Suppliers Play A Crucial Role In Business And The Journey To Net Zero
Cop 26 has reignited news headlines across the globe to focus on our environment and people are now talking more than ever before about the practicalities of delivering what the politicians have promised the world and the impact it will have on their businesses.
One of the ways that businesses will need to support this is through carbon monitoring and reduction. For many this is currently a voluntary effort, however we can see in time this being mandated for all businesses in the way it is currently being rolled out for larger businesses.
When it comes to carbon reporting, we have found that significant gaps are routinely present which can be timely and costly to identify in a rush and therefore planning for this seems prudent. Carbon reporting is defined by the Greenhouse Gas Protocol and is segmented into three ‘Scopes’ (general categories) that cover direct emissions, indirect emissions which you are in control of and indirect emissions outside of your control. The first two of these cover areas such as gas and electricity where consumption data is relatively easy to source, however it is Scope 3 where massive data gaps exist. These indirect emissions generally make up more than 90% of most companies’ carbon emissions and the data is typically held (or maybe not held) by your third-party suppliers. Many businesses are not set up to capture emissions data like they do with financial data, so it is helpful that monitoring Scope 3 is currently voluntary. However, businesses that are now starting the journey to successfully record and report carbon emissions will surely gain a competitive advantage over others that take longer to embrace it.
Carbon monitoring is an example of how working with suppliers has a positive impact on the success of a company beyond just cost. It highlights the need for some form of supplier management to get the maximum benefit from the working relationship with a supplier and to ensure the company is not put unnecessarily at risk by a supplier.
Many companies, usually because of lack of resource, don’t manage their suppliers. This is despite the fact that they’ve taken the time and effort to run a competitive tender to select them, negotiate and contract with them. This works fine in small companies. However, those companies with larger turnover, more suppliers, more staff and staff turnover having a simple supplier management process in place introduces consistency, transparency and control over the suppliers.
When working with a new supplier, or indeed any supplier, its good practise to have an on-boarding and vetting process to check that the supplier has all the necessary valid documentation as proof that they have what they say they have, e.g. suitable levels of insurance cover, sustainability accreditations etc. The last thing that any business wants is to be put at unnecessary risk by a supplier not having insurance or awarding business under false pretences. The types of documentation and accreditations etc. will vary by industry with some more highly regulated than others.
These documents usually have an expiry date and will require the supplier to renew them, often annually. Its therefore a good idea to monitor that the suppliers continue to renew them to remain compliant and that there’s a record kept of those that are renewed and those that have expired. Any that have expired can then be queried with the supplier directly.
This supplier compliance can be become part of the company’s overall compliance process that it’s required to have in place anyway. The last thing any company wants is to unnecessarily be put at risk or lose money because of a supplier no longer being compliant. Supplier compliance monitoring will become essential to achieve sustainability goals going forwards.
Another key part of supplier management is the recording and monitoring of the performance of the suppliers. This is important as it creates a fair and accurate picture of a supplier over a period of time, rather than just when things go wrong. It creates an objective review of the supplier and should be consulted when coming to the end of a contract as the basis of how the incumbent should be viewed in the sourcing process. It also means that suppliers who deliver exceptional service are noted and forms the basis of any feedback or formal reviews with the supplier.
Creating a Preferred Supplier List (PSL) means that it’s easy for employees to know which suppliers to go to for different products and services. Sometimes there’s preferred supplier in place and there is leakage to other suppliers because employees either don’t know about the deal or because they have their own favoured suppliers. This is not ideal for the company as it may put them at unnecessary risk due to lack of due diligence on the supplier and compliance and going forward will make carbon reporting more complicated. It’s also not great for the suppliers as they would have entered the contract with the expectation of receiving all the available business. To put it into perspective, how would you feel if your customers were doing the same thing to you and leaking business to competitors?
Carbon reporting will eventually force companies to have better transparency and control of their suppliers. However, there’s a good opportunity now for businesses to start managing their suppliers properly to get the maximum benefit out of working with them and protecting their own interests.
Supplier Management can either be done on spreadsheets and shared drives or by using a procurement software that helps to automate the processes, maintains permanent records and is a document repository. If you would like to learn more about how a cloud-based self-service procurement software can help you go to https://oboloo.com/ for more information.