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FEBRUARY 2018

Is your supply chain fit for the future?

BUSINESS ASSURANCE

VIEWPOINT REPORT

SAFER, SMARTER, GREENER

03VIEWPOINT REPORT

CONTENTS

FOREWORD

INTRODUCTION

METHODOLOGY AND SURVEY SAMPLE

NOTES TO THE READER

MAIN RESULTS

08 Sustainable supply chain management

15 Main drivers for sustainable supply chains

16 Actions undertaken: Supply chain sustainability and the key aspects addressed

19 Main benefits achieved and cost-benefit trade-off

22 Raising awareness

23 Perceived sustainability maturity

24 Future outlook: Performance maturity, drivers and actions 3 years from now

OUR FINAL THOUGHTS

35 Profiling the leaders

36 Leaders’ approach to sustainability in supply chains

CREDITS

37 DNV GL project team

37 External experts

04VIEWPOINT REPORT

FOREWORDCompanies continue to face increasing demands to demonstrate that sustainability considerations are taken into account not only in directly controlled operations but across the entire value chain, as well.

The pressure is coming from multiple direct and indirect stakeholders, e.g. customers and final consumers, national and international legislations, global agreements (such as the Paris Agreement from COP 21 and the UN Sustainable Development Goals, both signed in 2015). In addition, there are also international standards such as ISO 20400 Guidance for Sustainable Procurement launched in 2017.

With the increased pressure comes the expectation that companies should proactively manage all tiers of their supply chain in a way that contributes to the world’s goals and targets on sustainable development. They are held accountable if they do not follow through, and in particular if something goes wrong somewhere. Such expectations call for action and transparency.

In 2014, DNV GL – Business Assurance conducted an identical survey on companies’ approach to supply

chain sustainability – same scope and questions – to understand how companies approached and managed sustainability in their value chain. Compared to 3 years ago, the context within which companies operate has changed significantly. Mirroring the macro-trends, the concept of what constitutes sustainable procurement and supply chain management, and what it entails to succeed has evolved, ranging from legislative and stakeholder demands to global frameworks demanding new voluntary actions that contribute both to a successful business performance and respond to common global challenges.

Providing an adequate response requires a certain level of understanding and maturity. Those companies able to succeed are taking a structured and proactive approach, incorporating sustainability considerations into their business strategy and operations. While responding to stakeholder demands, these companies contribute to societal goals as they create value for their business. It is standard operating procedure, not something added on top.

With global targets and goals in place, pinpointing where we need to be to secure a safe and sustainable future, with legislation driving focus and efforts and increased pressure from multiple other stakeholders, companies now have a direction and measure. Failing to manage the supply chain is a risk, and starting the process to take control is an opportunity to create value for business and society at large.

05VIEWPOINT REPORT

INTRODUCTIONDNV GL – Business Assurance, supported by the international research institute GFK Eurisko, has surveyed how companies are approaching supply chain sustainability and how mature they are in their approach today, compared to the 2014 survey on the same topic. This edition of the survey was supported by Supplier Ethical Data Exchange (Sedex), a not-for-profit membership organisation, which also operates the world’s largest collaborative platform for sharing responsible sourcing data on supply chains.

The 2017 survey seems to indicate that companies overall have a broader understanding of what is required to sustainably manage ones’ supply chain. Nevertheless, with greater demands and better references against which to measure performance, a gap seems to be emerging between the beginners and those leading the way. With greater insight, more companies rate themselves as beginners now than in 2014. At the other end of the scale, those defined as LEADERS seem to pull ahead, widening the gap. They seem to be on the right path and know how to further improve and advance. They stand out as they are managing their supply chain with a strategic approach, penetrating all tiers of their value chains with a holistic and structured approach and actions.

Most companies indicate, not surprisingly, an ambition to improve over the next 3 years. For those rating themselves lower on the maturity scale today, however, when analysing their intended actions to improve indications are that they may not quite have the right insight to close the gap. With more internal, self-conducted approaches and limited penetration beyond tier 1 of their supply chain, it seems that these companies need a more pro-active approach to fulfil their ambitions.

Engaging with independent specialised audit firms but also directly with suppliers, for example, LEADERS have moved away from more narrow self-conducted, internalized approaches. In the survey, the LEADERS underscore both the benefit and value they derive from their actions.

Interestingly, disclosure of information about sustainability in the supply chain is still in its early stages, despite the opportunities offered by digitalization. While not a replacement for a strategic and holistic approach, the ability to leverage on existing and emerging digital tools can help companies advance their supply chain sustainability.

Overall, companies seem to feel more pressure today to manage their supply chain in a sustainable manner than in 2014. The demands are that they take action and respond to customers and final consumers but also other stakeholders, including those setting forth international and national regulatory framework and societal expectations such as the Paris Agreement and the SDGs.

06VIEWPOINT REPORT

■ The sample consists of customers of DNV GL – Business Assurance and does not claim to be statistically representative of companies worldwide.

■ The questionnaire was administered using the CAWI (Computer Assisted Web Interviewing) methodology.

■ The sample includes 60 companies defined as LEADERS. The classification of a company as a LEADER is based on a list of attributes defined by DNV GL – Business Assurance.

METHODOLOGY AND SURVEY SAMPLE

■ The survey was conducted between September and October 2017. It involved 1,408 professionals in companies in the primary, secondary and tertiary sectors across different industries in Europe, North America, Central & South America and Asia.

The LEADERS are companies identified on the basis of the following attributes:

■ The company considers sustainability aspects when making buying decisions to some or to a great extent.

■ The company has undertaken at least one sustainability action regarding its supply chain.

■ The company has implemented sustainable actions across all the tiers of its supply chain.

ATTRIBUTES OF COMPANIES IN THE LEADERS GROUP

Europe 40%

Asia 45%

North America 6%

Central and South America 6%

Others 3%Figure 1: Geographic breakdown of companies in the survey (percentage of companies).

07VIEWPOINT REPORT

■ The graphs report scores obtained by: the totality of the respondents, respondents across different regions, respondents in large companies employing more than 1,000 persons and LEADERS.

■ For the reader’s convenience, the word “average” has been used throughout the text to indicate mean scores computed across all respondents.

NOTES TO THE READER

■ In the figures in this report, green circles highlight data significantly above the survey average. Red circles highlight results significantly below the average.

■ DK/DA represents “don’t know” and/or “didn’t answer”.

INDUSTRYCOMPANY SIZE IndustryCompany size

3.6%

1.7%

0.8%

1.1%

53.3%

6.3%

4.1%

4.2%

11.9%

7.5%

4.8%

14.4%

28.8%

2.5%

4.1%

4.7%

7.7%

2.2%

7.6%

PRIMARY

Agriculture, hunting and forestry

Fishing

Mining and quarrying

SECONDARY

Food

Chemicals

Plastic

Metals

Machinery

Electrical

Other secondary

TERTIARY

Electricity, gas and water supply

Construction

Wholesale and retail trade

Transport, storage, communication

Health and social work

Other tertiary

23.7%

12.3%

18.8%

16.9%

18.3%

<50

50-99

100-249

250-999

1000 +

IndustryCompany size

3.6%

1.7%

0.8%

1.1%

53.3%

6.3%

4.1%

4.2%

11.9%

7.5%

4.8%

14.4%

28.8%

2.5%

4.1%

4.7%

7.7%

2.2%

7.6%

PRIMARY

Agriculture, hunting and forestry

Fishing

Mining and quarrying

SECONDARY

Food

Chemicals

Plastic

Metals

Machinery

Electrical

Other secondary

TERTIARY

Electricity, gas and water supply

Construction

Wholesale and retail trade

Transport, storage, communication

Health and social work

Other tertiary

23.7%

12.3%

18.8%

16.9%

18.3%

<50

50-99

100-249

250-999

1000 +

Figure 2: Companies in the sample. Size (number of employees) and industry sectors. (Some respondents did not answer the questions related to company size and industry. Thus, the totals do not add up to 100%.)

08VIEWPOINT REPORT

MAIN RESULTS

SUSTAINABLE SUPPLY CHAIN MANAGEMENT

Companies were presented with a list of aspects contributing to supply chain sustainability, ranging from environmental factors to market related areas, internal and external social aspects and labor and human factors.

When asked which specific aspects they consider relevant for the sustainability of a supply chain, over half of the respondents answered low environmental impact (55%). The environmental priority is closely followed by workplace health and safety (50%) and by the robustness of financial management (38%). Philanthropy, community investment and cause-related marketing aspects are not seen as crucial in the evaluation of supply chain sustainability, with percentages at 5% or less.

Compared to the 2014 results, the ranking of the top 3 areas remains the same as 3 years ago. The only change is in the average scores, where strong financial management has slightly decreased.

Geographical variations are significant, probably due to the different impacts of regulations. Among the top 3 aspects, Europe showed the greatest focus on environmental aspects (70%) and the lowest for strong financial management (27%). On the contrary, North America scored lowest for environmental impact (37%) and highest for financial management (56%).

When comparing geographical differences for human and labour rights, Europe stands out. For human rights, Europe scores 21% vs. an average of 14% and for labour rights 17% vs. an average of 12%, likely due to the recent introduction of specific laws.

IN YOUR OPINION, WHAT ARE THE RELEVANT ASPECTS FOR A SUPPLY CHAIN IN ORDER TO BE CONSIDERED SUSTAINABLE? SELECT THE TOP 3

Figure 3: Relevant aspects for a supply chain to be considered sustainable

Europe Asia North America

CentralSouth

America

n=556 n=627 n=75 n=81

69.6% 43.9% 37.3% 59.3%

54.0% 44.0% 58.7% 49.4%

27.0% 44.7% 56.0% 43.2%

31.3% 23.9% 50.7% 44.4%

13.0% 40.4% 18.7% 16.1%

16.0% 28.2% 21.3% 19.8%

19.8% 19.3% 8.0% 21.0%

21.0% 8.3% 12.0% 9.9%

17.3% 9.9% 4.0% 8.6%

7.7% 10.2% 6.7% 8.6%

3.8% 8.5% 5.3% 7.4%

7.0% 3.0% 6.7% 2.5%

0.5% 6.7% 0.0% 3.7%

TOTAL 1,408

Low environmental impact

Health & Safety at work

Strong financial management

Ethics

Certainty of employmentfor workers

Safe use

Fairtrade

Human rights

Labour rights

Equal opportunities

Cause related marketing

Community investment

Philanthropy

55.3%

49.8%

38.4%

29.4%

25.9%

22.2%

19.1%

14.1%

12.2%

8.8%

6.1%

5.0%

3.4%

LEADERS

n=60

60.0%

53.3%

43.3%

31.7%

16.7%

20.0%

23.3%

10.0%

8.3%

13.3%

11.7%

3.3%

1.7%

Large Companies

n=258

60.1%

50.8%

35.7%

34.9%

18.2%

20.5%

17.8%

22.1%

12.0%

8.5%

7.8%

5.0%

2.3%

2014

n=2061

55.6%

50.6%

42.8%

28.6%

23.3%

17.1%

25.6%

12.2%

10.5%

9.0%

10.3%

5.9%

3.9%

09VIEWPOINT REPORT

Large companies show more focus on environmental (60%), ethics (35%) and human rights (22%) aspects than the overall average (see fig. 3).

When bundling the different social aspects1 (from fig. 3) and comparing against environmental, financial management, ethics and other aspects, we see that social aspects do have quite a strong focus across the board (see fig. 4).

IN YOUR OPINION, WHAT ARE THE RELEVANT ASPECTS FOR A SUPPLY CHAIN IN ORDER TO BE CONSIDERED SUSTAINABLE? SELECT THE TOP 3

Figure 4: Relevant aspects for a supply chain to be considered sustainable. Aggregated data.

LEADERS show higher percentages for the top 3 aspects, with a particularly stronger focus on environmental impact and finance.


CentralSouth

America

n=556 n=627 n=75 n=81

87.1% 87.9% 80.0% 81.5%

69.6% 43.9% 37.3% 59.3%

27.0% 44.7% 56.0% 43.2%

31.3% 23.9% 50.7% 44.4%

26.1% 43.7% 32.0% 30.9%

86.9%

55.3%

38.4%

29.4%

34.8%

Social aspects

Environmentalaspects

Financial management

Ethics

Other aspects

TOTAL 1,408Large

Companies

n=258

86.1%

60.1%

35.7%

34.9%

33.7%

LEADERS

n=60

86.7%

60.0%

43.3%

31.7%

35.0%

2014

n=2061

87.8%

55.6%

42.8%

28.6%

33.7%

1 Social aspects includes the bundling of health & safety at work, certainty of employment for workers, fair trade, human rights, labour rights and equal opportunities.

10VIEWPOINT REPORT

When it comes to buying decisions, sustainability in supply chains is important to 9 in 10 of the companies surveyed. It matters to a great extent to 1 in 3 of the respondents.

For large companies a total of 41% (vs. average 33%) indicate that they consider sustainability aspects to a great extent.

TO WHAT EXTENT DOES YOUR COMPANY CONSIDER THE SUSTAINABILITY ASPECTS LISTED BEFORE, WHEN MAKING BUYING DECISIONS?

Figure 5: Importance of sustainability aspects when making buying decisions

All LEADERS include sustainability aspects in their buying decisions. A total of 60%, almost double the average (33%), consider sustainability aspects to a great extent.

TOTAL 1,319Europe Asia North

America

CentralSouth

America

n=515 n=593 n=66 n=77

33.6% 31.7% 28.8% 36.4%

61.4% 66.3% 63.6% 57.1%

5.1% 2.0% 7.6% 6.5%

33.0%

62.9%

4.1%

extent

extent

Not at all

Large Companies

n=245

41.2%

57.6%

1.2%

LEADERS

n=60

60.0%

40.0%

0.0%

2014

n=2061

31.5%

64.0%

4.5%

To a great

To some

11VIEWPOINT REPORT

A total of 86% of the respondents experienced pressure to manage their supply chain in a sustainable way and 23% feel this pressure to a great extent.

When comparing those responding to a great extent to the 2014 results there is an increase of 7 percentage points.

Europe registers rates slightly lower than average. This may be linked to the presence in the region of more structured schemes and models that businesses have already adopted. Asian companies, on the contrary, feel more pressure (91%).

A total of 92% of large companies indicate they feel under pressure.

TO WHAT EXTENT DOES YOUR COMPANY FEEL UNDER PRESSURE TO SHOW IT HAS A MORE SUSTAINABLE SUPPLY CHAIN?

Figure 6: Pressure to show a more sustainable supply chain

LEADERS feeling pressure to a great extent are significantly higher than the average (40% vs. average 23%) while those feeling pressure to some extent is lower than the average (48% vs. average 64%).


America

CentralSouth

America

n=505 n=569 n=66 n=77

21.0% 21.1% 28.8% 28.6%

59.6% 69.8% 54.6% 58.4%

19.4% 9.1% 16.7% 13.0%

22.7%

63.6%

13.7%

To a greatextent

To someextent

Not at all

Large Companies

n=242

29.3%

62.4%

8.3%

LEADERS

n=58

39.7%

48.3%

12.1%

2014

n=2061

15.8%

64.4%

19.8%

12VIEWPOINT REPORT

13VIEWPOINT REPORT

Until recently, it was widely perceived that responsibility for the management of a supply chain mostly involved promoting legal compliance through the supply base.

Large companies with international supply chains that had published a Code of Conduct, distributed it to direct suppliers (tier 1) and initiated a monitoring program were seen as leaders. A significant evolution appears to have occurred since.

To start with, the Rana Plaza collapse in April 2013 reopened the debate about the extent of responsibility on purchasing companies and their due diligence. Until then, Suppliers’ Codes of Conduct had served the purpose of creating awareness, especially on workers’ fundamental rights and basic workplace conditions. Now, however, brands and retailers are supposed to take new steps: how can they ensure that such Codes are effectively implemented in complex and international supply chains? What systems can be applied to verify compliance and disqualify suppliers unable to meet such requirements? Most international

programs used for independent auditing of workplaces were revised following the incident. SA8000, the largest scheme for third-party certification of company social and ethical practices, for example, was revised in 2014, with stricter mandatory requirements on fire safety. The SMETA methodology for social/ethical audits on suppliers was also revised in 2014, and then again in 2017.

Along with the pressure from non-governmental organizations and civil society, governments and international institutions stepped up their normative efforts too. Several governments, for example, pushed international companies that sourced in Rana Plaza to establish and contribute to a Trust Fund for compensation of the victims’ families.

Legally required due diligence on supply chains was initially limited to specific sectors considered at high risk, such as the sourcing of minerals (see section 1502 of US Dodd Frank Act, EU regulation, Conflict Minerals Bill in Canada) but this type of regulation has been increasing since. In 2017, the Organisation for

SUPPLY CHAIN SUSTAINABILITY: WHAT HAS CHANGED IN RECENT YEARS

14VIEWPOINT REPORT

Economic Co-operation and Development (OECD) expanded its due diligence approach to cover the garment and footwear sectors. On a broader scale of sustainability aspects, expectations have increased for business to take further actions, for example on climate change, following the Paris Agreement in 2015. The launch of the UN Sustainable Development Goals in December 2015 also raised the benchmark for companies aiming at more sustainable practices. These international initiatives might have affected primarily large multi-national companies, but this led to cascaded pressure on their suppliers too.

Higher standards on supply chain due diligence have raised a call for increased transparency on purchasing decisions and practices: the EU Directive 2014/95, for example, on disclosure of non-financial and diversity information by large companies, expanded the range of mandatory information to be made public on environmental protection, social responsibility, human rights and governance issues; a “modern day slavery” public statement is now requested from companies registered in the UK and with a turnover above £36m; France’s 2017 new corporate law makes it mandatory for companies employing 5,000 staff in France or 10,000 worldwide to disclose supplier-related issues on sustainability, human rights and environmental concerns; similar legislation is being considered in Switzerland, Spain and Belgium. Even the voluntary Global Reporting Initiative for sustainability reporting has expanded its indicators of suppliers’ sustainable performance.

During this evolving period, a stronger case has been made for innovative and collaborative initiatives, as opposed to previous actions, often led by pioneering companies but in isolation. Multiple joint stakeholder initiatives have kicked off or have been bolstered, promoting cooperation within the private sector as well as with governments, international institutions, civil society and NGOs. The “Accord on Fire and Building Safety in Bangladesh”, a binding agreement between global brands, retailers and trade unions, showed how factory auditing could also benefit from such an approach. Mutual recognition of supplier audit activities has soared, and according to the Sedex organization, 75% of SMETA audit reports are now shared by suppliers with at least 2 customers or more.

One further initiative has not topped the headlines but should be regarded as particularly noteworthy. Following years of multi-stakeholder consultation, a new international standard (ISO20400) was launched in 2017, setting out a best practice approach for maximizing the creation of shared value along supply chains. This standard is still in the early phases of being acknowledged and implemented, but its aim is to represent a new benchmark for leading purchasing companies: the bar moves from promoting and monitoring compliance in the supply chain (Responsible Sourcing) to the creation of added value and the achievement of sustainability goals through purchasing practices and decisions (Sustainable Procurement).

15VIEWPOINT REPORT

MAIN DRIVERS FOR SUSTAINABLE SUPPLY CHAINS

We presented the respondents with a list of stakeholder categories and asked them to select the ones that most drove their market/business decisions to create a more sustainable supply chain strategy. They could select all the stakeholder options they believed applicable to their organization.

The results clearly highlight that customers are the main driver for a more sustainable supply chain strategy (76%). With a significant gap behind the customer driver, compliance comes in second: externally driven by regulators/authorities (33%) and internally driven by corporate requirements/policies (32%).

Less relevant drivers follow: suppliers (27%), competitors (23%) and final consumers (22%). Other stakeholders, such as investors and local communities (7%), NGOs (3%) and unions (1%) seem to play a very marginal role.

Compared to 2014 results, customers remain high, with a continued significant gap to the runner up stakeholder drivers. The top 3 have remained unchanged.

Large companies score the customer driver somewhat lower (71% vs. average 76%) but score higher than average for several stakeholder drivers, perhaps indicating that they consider more influencers.

LEADERS score higher for almost all the stakeholder drivers compared to the average. There seems to be a stronger emphasis on suppliers (38%), competitors (37%) and final consumers (37%).

WHICH ARE THE MAIN DRIVERS INFLUENCING YOUR MARKET/BUSINESS IN ORDER TO MANAGE A MORE SUSTAINABLE SUPPLY CHAIN?

Figure 7: Main drivers for a sustainable supply chain


CentralSouth

America

n=556 n=627 n=75 n=81

75.5% 75.8% 77.3% 79.0%

37.4% 23.8% 42.7% 50.6%

39.0% 27.3% 33.3% 17.3%

20.7% 28.7% 37.3% 44.4%

16.4% 27.9% 24.0% 19.8%

21.4% 20.4% 18.7% 30.9%

12.6% 15.3% 21.3% 12.4%

8.8% 4.3% 10.7% 9.9%

9.0% 3.7% 5.3% 6.2%

4.3% 1.6% 2.7% 7.4%

1.3% 1.0% 1.3% 3.7%

2.5% 2.4% 4.0% 2.5%

TOTAL 1,408

76.4%

32.9%

32.0%

26.6%

22.8%

21.5%

14.6%

7.0%

6.8%

3.1%

1.4%

2.5%

Customers

Regulators andother authorities

Corporateleaders/policy

Suppliers

Competitors

Final consumers

Employees

Investors

Local community

Non-governmentalorganizations

Unions

None of the above

Large Companies

n=258

70.9%

38.0%

38.8%

28.7%

25.2%

28.3%

14.7%

12.4%

9.3%

3.5%

1.2%

2.7%

LEADERS

n=60

70.0%

51.7%

30.0%

38.3%

36.7%

36.7%

21.7%

13.3%

13.3%

13.3%

1.7%

3.3%

2014

n=2061

79.5%

32.5%

30.2%

28.6%

26.9%

22.6%

14.8%

7.8%

6.5%

3.6%

1.9%

2.1%

16VIEWPOINT REPORT

ACTIONS UNDERTAKEN: SUPPLY CHAIN SUSTAINABILITY AND THE KEY ASPECTS ADDRESSED

A total of 81% of the respondents say their companies have taken at least one action to improve their supply chain sustainability. Initiatives undertaken are mainly self-conducted: 39% have directly undertaken an audit of some suppliers, 36% have required suppliers to provide information, 32% have either

undertaken dialogue with suppliers to address these challenges or have implemented and communicated a sustainable policy. On average, companies seem to mostly rely on self-conducted initiatives and limit those to a few tier 1 suppliers. They make limited use of third party specialists to assess their supply chain.

There is a slight increase from 2014 in the share of companies that have undertaken at least one action (+5 percentage points). The implementation and communication of sustainable policies has increased from 25% in 2014 to 32% in 2017, the most significant growth in percentage terms. Other common actions have not changed significantly compared to 2014.

IN THE LAST 3 YEARS, WHICH OF THE FOLLOWING SUSTAINABILITY ACTIONS REGARDING YOUR SUPPLY CHAIN HAS YOUR COMPANY TAKEN?

Figure 8: Sustainability actions in the last 3 years


CentralSouth

America

n=489 n=581 n=61 n=72

78.3% 83.0% 77.1% 77.8%

35.4% 43.6% 36.1% 29.2%

41.5% 31.7% 29.5% 34.7%

29.2% 33.2% 42.6% 33.3%

34.4% 30.5% 29.5% 23.6%

7.0% 15.7% 6.6% 9.7%

5.7% 12.6% 8.2% 13.9%

5.3% 5.2% 9.8% 4.2%

11.0% 8.4% 14.8% 13.9%

21.1% 17.0% 23.0% 22.2%

0.6% 0.0% 0.0% 0.0%

TOTAL 1,265

80.6%

38.6%

36.3%

32.4%

31.8%

11.2%

9.6%

5.6%

10.2%

19.1%

0.2%

AT LEAST ONE ACTION

Directly undertaken an audit ofsome suppliers

Required suppliers to provideinformation

Undertaken dialogue withsuppliers to these challenges

Implemented and communicateda sustainable policy

Commissioned an external auditof suppliers against your own

audit protocol

Provided training for suppliers onsustainability management

Required an external audit usinga recognized methodology

Other actions

No actions undertaken

Didn’t answer

LEADERS

n=60

100.0%

48.3%

55.0%

40.0%

55.0%

20.0%

28.3%

13.3%

18.3%

0.0%

0.0%

Large Companies

n=242

90.9%

52.1%

48.8%

38.4%

48.8%

16.1%

17.8%

7.9%

10.3%

8.7%

0.4%

2014

n=1867

76.3%

36.0%

34.2%

30.6%

25.2%

11.6%

9.2%

4.6%

13.0%

23.1%

0.5%

17VIEWPOINT REPORT

Respondents from large companies are more engaged in the sustainability management of their supply chain than the average respondents: 91% have deployed at least one action, 52% have directly undertaken supplier audits and 49% have both required suppliers to provide information and have implemented and communicated a policy for the sustainability of the supply chain.

When questioned about the extent of their actions, only 7% of the respondents declare they have reached out to all tiers of their supply chain. The range of self-conducted actions and initiatives seem to have limited penetration into the supply chain. A total of 42% have reached only a few tier 1 suppliers2.

The picture has not changed significantly since 2014, with the number of responding businesses reaching all tiers of their supply chain increasing only minimally. Three years later, despite a growing awareness and a growing rate of implemented actions, the approach is still far from what could be described as a mature approach to sustainability.

In contrast, inclusion in the LEADER category requires answering that the company has complete penetration of all tiers of the supply chain, which explains their 100% score for this metric.

All LEADERS have implemented at least one action. They are implementing more actions than the average company. The highest scores are for implemented and communicated a sustainability policy (55%), required suppliers to provide information (55%) and directly undertaken an audit of some suppliers (48%).

LEADERS seem to focus more on training of their suppliers and the use of independent external audits. They score almost 3 times higher than the average when it comes to providing training for suppliers (28% vs. average 10%). LEADERS score almost 2 times higher than the average both for external supplier audits against own protocol (20% vs. average 11%) and using a recognized methodology (13% vs. 6%).

HOW FAR DO THE ABOVE-MENTIONED ACTIONS, IMPLEMENTED BY YOUR COMPANY, EXTEND ACROSS YOUR SUPPLY CHAIN?

Figure 9: Penetration of actions across the supply chain

TOTAL 901Europe Asia North

America

CentralSouth

America

n=322 n=450 n=37* n=49*

7.5% 6.2% 2.7% 6.1%

20.2% 22.2% 18.9% 18.4%

31.7% 27.3% 43.2% 38.8%

40.7% 44.2% 35.1% 36.7%

6.7%

21.1%

30.1%

42.2%

Complete penetration of alltiers of the supply chain

Across the majority of tier 1suppliers and some

interactions at all levels oftrading partners

Across the majority of tier 1suppliers only

A few tier 1 suppliers only(i.e. suppliers you buy from

directly)

*Very low sample (less than 50 respondents)

LEADERS

n=60

100.0%

0.0%

0.0%

0.0%

Large Companies

n=190

10.5%

26.8%

35.3%

27.4%

2014

n=1425

5.4%

22.6%

29.1%

42.9%

2 A tier 1 supplier is the member of the supply chain closest to sourcing company. In the typical supply chain of a company, tier 2 suppliers supply tier 1, tier 3 supplies tier 2, and so on.

18VIEWPOINT REPORT

Companies were asked what aspects they have addressed to improve the sustainability of their supply chain. Results show a focus towards human safety and risks, as 1 out of 2 reply that the health and safety of workers (53%) and an understanding of sustainability risks along the supply chain (51%) are the main aspects addressed.

Results vary across regions. Workforce safety registers the highest percentage of responses in Europe (65%) whereas it is lowest in Asia (39%). North America and Asia focus more on addressing the understanding of sustainability risks along the supply chain, scoring 60% and 59%, respectively.

Energy use is higher on the agenda in more mature Western economies, with 50% of European and 49% of North American companies addressing it against an average of 38%. Central and South America register the highest peak for water use (39%) against an average of 24%.

A comparison with the 2014 findings reveals a greater effort by businesses to address risks coming from their supply chains (51% vs. 44% in 2014). Although companies are mainly working on the tier 1 level of their supply chain, they are at least trying to understand risks, which is a first step to start with in order to deploy a sustainability strategy.

LEADERS stand out, scoring higher than average on most aspects, indicating a sharp focus and broader approach overall. When it comes to water use, in particular, LEADERS score twice the average (48% vs average 24%).

WHICH OF THE FOLLOWING ASPECTS HAS YOUR COMPANY ADDRESSED IN ITS OWN SUPPLY CHAIN IN ORDER TO IMPROVE SUSTAINABILITY?

Figure 10: Top 10 aspects addressed in supply chains


CentralSouth

America

n=383 n=482 n=47* n=56

65.5% 38.6% 63.8% 58.9%

41.5% 58.9% 59.6% 41.1%

44.9% 36.5% 55.3% 37.5%

49.9% 25.1% 48.9% 32.1%

48.0% 27.2% 36.2% 44.6%

43.9% 26.4% 53.2% 46.4%

48.0% 24.1% 48.9% 42.9%

25.3% 29.5% 38.3% 41.1%

30.0% 15.2% 34.0% 39.3%

20.6% 23.2% 25.5% 17.9%

52.5%

51.0%

41.4%

37.7%

37.5%

36.9%

36.8%

29.7%

24.3%

22.3%

Health and safety of workers

Understand sustainabilityrisks in supply chain

Use of hazardous substances

Energy use

Waste generation

Avoidance of corruptbusiness practice

Implementation of a code ofconduct

Education programs toincrease awareness and

safety practice

Water use

Undertaken life cycle toquantify product impacts

TOTAL 1,020

*Low sample (less than 50 respondents)

LEADERS

n=60

70.0%

70.0%

51.7%

55.0%

53.3%

38.3%

55.0%

50.0%

48.3%

40.0%

Large Companies

n=220

63.2%

58.2%

56.8%

46.4%

43.2%

47.7%

54.6%

39.6%

35.9%

33.6%

2014

n=1425

56.4%

43.9%

44.4%

42.0%

39.7%

36.9%

36.6%

34.3%

27.1%

17.8%

19VIEWPOINT REPORT

MAIN BENEFITS ACHIEVED AND COST-BENEFIT TRADE-OFF

Almost 1 in 2 companies improved their ability to meet customers’ needs by implementing sustainability in their supply chain. This indicator suggests there is a direct correlation between sustainability and the running of a successful business. The results, though, highlight that companies are still adopting a tactical approach, as companies polled do not seem to correlate competitive advantage (26%) and market share (15%) with the ability to meet customers’ needs.

While the top 3 benefits remain the same as they were in 2014, their order has slightly changed. Improved ability to meet customer needs remains top of the list (49% vs. 54% in 2014) while improved relationship with stakeholders (41% vs. 36% in 2014) has moved ahead of reduced social or environmental risk from supply chain (38% vs. 40% in 2014).

European businesses show a lower percentage responding that benefits relate to meeting customer needs (44%), whereas Asian companies score highest for that benefit (55%). North America registers the highest percentage who think no benefits are achieved (15%).

OVERALL WHAT BENEFITS DID YOUR COMPANY ACHIEVE FROM THE ACTIONS IMPLEMENTED?

Figure 11: Main benefits achieved


CentralSouth

America

n=383 n=482 n=47* n=56

44.4% 54.6% 53.2% 30.4%

32.6% 44.6% 42.6% 53.6%

38.9% 36.7% 38.3% 39.3%

36.0% 26.8% 27.7% 42.9%

21.9% 30.1% 19.2% 30.4%

12.8% 19.5% 8.5% 8.9%

7.3% 6.6% 14.9% 12.5%

8.6% 2.7% 14.9% 7.1%

49.4%

41.2%

37.8%

32.5%

26.5%

15.9%

7.7%

5.8%

Improved ability to meetcustomer needs

Improved relationshipwith stakeholders

Reduced social orenvironmental risks from

supply chain

Gained brand reputation &awareness

Gained competitiveadvantage

Increased marketshare/sales

Other benefits

No benefits achieved

TOTAL 1,020


LEADERS

n=60

58.3%

46.7%

58.3%

65.0%

40.0%

31.7%

21.7%

0.0%

2014

n=1425

53.6%

35.9%

40.1%

34.2%

29.0%

17.0%

10.2%

5.3%

Large Companies

n=220

50.0%

52.7%

54.6%

42.3%

27.7%

16.8%

10.9%

3.2%

LEADERS show higher rates for all benefits and all of them have achieved benefits from the actions implemented. Two items stand out compared to the average. LEADERS score brand reputation and awareness the highest (65% vs. 33% on average). Market shares/sales (32% vs. 16% on average) stands out as well, scoring significantly above average.

20VIEWPOINT REPORT

As to the cost-benefit ratio their sustainability actions have generated, 76% respond positively, implying that benefits are greater than or equal to cost. Among these, 35% report that benefits are greater than cost.

Compared to the 2014 results, there are signals that the scenario is not improving. The percentage of companies indicating that benefits are lower than cost is the same as in 2014. For those reaping benefits, the percentage of companies declaring that benefits are higher than cost has decreased (35% vs. 40% in 2014) and there is an increase among those declaring benefits equal to cost (41% vs. 36% in 2014). This indicates how the persisting tactical, self-conduced approach is limited in effectiveness, despite the investments being made.

Among those companies indicating that cost is higher than benefits achieved, North American companies score the highest (44% vs. average 24%).

HOW DO YOU RATE THE OVERALL COST/BENEFIT RATIO FOR THE ACTIONS YOUR COMPANY HAS UNDERTAKEN?

Figure 12: Overall cost-benefit ratio for the actions undertaken


CentralSouth

America

n=253 n=324 n=25* n=42*

35.2% 33.3% 12.0% 40.5%

39.5% 45.1% 44.0% 33.3%

25.3% 21.6% 44.0% 26.2%

34.7%

40.9%

24.4%

Benefits greater than costs

Benefits equal to costs

Benefits lower thancosts

TOTAL 680LEADERS

n=45*

57.8%

26.7%

15.6%

Large Companies

n=138

43.5%

35.5%

21.0%

2014

n=1005

40.4%

36.1%

23.5%

*Very low sample (less than 50 respondents)

LEADERS seem to benefit much more than the average. Those indicating benefits greater than cost are 58% vs. average 35%. Only 16% vs. average 24% perceive benefits to be lower than cost.

21VIEWPOINT REPORT

Companies who have commissioned external audits and those providing training for their suppliers perceive to a higher degree benefits greater than or equal to cost. Both actions score significantly above average on benefits greater than cost and below average on benefits lower than cost (see figure 13).

The picture is similar for companies who have extended their action range across all tiers of their supply chain, with fewer companies declaring benefits to be lower than cost (16% vs. average 24%) and 58% vs. average 35% indicating benefits greater than cost (see figure 14).



Figure 13: Overall cost-benefit ratio for the respondents having taken sustainability actions

Figure 14: Overall cost-benefit for the respondents having extended sustainability actions across the supply chain

Commissioned an external audit against own protocol

Provided training for suppliers on sustainability

management

Required an external audit using a recognized

methodology

n=109 n=83 n=53

46.8% 47.0% 43.4%

34.9% 36.1% 37.7%

18.4% 16.9% 18.9%

Sustainability undertaken actions (Q5)

34.7%

40.9%

24.4%

Benefits greater than costs

Benefits equal to costs

Benefits lowerthan costs

TOTAL 680

34.7%

40.9%

24.4%

Complete penetration of all tiers

Across the majority of tier 1 suppliers and some interactions at all levels

of trading partners

Across the majority of tier 1 suppliers only

A few tier 1 suppliers only

n=45* n=142 n=196 n=242

57.8% 40.9% 35.7% 25.6%

26.7% 37.3% 42.4% 43.0%

15.6% 21.8% 21.9% 31.4%

Benefits greaterthan costs

Benefits equalto costs

Benefits lowerthan costs

TOTAL 680

Extension of sustainability actions across supply chain (Q6)


22VIEWPOINT REPORT

RAISING AWARENESS

When asked what actions they are undertaking to raise awareness of their company’s engagement in supply chain sustainability, overall percentages are fairly low across the board, with 25% indicating that no actions have been undertaken and 19% answering don’t know or did not answer. Among the actions undertaken, the focus is mainly on communication via marketing related activities (21%) and on disclosing information about the supply chain (20%).

If we compare these results with 2014, the overall picture is largely unchanged.

Percentages are higher than average for large companies. As a further stimulus, the latter must comply also with national and international regulations that require mandatory reporting on sustainability performance. This is typical in supply chain management; larger companies have higher awareness, more obligations and more resources to invest.

Results overall reveal that actions to raise awareness are not so common. This is probably to be read against the fact that the awareness raising activities are often aimed at final users/consumers, whereas companies are more concentrated on and concerned about their customers.

IN THE LAST 3 YEARS, HAVE YOU TAKEN ANY OF THE FOLLOWING ACTIONS TO RAISE AWARENESS OF WHAT YOUR COMPANY IS DOING?

Figure 15: Actions to raise awareness in the last 3 years


CentralSouth

America

n=383 n=482 n=47* n=56

22.2% 18.9% 10.6% 19.6%

22.5% 15.4% 17.0% 26.8%

13.8% 16.6% 6.4% 7.1%

5.7% 10.8% 4.3% 14.3%

14.1% 16.6% 17.0% 19.6%

20.4% 28.8% 34.0% 30.4%

26.1% 13.3% 29.8% 10.7%

20.7%

19.5%

14.9%

8.9%

15.8%

25.2%

18.7%

Made claims in marketingactivities

Published information aboutyour supply chain

Used an externallyrecognized sustainability label

or certificate

Made sustainability claimsdirectly on the product label

Other actions

No actions undertaken toraise awareness

Don’t know / Didn’t answer

TOTAL 1,020


LEADERS

n=60

26.7%

20.0%

21.7%

26.7%

23.3%

10.0%

20.0%

Large Companies

n=220

27.7%

32.3%

16.8%

11.8%

15.0%

11.8%

20.0%

2014

n=1425

25.3%

21.3%

19.4%

10.3%

16.6%

27.8%

12.7%

LEADERS show commitment in raising awareness about their actions towards sustainability management in the supply chain, as they report higher percentages in comparison with the average. It is interesting to note that their awareness actions seem to focus more on marketing activities and on making sustainability claims on their products rather than publishing information about their supply chain.

23VIEWPOINT REPORT

PERCEIVED SUSTAINABILITY MATURITY

On a 5-point scale, the respondents were asked to assess their maturity in terms of sustainability of their supply chain. Companies rating themselves as beginners or slightly above correspond to 50% of the sample, whereas 31% self-assess as being in an intermediate position. Just a small number (5%) describe themselves as advanced (Leader) in sustainable supply chain management.

Compared to the 2014 results, fewer companies rate themselves at maturity level 3 (31% vs. 40% in 2014) and maturity level 4 (13% vs. 18% in 2014). At the other end of the scale, the share of companies rating themselves as Beginner (1) or slightly above 2 have increased (51% vs. 39% in 2014). While there is a very slight increase in those rating themselves as Leader (5), if we combine the top 2 boxes (5 and 4), we see a very slight decrease.

This picture suggests that the scenario and context in which these companies operate have evolved. While on the surface it may seem like companies’ sustainability maturity has declined, they may simply have a better understanding of and framework against which to measure their sustainability.

In 2014 sustainability was addressed mainly via a voluntary approach, as the international and national regulatory framework was at an early stage of development and not especially comprehensive. Nowadays, after the Paris Agreement and the UN Sustainable Development Goals (SDGs), with a more stringent regulatory framework coupled with a clearer picture of what it means to be sustainable, companies are required to make a significantly higher commitment to sustainability.

It is worth noting that large companies register higher percentages for the two highest maturity levels (5 and 4), compared to the overall average for both the 2017 and the 2014 surveys.

WHERE WOULD YOU POSITION YOUR COMPANY ON A 5-POINT MATURITY SCALE FOR SUPPLY CHAIN SUSTAINABILITY?

Figure 16: Self-assessment of maturity in sustainability performance


CentralSouth

America

n=468 n=533 n=55 n=72

4.5% 5.4% 1.8% 5.6%

15.2% 10.7% 12.7% 11.1%

31.6% 30.2% 27.3% 36.1%

26.3% 27.8% 27.3% 26.4%

22.4% 25.9% 30.9% 20.8%

19.7% 16.1% 14.6% 16.7%

48.7% 53.7% 58.2% 47.2%

TOTAL 1,188

5.1%

13.0%

31.3%

26.8%

23.9%

18.0%

50.7%

Leader (5)

4

3

2

Beginner (1)

Top 2 Boxes

Bottom 2 Boxes

LEADERS

n=57

17.5%

38.6%

28.1%

14.0%

1.8%

56.1%

15.8%

Large Companies

n=228

9.7%

21.1%

34.7%

22.8%

11.8%

30.7%

34.7%

2014

n=1867

3.7%

17.9%

39.7%

22.4%

16.3%

21.6%

38.7%

LEADERS score significantly higher than average, with 18% rating themselves as Leader (5) and 39% rating themselves at maturity level 4. Interestingly, this only accounts for 56% of the LEADERS, suggesting a high degree of understanding and self-awareness of what a sustainability strategy requires.

24VIEWPOINT REPORT

FUTURE OUTLOOK: PERFORMANCE MATURITY, DRIVERS AND ACTIONS 3 YEARS FROM NOW

When asked to assess their sustainability maturity 3 years from now, companies expect to have improved their skills. Results show significant improvements. A total of 19% declare they will reach the level of Leader (5). This would be a 14 percentage points growth compared to today. A total of 32% predict that they will reach the maturity level 4, just below the leader position, which would be a 19 percentage

points jump. The percentage describing themselves as Beginner (1) will decrease by 21 percentage points compared to today. These numbers could be interpreted as clear signs of the will to commit to improving supply chain sustainability.

WHERE WOULD YOU POSITION YOUR COMPANY ON A 5-POINT MATURITY SCALE FOR SUPPLY CHAIN SUSTAINABILITY?

Figure 17: Self-assessment of maturity in sustainability performance. Future vs. present


CentralSouth

America

n=468 n=533 n=55 n=72

4.5% 5.4% 1.8% 5.6%

15.2% 10.7% 12.7% 11.1%

31.6% 30.2% 27.3% 36.1%

26.3% 27.8% 27.3% 26.4%

22.4% 25.9% 30.9% 20.8%

TOTAL 1,188

5.1%

13.0%

31.3%

26.8%

23.9%

Leader (5)

Beginner (1)

Leaders

n=57

17.5%

38.6%

28.1%

14.0%

1.8%

Large Companies

n=228

9.7%

21.1%

34.7%

22.8%

11.8%

2014

n=1867

3.7%

17.9%

39.7%

22.4%

16.3%

TODAY

4

3

2


CentralSouth

America

n=443 n=513 n=53 n=68

17.2% 18.3% 13.2% 26.5%

37.7% 24.8% 32.1% 42.7%

29.8% 36.1% 30.2% 30.9%

12.0% 16.8% 24.5% 0.0%

3.4% 4.1% 0.0% 0.0%

TOTAL 1,135

19.1%

31.9%

32.1%

13.7%

3.2%

Leader (5)

4

3

2

Beginner (1)

Leaders

n=56

55.4%

33.9%

8.9%

1.8%

0.0%

Large Companies

n=219

30.1%

39.7%

23.7%

5.5%

0.9%

3 YEARS FROM NOW

TOTAL

+14.1%

+18.9%

+0.8%

-13.1%

-20.7%

LEADERS

+37.8%

Δ % Future - Today

-4.7%

-19.1%

-12.3%

-1.8%

LEADERS seem to have a clear direction and anticipate that their investments will generate results. A total of 55% of LEADERS indicate that they will reach the Leader (5) maturity level in 3 years’ time, which is a growth of 38 percentage points from today.

25VIEWPOINT REPORT

Companies expect supply chain management to remain at the top of the agenda, with pressure from stakeholders increasing. A total of 72% of the respondents expect there to be more pressure 3 years from now.

North America reports a significantly higher percentage compared to the average in this category, with 85% vs. average 72% perceiving a higher pressure than today. The percentage is high for large companies as well (79% vs. average 72%).

DO YOU THINK THE PRESSURE TO SHOW A MORE SUSTAINABLE SUPPLY CHAIN IN THE NEXT 3 YEARS WILL BE…?

Figure 18: Pressure on sustainable supply chain 3 years from now


America

CentralSouth

America

n=533 n=542 n=72 n=80

74.3% 65.7% 84.7% 78.8%

22.0% 28.0% 13.9% 21.3%

0.9% 5.0% 0.0% 0.0%

2.8% 1.3% 1.4% 0.0%

4.1% 13.6% 4.0% 1.2%

72.3%

23.3%

2.5%

1.9%

More than today

Same as today

Less than today

No pressure at all

% Don’t Know/Didn’t Answer

sample on Total8.1%

LEADERS

n=58

77.6%

13.8%

5.2%

3.5%

3.3%

Large Companies

n=247

78.5%

17.4%

2.8%

1.2%

4.3%

LEADERS reported feeling the most pressure already today to have a more sustainable supply chain (fig. 6). When looking ahead, their expectations are that this pressure will continue to grow (78%).

26VIEWPOINT REPORT

Companies intend to keep investing in the sustainability of their supply chains. A total of 46% would invest more and 45% will invest on par with what they are doing today.

In Central & South America, a high percentage of the respondents (51%) express the intention to spend more on sustainability.

Large companies record an above average percentage (59% vs. average 46%), as well.

IS YOUR COMPANY GOING TO INVEST IN THE SUSTAINABILITY OF THE SUPPLY CHAIN IN THE NEXT 3 YEARS?

Figure 19: Investments in the next 3 years


America

CentralSouth

America

n=420 n=421 n=47* n=67

46.9% 43.9% 36.2% 50.8%

45.7% 44.4% 57.5% 43.3%

0.7% 1.7% 0.0% 3.0%

6.7% 10.0% 6.4% 3.0%

24.5% 32.9% 37.3% 17.3%

46.0%

45.1%

1.3%

7.7%

More than today

Same as today

Less than today

No investment at all

28.6%

LEADERS

n=48*

70.8%

22.9%

4.2%

2.1%

20.0%

Large Companies

n=187

58.8%

37.4%

1.1%

2.7%

27.5%% Don’t Know/Didn’t Answer

sample on Total


LEADERS indicate that they will continue to increase their investment in supply chain sustainability in the next 3 years. A total of 71% of LEADERS vs. average 46% say they will invest more than today.

27VIEWPOINT REPORT

When questioned about the actions they expect to implement in the next 3 years, the results reveal that companies overall intend to continue the same actions with a slightly higher intensity. There seems to be no significant shift toward more external and less self-conducted approaches.

Overall, the top 4 actions in the last 3 years remain top 4, but with slight changes in their order. Overall, 38% of the respondents intend to require suppliers to provide information (vs. 36% in last 3 years), 35% intend to implement and communicate a sustainability policy (vs. 32% in last 3 years), 34% will directly undertake an audit of some suppliers (vs 39% in last 3 years) and 33% intend to undertake dialogue with suppliers (vs. 32% in last 3 years).

Large companies are more inclined to resort to third parties for external audits on suppliers (19% vs an average of 12%).

IN THE LAST 3 YEARS / NEXT 3 YEARS, WHICH OF THE FOLLOWING SUSTAINABILITY ACTIONS REGARDING YOUR SUPPLY CHAIN HAS YOUR COMPANY TAKEN /WILL YOUR COMPANY TAKE?

Figure 20: Supply chain sustainability actions on which companies focus. Future vs. past

26%

3%

10%

7%

12%

15%

33%

34%

35%

38%

0%

19%

10%

6%

11%

10%

32%

39%

32%

36%

50% 30% 10% 10% 30% 50%

Don't know

Undertake no actions

Next 3 years Last 3 years

Other actions

Required an external audit using a recognized methodology

Commissioned an external audit ofsuppliers against your own audit protocol

Provided training for suppliers on sustainability management

Undertaken dialogue with suppliers to these challenges

Directly undertaken an audit of some suppliers

Implemented and communicated a sustainable policy

Required suppliers to provide information

TOTAL 1,408 TOTAL 1,265

Next 3 years Last 3 years

LEADERSn=60

LEADERSn=60

55% 55%

62% 55%

42% 48%

48% 40%

30% 28%

27% 20%

22% 13%

23% 18%

0% 0%

10% 0%

The top 4 for LEADERS mirrors the overall picture. However, LEADERS are more prone to undertaking actions and intend to increase even more.

What is particularly interesting, however, is their significant increase in focus on external audit using a recognized methodology (22% vs. 13% in last 3 years) and external audit against own audit protocol (27% vs. 20% in last 3 years). When compared to the overall picture, the use of external audits stands out and distinguishes the approach taken by LEADERS significantly.

28VIEWPOINT REPORT

29VIEWPOINT REPORT

From society in general to business environments, digitalization is changing the way we interact, communicate and access information and create, exchange and store value. Digitalization has been changing our private and social life, and is now bringing new digital expectations to our business life and new paradigms in B2C, B2B, and C2C markets. Digitalization is a common denominator in a set of external and internal market drivers that are transforming supply chains. There are many digital technologies at play that provide an unprecedented opportunity for companies to match and satisfy evolving stakeholder expectations and to reinvent consumer experiences while delivering highly specialized products and services with increased efficiency and speed.

From the application of robotics, IoT, drones and artificial intelligence to streamline and automate business processes to the cloud as the

infrastructure for collaborative networks, data sharing and advanced analytics, to the blockchain for enhanced security and transparency, digitalization offers the opportunity to redesign supply chains, products, collaboration with industry partners, customer engagement and business models. In future supply chain ecosystems, efficiency and speed will be achieved by granting fast and selectively transparent access to information. A significant portion of value is attached to the massive amount of data produced in the ecosystem throughout operations, including contextual information and IoT devices; value which may be unlocked through the adoption of new technologies for digital collaboration. Here, technologies like the cloud and shared ledger technologies will enable advanced platforms for data sharing and collaboration and access to market places for digital services, as well as forums for technical review, customer feedback, social network engagement, etc.

DIGITALIZATION TRENDS IN SUPPLY CHAIN MANAGEMENT

30VIEWPOINT REPORT

As digital technology is redesigning the nature of operations and enhancing responsiveness and predicting and innovation capabilities of supply chains, consumer behaviour and expectations are also changing, pushing for experiences and more engaging products, and consumers are thus playing a leading role in supply chains. Consumers want more information about their products, and want to have the capability to interact seamlessly with the manufacturer, perhaps through a chatbot on a mobile app, or on social networks. Moreover, as new technologies set the course for digital transformation at the speed of customer experience, consumers and end users as individuals will increasingly become active participants in future supply chains and will require more information, control and “digital actionability” over the ownership of their products and related data. Driven by the above consumer behaviour, manufacturers are under pressure to deliver multiple product variants, enhance digital content and information, embed “smartness” in their products and satisfy “storytelling” expectations rather than plain product features, and therefore require the involvement of a complex network of suppliers that needs to be coordinated. Product lifecycles are getting shorter, while stakeholder demands are increasing in number and complexity. Consequently, supply chains are progressively expanding and changing shape, turning into end-to-end ecosystems that include new digital distribution and sales channels, with active participation by end users and consumers.

Linear supply chains are therefore transforming into complex supply chains with several connections between nodes in several directions and new modes of interaction and collaboration. As an example, 3D printing allows to jump from engineering to consumer without passing through the classical manufacturing and distribution processes, while a customer feedback could be shared with the engineering team directly, without passing through marketing and sales. Also, blockchain and smart contract technology will define a new way for interactions between players to occur. Peer-to-peer transactions

signed by digital identities could for instance transfer the property of another digital asset or the digital identity of a physical asset. IoT devices, integrated with artificial intelligence and smart contracts, will also generate new types of interactions that will lead to an exponential increase in M2M communication. These advances will result in the decentralization of supply chain management decisions, delegated to the level of connected assets and authenticated, possibly mobile, users, as well as the possibility to operate on digital markets in complete new ways. For instance, a supplier could bid for an offer while maintaining some information private by employing a zero-proof knowledge smart contract (i.e., information verified by a trusted information system).

These types of interactions will give rise to new categories of risk, and call for trust in potentially new and different forms. Blockchain and other distributed ledger technologies can power new solutions aimed at addressing these challenges and mitigate threats by creating a new ‘Internet of Trust’ infrastructure. This will serve to overcome the present lack of transparency across supply chains, often caused by inconsistent data, lack of interoperability and limited information on the product’s lifecycle, including transport history and user feedback. Product information must jump between nodes in complex supply chain networks so that it can follow the product life cycle. New technologies are rapidly becoming available for the traceability of products and their components, with the potential to make the leap from batch level traceability to serialization (item level). The combination of Blockchain, IoT, tagging and track and trace technologies and applications can already today represent solutions that are attractive and valuable enough in their ability to minimize risks in the supply chain ecosystem to go well beyond justifying their costs. In the future, such solutions are set to create new market opportunities for brand owners and retailers across industries, while increasing transparency and ensuring a better experience to customers and users.

31VIEWPOINT REPORT

CONCLUSIONS

Digitalization is a common denominator in a set of external and internal market drivers that are transforming supply chains and have the potential to radically transform traditional business models and operational paradigms, making supply chains more efficient, responsive, user centric and transparent.

Starting from an analysis of their customers, their current processes and the impact of emerging digital technologies on those processes, companies can use digitalization, on one side, to sustain innovation aimed at improving customer experience, speed, cost and agility in their existing business model.

On another side, starting from a clear understanding of how consumer behaviours and customers’ business models are changing due to the adoption of disruptive technologies, digitalization can reframe innovation by driving a transformation process that completely redefines the essence and the needs of the market, around which it will be possible to build and articulate brand new digital business models that lead to new customer experience and satisfy existing and evolving stakeholders needs.

32VIEWPOINT REPORT

THE MORE THE SUSTAINABILITY FRAMEWORK EVOLVES, THE MORE THE PERFORMANCE GAP SHARPENS.

A VIEW BY SEDEX:

One of the areas that surprised us and stood out the most was the response to the question “Where would you position your company on a 5-point maturity scale for supply chain sustainability?” (illustrated in fig. 17 on page 24). What is remarkable in the 2017 survey compared to 3 years ago is that far more companies are at the early stages of their journey.

A total of 82% of the respondents rate their sustainability maturity between Beginner (1) and maturity level 3. Nearly a quarter (23.9%) rate themselves as Beginner (1). Only 18% rate themselves at the two highest maturity levels (5 and 4). Only 5.1% of the sample rate the maturity level as being Leader (5).

Given this picture, there is plenty of room for improvement. But what fascinated us, in particular, was the difference between the results from this year’s survey and the previous edition conduced in 2014.

Three years ago, the story was a bit different. Whilst the broad splits were similar in this edition to the 2014 survey – 21.6% rated themselves 4 or 5 and 78.4% rated themselves 1 to 3, there is a remarkable development. At the top end of Leader (5) and the bottom end of Beginner (1), there are intriguing questions brought up by the results.

In 2014 only 16.3% thought they were beginners vs. 23.9% now and only 3.7% saw themselves as Leader vs. 5.1% now.

So, between 2014 and 2017, we see divergent movement between the maturity levels Leader (5) and Beginner (1):

■ A growth of about 50% who now believe they are Beginner (1). This begs the question: Has the world gone backwards in terms of sustainability progress over the past 3 years?

■ A growth of about 40% in those who believe they are Leader (5), which poses a different question: Has the world got more leading corporate sustainability exponents now than 3 years ago?

The truth as always will lie somewhere in the middle. We believe that two important factors may have contributed to this observed divergence:

1. The UN Climate Change Agreement made in Paris in 2015 and ratified in New York City in 2016.

2. The launch of the UN Sustainable Development Goals (SDGs) in December 2015.

The first of these sent a seismic wave through the world of sustainability; at last there was global political consensus to act on climate change. This has led to new legislation and directives across the world from country governments, much aimed at the business and corporate world to reduce carbon emissions, improve energy efficiency and move away from fossil fuel based power sources.

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The second of these, whilst subtler and more complicated to grasp, is nonetheless setting a new common benchmark across all sustainability indicators that brings greater clarity to all about the intention of the UN member governments.

It could be reasoned that the nationally determined contributions towards the setting of the 2°C warming limit by national governments, and the resulting directives coming from those governments on businesses, allied to the SDG objectives and framework, have served to clarify the very notion of what it means to be a Leader or a Beginner in sustainable practices for a company.

That is one reason why we might see a larger proportion of companies believing they are actually beginners in their sustainability journeys because when measured against the SDGs or their domestic carbon emission targets, this is really where they are.

Equally, with this clearer framework helping to define the amount of action required by businesses, some companies have taken the initiative and accelerated their sustainable development plans and are pleased to declare themselves leaders, as benchmarked against these frameworks.

This is of course just one theory and we would be very interested to hear others’ views on the possible explanations for this observation in the data.

Another question whose responses particularly struck us was: ”How far do the above-mentioned actions, implemented by your company, extend across your supply chain?” (illustrated in fig. 9 on page 15).

Comparing the data with 2014, there is a very small increase (not statistically significant) in companies understanding ethical trade performance in all tiers of their supply chain.

This is a concern. In 3 years, it would appear that companies have shown scarce appetite for broadening their sustainability inquiries across their supply chains and exerting influence on their suppliers beyond tier 1 by some kind of auditing.

This of course does not mean that companies are not exerting influence in other ways. For example, there is an observable increase in sustainability criteria being written into procurement tenders.

But what it does suggest is that the policing of acceptable ethical performance standards by suppliers to buyers is not gaining the requisite traction. If this is not happening, it means that there is a long way to go to ensure that appropriate sustainability practices are being taught and practiced in those industries and regions that would most benefit from becoming more sustainable.

Sedex is a global non-profit membership organisation and home to the world’s largest collaborative platform for sharing responsible sourcing data, used by more than 45,000 member organisations in over 150 countries. Sedex members use the platform to manage their performance in labour rights, health & safety, the environment and business ethics. Sedex services enable members to bring together many kinds of different data, methodologies, standards and certifications, to make better-informed business decisions, and to drive continuous improvement across their value chains. Sedex is also home to SMETA, one of the world’s most widely used audit formats

Sedex’s contribution was key to analysing the results of the current survey, which polled more than 1,400 professionals from the primary, secondary and tertiary sectors and compared them with the outcomes registered in 2014.

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OUR FINAL THOUGHTS

The building of sustainable supply chains has moved from being a voluntary initiative based on unstructured initiatives, i.e. self-conducted actions, to a more formal, structured approach due to increasing laws and regulations combined with recognized initiatives with ambitious global goals, such as the Paris Agreement, the UN Sustainable Development goals and the ISO 20400 standard on Sustainable Procurement.

Within this context, companies must act and focus on what is required from them rather than what may be easy and convenient to do. Companies able to approach these actions in a strategic, structured and holistic way will benefit and be able to manage their supply chain risks better and build a sustainable supply chain performance penetrating all tiers. Leading companies are able to build more sustainable operations and value chains, while responding to legislative, stakeholder and global demands. These companies, higher on the maturity scale, will naturally reap more benefits.

For companies wanting to improve their maturity in supply chain management, moving from a more tactical to a strategic approach, there are a few key areas upon which it is beneficial to focus.

Concentrating efforts and going beyond the tier 1 is a must. Real risks are often hidden and far from

direct suppliers. Fishing around in the supply chain with a large net in search of compliance issues is not cost-effective and potentially not effective at all. Recognized LEADERS use structured risk assessments and focused efforts to understand their risks and achieve a full penetration of all tiers and more effective results.

This requires transparency throughout the entire value chain. Audit procedures that compile good practices into one audit so that a supplier can have one audit conducted and share it with multiple customers, rather than having a different audit conducted for each customer can be beneficial. Such initiatives will also help to collect information on supplier performance and can also efficiently create visibility further down the value chain.

New opportunities to get control of supply chains are offered by digitalization, as well. Big data and digital tools can help collect and measure supplier performance in a structured and reliable way. For example, secure online platforms for managing and sharing data on responsible sourcing enables organizations to track how their suppliers are performing, identify risks and opportunities for improvement.

Companies should avoid to reinvent the wheel. An advantage they have is to look at collaborative initiatives where organizations can share best practices and learn from those leading the way, both what has worked but equally important what has not.

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■ LEADERS record above-average rates in most of the cases. This indicates that LEADERS are now aware that responsible sourcing must evolve into sustainable procurement as they do recognize it is no longer an issue of monitoring the level of risk and compliance in the supply chain but shall be regarded as a success factor for sustainable business performance.

■ Regulations, but especially customers, are driving their actions. They are aware that being active in managing sustainability throughout the whole supply chain generates opportunities for business improvement. They are gaining market shares and obtaining other market related benefits from managing their supply chain sustainably. What is certain is that benefits are higher than costs to them.

■ Their approach is structured. Some behaviours are common: they have dedicated policies in place and their actions extend throughout all the levels of their supply chain. In line with the growing role of digitalization, the collection and systematization of suppliers’ data is pivotal to them. Same for the involvement of professional third parties for auditing suppliers and the application of internationally recognized schemes.

■ However, they feel that there is still a lot to do and are willing to commit to improve the sustainability of their supply chain and increase their investments because they recognize it will be of higher relevance for the future success of their organisations.

PROFILING THE LEADERS

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LEADERS’ APPROACH TO SUSTAINABILITY IN SUPPLY CHAINS

01. For LEADERS, the most relevant aspects for a supply chain to be considered sustainable are low environmental impact and financial management, soon followed by workplace health and safety conditions.

02. When making buying decisions, LEADERS consider sustainability aspects to a great extent.

03. Customers are the main driver for LEADERS to sustainable management of the supply chain.

04. At the same time, LEADERS are feeling pressured by other stakeholders too to manage their supply chain in a sustainable manner.

05. LEADERS have dedicated policies in place.

06. In line with the growing role of digitalization, the collection and systematization of suppliers’ data is pivotal to the LEADERS.

07. Same for the involvement of professional third parties for auditing suppliers and the application of internationally recognized schemes.

08. Actions undertaken by LEADERS extend along all tiers of their supply chain.

09. Benefits obtained by LEADERS thanks to sustainability actions outweigh costs. Via the actions undertaken, LEADERS have particularly increased their ability to enhance their brand reputation as well their market shares/sales.

10. Communicating what they do is essential for LEADERS to enhance awareness. They are especially inclined to publish information about sustainability along their supply chain, to claim it in marketing activities and to use recognized labels or certificates on products.

11. In the next 3 years, LEADERS show higher propensity to undertake more actions also commissioning them to third parties, as they understand outsourcing can support their performance in the sustainability management of supply chains.

12. LEADERS are clearly aware that sustainability of supply chain will become increasingly important for being successful in the markets in the future and they are willing to invest more than they are doing today in a 3-year time.

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■ Sille Sjøbakk Allum, DNV GL – Business Assurance

■ Antonio Astone, DNV GL – Business Assurance

■ Mauro Crippa, DNV GL – Business Assurance

■ Cecilie Løne, DNV GL – Business Assurance

■ Alberto Sartori, DNV GL – Business Assurance

■ Massimiliano Ghittino, SEDEX

■ James Persad, SEDEX

■ Silvia Colleoni, Cohn & Wolfe

■ Daniele Novello, GFK Eurisko

DNV GL PROJECT TEAM

EXTERNAL EXPERTS

CREDITS

The trademarks DNV GL®, DNV®, the Horizon Graphic and Det Norske Veritas® are the properties of companies in the Det Norske Veritas group. All rights reserved.© DNV GL AS 02/2018.

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DNV GL is a global quality assurance and risk management company. Driven by our purpose of safeguarding life, property and the environment, we enable our customers to advance the safety and sustainability of their business. With origins stretching back to 1864 and operations in more than 100 countries, our experts are dedicated to helping customers make the world safer, smarter and greener.

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