Why Companies Need a Sustainable Sourcing Strategy

Companies in the food and agriculture sector are faced with various sustainability challenges in their supply chains. The products they source are often associated with issues such as deforestation, pollution, land rights, low wages, and numerous others. Solving these issues will not only contribute to environmental and social goals, but there is also a solid business case for it (also see the business case for environmental sustainability). Sooner or later a combination of internal and external drivers will push any company to grapple with their sustainable sourcing practices. This article will elaborate on why companies should act, how they can devise a sustainable sourcing strategy, and what some of the key success factors are.

 

The business case for sustainable sourcing will only become stronger

The linkages between sustainability issues and companies’ supply chains vary in strength and visibility. For example, a commodity like palm oil is widely associated with deforestation in Southeast Asia. Yet fewer might connect deforestation in Brazil due to soy production, to the meat industry in Europe. As the linkages become stronger and more visible, the business case for improving the sustainability of sourcing practices also becomes stronger.

Figure 2 shows the drivers behind the business case for sustainable sourcing. External drivers include stakeholders that influence or are influenced by a company’s public reputation, affecting their competitive advantage in the market. Acting on sourcing improves companies’ reputation in the eyes of customers, investors, and civil society. Many companies have made public sustainability commitments, which they are expected to act on. Competitors might also be improving their sourcing practices, with companies that do nothing being left behind.

Internal drivers affect companies’ operations and capacity. Unsustainable production practices in countries of origin can affect the availability and quality of raw materials sourced, leading to supply chain disruptions and costs. Governments are drafting legislation and tightening rules around sustainable sourcing, which can soon affect operations too. Companies taking action will find it easier to attract young talent, as new generations are more likely to work for sustainable organizations.

So why haven’t all companies started sourcing more sustainably? This comes down to the feasibility of taking action. Some examples include:

• Availability: limited availability of sustainable commodities can increase lead-times and cause supply-chain disruptions.
• Cost: premiums on sustainable commodities can increase costs, or additional resources are needed to engage and validate suppliers to produce more sustainably.
• Quality: substituting commodities with more sustainable ones or sourcing them from a different geographical area with fewer sustainability issues, could affect the quality of a commodity or the final product.
• Knowledge: limited knowledge on the sustainability of raw materials or an intermediate product makes it more difficult to take action.

 

Developing a sustainable sourcing strategy is a balancing act

To develop a sustainable sourcing strategy, companies need to (a) identify what commodities they source, from which origin, and what sustainability issues are linked to these commodities, (b) assess the drivers behind the business case and the (c) feasibility of taking action, and finally (d) consider their company sustainability vision and ambition. In weighing these factors, companies are faced with various strategic choices. Including different internal and potentially also external stakeholders in this process can enable companies to develop a balanced and optimized sustainable sourcing strategy.

 

Taking action in the supply chain and beyond: what are the options?

So what does taking action on sustainable sourcing look like? Most companies use a combination of managing issues within and beyond their supply chain to address sustainability issues. Effective combinations will ensure optimized impact and credibility.

 

Managing issues in the supply chain

• Traceability & certification: traceability and certification systems are used to link a commodity to the sustainability issues in the geographical origin. The more accurate the traceability system and the more rigorous the certification standard used, the more credibly companies can make and verify sustainability claims about the commodities they source.
• Supplier programs: supplier programs are used to audit suppliers and help them make improvements. Capacity-building programs can be developed alongside auditing to help suppliers track and improve their sustainable production practices.
• Partnerships: companies receiving input from – or formally partnering with – an NGO or expert organization can leverage the expertise to further refine sourcing practices and lend credibility to the approach taken.

 

Contribute to initiatives beyond the supply chain

• Programs: companies can develop their own program to address a certain sustainability issue not directly related or limited to their suppliers.
• Multi-stakeholder initiatives: companies can join initiatives with multiple stakeholders to implement joint programs with sustainability impact for the whole sector or geographical origin of production.

Recently, landscape approaches (combination of within and beyond supply chain) have gained traction whereby commodities are sourced from a geographical area in which companies, growers, local governments, and other stakeholders take joint action to tackle sustainability issues.

 

A successful sustainable sourcing strategy will make business sense, be credible, and is embedded in operations

There are 3 key success factors for a company’s sustainable sourcing strategy:

1. Ensure the strategy is optimized in terms of social, environmental, and economic sustainability. The sourcing strategy can only be successful if there is alignment between sustainability and business goals. Operationalizing the strategy should address a (current or latent) market need.
2. The strategy needs to be tangible and credible in the eyes of relevant stakeholders. Customers, investors, and partners need to be convinced that the approach is concrete enough to be able to be implemented and rigorous enough to have an impact.
3. The strategy must be embedded in the company operations and overall sustainability strategy. To ensure buy-in from different parts of the company, the approach needs to be co-developed with the companies’ leadership and business units that engage in sourcing. Embedding the sourcing strategy in the overall sustainability strategy will ensure alignment across operations.

 

Partner with us!

At NewForesight, we are specialized in supply chain sustainability. If you would like to discuss the business case for sustainable sourcing, solution options, or developing your company’s sustainable sourcing strategy, please contact one of our experts: Laure Heilbron, Narita Panjaitan, & Thomas Meijer

 

Further reading

For further reading,
see:

• Daniel
  Pedersen (2021) Supply chain sustainability in 2021:
  three trends that will mark the year
• Guus ter
  Haar (2020) Scaling up: Leveraging landscape
  approaches to successfully organize sustainability at scale