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