Supply chain sustainability in 2021: three trends that will mark the year

In 2020, the coronavirus once again showed us the interconnectedness of business and society. For many businesses, the year has been the year of disruption and reflection. It highlighted the importance of economically resilient supply chains and creating long-term shared value. In a way, it was a year when old ideas were revisited and new ways of doing business were explored. We have identified three trends that will take further shape in 2021. In the upcoming year, we will focus on one of these trends in a deep-dive series for each quarter of 2021.

1. Price: From market-driven to purpose-driven

One thing the pandemic made clear in 2020 was the reliance of businesses on long, non-transparent and vulnerable value chains. The widespread lockdowns and number of people falling ill resulted in shortages in some stages of the supply chain, and overfull warehouses in others. Creating more resilient sourcing strategies is becoming a priority in 2021. The past year already saw a shift in consumer preferences towards more authentic and purpose-driven companies, a trend which will be enhanced in 2021. Together, these trends highlight the benefit of investing in producers to create long-term, mutually beneficial sourcing relationships.

In 2021, we foresee that these trends will accelerate the shift towards paying fair prices. Companies will be moving from a ‘narrow’ to a broader pricing policy. They will no longer merely consider market dynamics and razor-thin margins in the prices they pay to their suppliers, but will include social and economic factors to account for a decent living for their suppliers and primary producers. Companies such as Tony’s Chocolonely’s,  Ben & Jerry’s and The Body Shop have already taken big strides on paying prices that ensure a decent living.

2. Smallholders: From supplier to customer

Over the last years, smallholder producers, who provide a significant part of primary products across most agri-commodities (e.g., coffee, tea, cocoa), are increasingly seen as customers. Companies are moving away from the old CSR days of delivering services (training, agri-inputs, etc.) for free – carrying the cost because of the CSR value – to delivery of services that producers can pay for – creating a profitable business case for companies of delivering sustainability. Understanding the needs and capabilities of producers can turn the engagement from pure supply into a two-way business relationship. In practice, smallholders are still often treated as dependent suppliers and/or beneficiaries. In 2021, we expect more and more initiatives to provide actionable solutions to allow for this trend to take full shape. One necessary development is to further understand smallholder’s customer characteristics to enhance returns on investments. Take for example the progressive approach taken in the coffee sector, in the NKG Bloom coffee program or ECOM’s Sustainable Management Services (SMS).

3. Complying with environmental regulations: from problem to opportunity

Agricultural production is responsible for a large part of the global environmental impact from human activities. To change this, governments and sector-wide platforms across the globe are developing stricter regulatory frameworks and industry standards that are increasingly forcing companies to shift towards more sustainable business models. In this transition, agricultural producers are struggling to comply with new and stricter environmental regulations while maintaining their economic competitiveness.

Agricultural companies can turn the threat of stricter regulations into an opportunity for sustainable financial growth by re-thinking their business models. Optimizing the environmental performance of their supply chain can generate financial benefits at company-level, besides having a larger positive (economic) impact on society. In the next 5 years, we expect more companies taking a more proactive approach towards environmental sustainability, moving from risk mitigation by complying with regulation to becoming sustainability front-runners by taking a business-driven approach to environmental performance. Several companies such as Smithfield, FrieslandCampina and Danone are already looking at the business case of improved environmental sustainability for its supply chain partners (e.g. animal welfare, soil health, ammonia emission reductions, GHG emissions).

“We believe that today’s deep-rooted sustainability issues can only be solved with market-driven solutions. To create change that lasts, sustainability needs to be an integrated part of sourcing and the entire supply chain.”

How We Can Help: Data-Driven Impact

At NewForesight, it is our mission to provide companies with impact analytics: a data-driven and analytical approach to jump on these trends and enhance their economic and social impact.

We believe that today’s deep-rooted sustainability issues can only be solved with market-driven solutions. To create change that lasts, sustainability needs to be an integrated part of sourcing and the entire supply chain. But for this to happen, one needs to thoroughly understand the business case for companies.

At NewForesight we do precisely that: We understand not just the sustainability issues on the ground, but also how it impacts and is impacted by supply chains and markets. We understand the intricacies of supply chains and the inherent differences across market segments. This enables us to develop solutions that fit within the economic reality and competitive nature of companies.

To prepare for the 2021 trends we have developed three tools:

1. Fair Pricing Tool

The Fair Pricing Tool offers companies an unbiased, transparent calculation of the fair price required to ensure a decent living for suppliers across the supply chain. It ensures a consistent approach to data collection (e.g. working hours, wages, expenses), offering an easy-to-use price negotiation tool for both the employees, as well as the company, across products and countries it sources from. While initially it can serve as a ‘health check’ on the current progress of the company towards fair pricing, over time it enables continuous improvement and evaluation of progress towards a fair price commitment. The Fair Pricing Tool is designed in such a way that it can be fully customized to the unique conditions of the company, including profit targets and other KPIs.

2. Smallholder Customer Lifetime Assessment

The Smallholder Customer Lifetime Assessment will help organizations determine which farmers will bring a company which benefits, at what cost. It addresses questions such as: Which farmers should I work with and invest in, and how can I increase their performance? How much added value will that bring to my company over the years? The assessment will help create a win-win situation: improving the farmer’s performance, while increasing the company’s own output and revenues.

3. Value Monetization Methodology

The Value Monetization Methodology is a holistic framework that will help organizations to better understand the link between environmental performance and the financial sustainability of their business models. We start by understanding the regulatory environment (“the license to operate”) and its impact on the business model (e.g. legal caps on nitrogen & phosphorus emissions, GHG emission ceilings, animal welfare regulations). After that, we quantify the value creation potential of sustainable interventions to cope with these regulations in monetary terms. In doing this, we not only aim to mitigate risk, but maximize economic benefits for all the supply chain actors through cost savings and increased revenue streams.

Partner with us!

If you would like to discuss the above trends, tools, or challenges specific for your organization, please contact our Head of Impact Analytics, Daniel Pedersen: daniel.pedersen@newforesight.com. We would be more than happy to talk to you.

Our Impact Analytics team further consists of: