Both consumers and governments are increasingly expecting companies to be responsible for the environmental and human rights impact of their entire supply chain. But most companies are still struggling to assess their suppliers’ sustainability performance, let alone help them improve.
Today’s stakeholders and consumers care more than ever before about climate change and sustainability. In fact,63% of consumers across 17 countries say climate change is “very serious,” and57% are willing to pay more for products and brands that positively impact both society and the environment.1
It’swell documented that as much as 80% of a “buying” organization’s impact on air, land, water, biodiversity, and geological resources is not from its own internal operations but from those of its supply chain.2 (We define buying organizations as typically large multinationals that serve as “Tier 0” in the value chain.) However, most of these organizations are struggling just to assess their top-tier (Tier 1) suppliers’ activity.
The fifth edition of the “EcoVadisBusiness Sustainability Risk and Performance Index” gives a view on sustainability performance in global supply chains—including this multi-tier challenge.3 The Index is based on data derived from over 72,000 ratings conducted by EcoVadis on more than 46,000 companies between 2016–2020. EcoVadis scores organizations on 21 sustainability criteria across four themes: environment, labor and human rights, ethics, and sustainable procurement (SP). Sustainable procurement is defined as the adoption and integration of environmental and ethical principles into the procurement process. The SP theme is critical in determining a rated company’s overall score and is fundamental to unlocking the potential of a supply chain sustainability program. The scores for each of the themes range from zero to 100, with a score below 25 representing a high risk of environmental, human rights, or ethical violations; 25–44 representing medium risk; above 45 representing good performance; and above 64 is advanced.
The report reveals that there is generally steady progress by Tier 1 (and a few Tier 2) suppliers on their own environmental and social performance. However, scores in the sustainable procurement theme (which measures how well suppliers are monitoring their own supply base) for all tiers are either stagnant or declining, varying across regions and industries. This is concerning, as it means we are not making progress in monitoring a significant portion of the social and environmental impacts “upstream” in Tiers 2, 3, 4, and beyond.
Although sustainable procurement scores are stagnant or declining, executives continue to recognize the importance and emphasized need of sustainable procurement practices, particularly as they face global supply chain disruptions caused by the COVID-19 pandemic and an increased regulatory focus on supply chain due diligence. For example, the European Commission has proposed a new law that would hold large companies operating in the European Union accountable for environmental violations or human rights abuses committed by their suppliers. Under the proposed law, victims could sue companies for damages for violations done by their suppliers.
In order to get a fuller picture on their value chain sustainability performance and meet rising stakeholder and consumer expectations, companies must expand their visibility into deeper tiers of the supply base and measure what suppliers are doing across their own supply base. Cascading sustainable practices up the supply chain is key to unlocking the full potential of any sustainability program.
Sustainable procurement snapshot
In general, the Index report uncovers many positive findings. Most encouraging is that the overall sustainability performance of rated companies reached an average of 47.7 points in 2020 (up from 46.6 in 2019). This means global sustainability performance continues to improve and is a clear priority for businesses around the world.
However, there is room for improvement under the SP theme. While some individual regions display a stable performance in the SP theme, the global average score is declining year-over-year and falling significantly behind all the other categories. In 2020, the global SP average score was 37.6, compared to 38.7 in 2016.
The reasons behind these scores are complex, as there are a multitude of variables that can influence them. One big reason why the SP theme falls behind other categories is that there has been less awareness and maturity around sustainable procurement; it is just beginning to gain momentum. This is also why we see the SP score dropping in 2020 from 2016. As more companies begin their sustainable procurement journeys, there are more “first-time ratings.” These first-time ratings typically have lower scores because the companies are just starting their SP programs, resulting in a lower average score than in recent years.
Performance varies when comparing the SP scores in different regions as well. Europe is the clear leader with an SP score of 42.0 in 2020 (a relatively stable, five-year score development). In fact, the continent’s SP performance has held steady or improved for the European Union (EU)’s four largest economies of Germany, France, Italy, and Spain.
The most northern EU member states (including Sweden, Finland, and Denmark) have maintained their remarkably strong and consistent level of scoring in the SP theme. This is largely due to a longstanding social and political commitment to climate action that is shared widely across the Nordic region.
Overall North America also shows improvement, gaining ground on Europe in terms of global sustainability performance. While Europe is home tonearly half of the world’s most sustainable publicly listed companies,4 North American organizations are reducing their performance gap at an increasingly rapid pace. With KPMG reporting that over 90% of the top 100 companies by revenue in North America areengaged in sustainability reporting,5 the region has definitely become one to watch in terms of corporate sustainability leadership.
But when it comes to the SP score, North America has been on a steady decline since 2017. Other regions continue to struggle in SP too. For example, Portugal showed a decline in its 2020 SP score, as did several areas in certain Central and Eastern European states that joined the EU in 2004 or later. Companies in the United Kingdom have also shown a steady decline in their SP scores for the last three years, which is largely due to the ongoing regulatory and political fallout from Brexit. All remaining regions also experienced SP score drops over the past five years, most prominently in the Greater China region.
Greater China scored 28.8 in 2020, down from 33.3 in 2016. Recent events—such as the ongoing energy crisis and pandemic-related travel restrictions—highlight the challenges companies face when monitoring sustainability risks in Chinese supply chains. Chinese companies must develop their sustainable procurement management systems in order to minimize upstream impact, both in their own and in their customers’ supply chains.
Sustainable procurement performance also varies greatly among industries. The last five years’ worth of SP performance data shows a downward trend across industries. This trend was worsened by the COVID-19 pandemic.
Heavy manufacturing and construction are the only two outliers among the ten industries assessed. These industries were able to maintain or improve their SP performance from 2019 to 2020. While these industries saw improvement, they fell shy of their best scores to date. The construction industry’s 2020 score (38.0) remains lower than its 2016 score of 39.8, and heavy manufacturing’s 2020 score (38.1) is slightly lower than its 2017 and 2018 scores of 38.3.
The steady decline in SP performance is largely due to COVID-19 drastically disrupting the global supply chain and exposing more risks than in previous years. For example, thenumber of child laborers increased in 2020 for the first time in 20 years.6 This is an example of the types of activities that companies need to monitor within their supply chain. If a company works with a supplier that uses forced child labor and the company isn’t aware, then they aren’t taking the proper precautions and due diligence to make a positive impact for both people and the planet.
The SP performance results suggest that a majority of businesses are unprepared to meet upcoming supply chain due diligence regulations and are potentially exposed to significant risk, especially in their relationships with suppliers further up the value chain.
Action items
When looking at the data from a holistic point-of-view, sustainability performance around the globe is improving. But there is still exponential room for growth, especially across the SP theme. The question at hand: What should business leaders consider when looking to improve their efforts and make a positive impact on people and the planet?
Recognizing that adverse social and environmental impacts are embedded overwhelmingly in the upstream value chain, business leaders must act to integrate sustainability into the purchasing criteria and relationships at every tier of the supply chain. This need to act becomes even more important as the EU prepares to implement mandatory due diligence regulations.
One action business executives can take right now is risk mapping, which is the process of mapping out an entire supply base for ethical, social, and environmental risks. There are tools available to create predictive profiles of suppliers, built upon intrinsic risk data about industry category and country of operation for each supplier (for example, based on comprehensive country- and category-risk profiles). Risk mapping is essential to gaining visibility into the intrinsic risks of suppliers, and it facilitates the effective prioritization of further due diligence assessment and monitoring activities.
Risk mapping is an important component of a companies’ obligations under theGerman Supply Chain Due Diligence Act, and it is also expected to be part of the EU’s forthcoming mandatory supply chain due diligence requirements. Companies with headquarters or subsidiaries in Europe will likely need to engage in formal supply chain due diligence steps and risk management at a much higher rate, such as engaging with individual suppliers through performance assessments. Non-European companies may also be subject to increased scrutiny over their own sustainable procurement practices if they maintain trade relationships with business partners subject to such legislation.
As a result of this legislation, companies should become more familiar with their supply chain and proactively implement actions to ensure sustainability considerations are integrated into the procurement function. Due to the risks and regulations surrounding sustainability, companies need to take a more holistic approach to supplier engagements and implement supplier assessment programs that include sustainable procurement as a criterion. The supplier selection process should be about more than just picking the most cost-efficient option. It should also consider whether potential suppliers align with the core values of the company, including but not limited to human rights and sustainability.
This means companies should measure and benchmark performance on environmental, social, and corporate governance (ESG) issues, including everything from worker safety to carbon emissions, and then provide guidance on tactics for improvement. If executives want to maximize their sustainability impact and scale results meaningfully, then they should work **ital{with} suppliers and incentivize them to integrate sustainability considerations into the procurement functions, rather than just expect them to do it themselves. Companies need to implement actions intended to monitor and improve sustainability performance. This could include annual performance evaluations that identify areas for improvement that the company can help the supplier with. It could also include mapping risk exposure ahead of time. In fact, regular supplier assessments on environmental or social practices have become more common over the past few years. In 2016, only 24% of EcoVadis rated companies were issuing regular supplier assessments, but as of 2020, 33% of companies were doing so.
Regular assessments are not the only key SP actions making their way into the mainstream of corporate sustainability tools. In 2016, only 14% of rated companies had a supplier corporate social responsibility (CSR) code of conduct in place; as of 2020, 26% of companies have codes of conduct established. There has also been a steady increase in integration of social or environmental clauses in supply contracts, CSR risk analysis prior to supply assessments or audits, training of buyers on social and environmental issues within the supply chain, and on-site audits of suppliers on environmental or social issues.
As sustainable procurement increasingly becomes the norm for buying companies—fueled by greater ambition around climate action and an evolving regulatory landscape—suppliers will be called upon to implement comprehensive sustainability practices and provide greater supply chain transparency. As uncertainty lingers in the global supply chain, the time for planning and setting targets has passed. Now is the time for companies to focus on real and tangible actions that drive impact.
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
Businesses were preparing to deal with the effects of the latest major storm of the 2024 hurricane season as Francine barreled toward the Gulf Coast Wednesday.
Louisiana was experiencing heavy rain and wind gusts at midday as the storm moved northeast through the Gulf and was expected to pick up speed. The state will bear the brunt of Francine’s wind, rain, and storm damage, according to forecasters at weather service provider AccuWeather.
“AccuWeather meteorologists are projecting a storm surge of 6-10 feet along much of the Louisiana coast with a pocket of 10-15 feet on some of the inland bays in south-central Louisiana,” the company reported in an afternoon update Wednesday.
Businesses and supply chains were prepping for delays and disruptions from the storm earlier this week. Supply chain mapping and monitoring firm Resilinc said the storm will have a “significant impact” on a wide range of industries along the Gulf Coast, including aerospace, life sciences, manufacturing, oil and gas, and high-tech, among others. In a statement, Resilinc said energy companies had evacuated personnel and suspended operations on oil platforms as of Tuesday. In addition, the firm said its proprietary data showed the storm could affect nearly 11,000 manufacturing, warehousing, distribution, fabrication, and testing sites across the region, putting at risk more than 57,000 parts used in everyday items and the manufacture of more than 4,000 products.
Francine, which was expected to make landfall as a category 2 hurricane, according to AccuWeather, follows the devastating effects of two storms earlier this summer: Hurricane Beryl, which hit the Texas coast in July, and Hurricane Debby, which caused $28 billion in damage and economic loss after hitting the Southeast on August 5.
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Supply chain managers at consumer goods manufacturing companies are tasked with meeting mandates from large retailers to implement item-level RFID.
Supply chain managers at consumer goods manufacturing companies are tasked with meeting mandates from large retailers to implement item-level RFID. Initially these requirements applied primarily to apparel manufacturers and brands. Now, realizing the fruits of this first RFID wave, retailers are turning to suppliers to tag more merchandise.
This is one more priority for supply chain leaders, who suddenly have RFID added to their to-do list. How to integrate tagging into automated production lines? How to ensure each tag functions properly after goods are packed, shipped, and shelved? Where to position the RFID tag on the product? All are important questions to be answered in order to implement item-level RFID. The clock is ticking on retail mandates.
Different products, new RFID considerations
Hangtags, the primary form of apparel product identification, present a relatively easy way to attach an RFID tag. Pressure-sensitive labels likewise can carry an RFID inlay. The inlay, consisting of a microchip and antenna, holds the product’s unique identifying information. This tiny device is activated when the RFID reader passes by it. For nonapparel products, in many cases, there is no way to attach a hangtag. Therefore, a pressure-sensitive RFID label often must be put directly on the product. If the product is packaged in a box, the RFID carrier can be attached to or placed inside the box. Either way involves the use of just the right solutions, including the adhesive, shape, dimension, and placement. Moreover, there must be an efficient way to attach the labels to products. This requires process engineering and sometimes capital investment to integrate RFID labeling into highly automated manufacturing lines.
Metals, liquids, and low-surface-energy (LSE) materials pose hurdles for RFID item tagging. Tag and label inlays cannot be read properly through metals and liquids, and the pressure-sensitive labels do not always stick well to product surfaces containing silicone, vinyl, polyethylene, and polystyrene. Very small items are also difficult to tag. Metal paint cans, caulk or paste tubes, lipsticks, and reusable water bottles are just a few products that present RFID tagging challenges.
In other cases, it is not so much the product itself that hinders readability but rather the shipping method. For example, it is relatively straightforward to apply an RFID tag or label to a bag of fertilizer. But the fertilizer bags might be stacked 60 deep on a pallet. The pressure is too much. It damages the inlay, killing the tag’s readability. So, RFID tags, which were perfectly fine coming off the production line, are now dead from the stacking pressure.
Solutions and testing
RFID tagging and labeling programs take time to get right. While some manufacturers can set up a successful process in a few weeks or months, for others it can take six months, nine months, a year or longer. Variables influencing implementation time include capital equipment investments, the product types (for example, are the materials, shapes, or surfaces potentially problematic?), label supplier capacity and capabilities, and third-party testing rounds.
The good news is that best practices are being refined every day to incorporate RFID on difficult-to-tag products. A case in point is finding answers to RFID-inlay readability issues on metal or liquid products. There are ways to attach an RFID label to the product’s lid or cap.
The University of Auburn RFID Lab is the de facto U.S. authority on all things retail RFID. Through its ARC program, the lab works with end users to make sure RFID tags meet or exceed their required performance and quality levels. Walmart, for example, requires its suppliers to source from Auburn RFID Lab’s ARC program-approved inlay companies. “ARC is a test system and database that stores comprehensive performance data of in-development and market available RFID tags,” according to the lab’s website. “ARC has been working with end users to translate RFID use cases into specific levels of performance in the ARC test environment.”
High-quality RFID tags and labels are at the heart of it all. The following are some considerations to keep in mind when choosing an RFID tag and label provider:
What are their quality control and testing capabilities? Can they confirm that every tag is readable? Do they have software to verify that UPC and RFID information match up? Do they possess familiarity with Auburn’s RFID Lab approval process?
What is their capacity? How many thousands or millions of inlays do they create per day? Are there minimum order quantities?
What are their order management and shipping processes like? What is their delivery speed? How easy are they to order from? Where are their print facilities located?
Do they offer customization? Do they possess specialized equipment? Can they die cut irregular shapes, including very small dimensions? Do they possess adhesive expertise and application equipment? Do they have solutions for metal, liquid, and other difficult-to-tag items? Are they able to configure label rolls to work on automatic label dispensers?
It takes trial and error to implement RFID item tagging for nonapparel products. Effective, compliant programs do not manifest overnight. Collaboration with experienced label providers and the Auburn RFID Lab will help manufacturers overcome even the most complex RFID tagging challenges. There will be a roadmap to success, and the results in the form of better inventory visibility, swifter sell-through, and stronger sales will be well worth it.