assess individual CSR performance. Technology is helping leaders to peer more deeply into how suppliers are defining, setting and meeting policies for environmental sustainability, and how they’re governing on social policies such as standards and practices for ethical labor.

The inability to assess and measure individual suppliers on their ESG performance are impediments to progress. Systems that enable effective, scalable collaboration are a must on this front.

Avoiding supply chain disruption is a top concern for 92% of the surveyed procurement leaders. We can no longer look back to pre-pandemic best practices to address today’s issues. If anything, the past two years have served to magnify three core challenges: Supply chains need higher levels of resilience. Procurement leaders need more data and visibility into their suppliers to ensure the continuity of operations. And customers want more sustainable products.

As we climb out from under the current crisis, hopefully stronger and more resilient, restructuring supplier networks will require a reset that hinges on technology. The old supply chain too often relied on “just fast enough” to deliver on time. Any hiccup could throw the system off. As the old saying goes, never let a good crisis go to waste.


by October 11, 2022. Sundar Kamak, SCB Contributor.
Source: Supply Chain Brain. 19 October 2022.

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