The Impact of Customised Supplier Sustainability Assessments on Procurement Decisions

Despite their sometimes dubious veracity, supplier sustainability data have developed as a critical tool, acting as a compass to orient procurement and finance decisions toward responsible and forward-thinking options.

These sustainability data points assist us in evaluating suppliers’ activities in the environmental, social, and economic sectors, assuring compliance with internal standards where external global standards are hard to find. As the modern marketplace grows more linked and conscious, data requests have evolved from simple due diligence and compliance requirements fundamental requests to guide and protect a company’s commitment to a better society.

However, as our requirement for reliable and accurate supplier information grows, we’ve discovered that procurement is becoming increasingly complicated. When all we needed to do was evaluate the practicalities of goods or services delivered by our suppliers, we could get a long way by simply examining our data on deliverability and quality or accessing other sources for e.g. supplier credit concerns. However, our foundation for decision making becomes significantly less clear in the case of sustainability, and as a subject of interest, sustainability is extremely broad even within the small bounds of procurement.

We asked our community a simple question: How do you assess your supplier’s sustainability performance? and received more questions than answers in some ways. But, in essence, it consists of three distinct areas excluding the later processes’ of decision making, reporting etc.:

• Make it crystal clear what your scope is. Sustainability is hard, and expecting that you can easily obtain clear feedback to assess your supplier’s end-to-end sustainability performance is naive at best and misleading at worst.
• External supplier sustainability data from reliable sources should be used as a starting point. This information may have come through formal sustainability reviews, government requests, and so on, but it has already been formally signed off on by an external entity. Though there are over 600 official external sources of sustainability data, this does not imply that the data can be blindly believed or that it is uniform, but it does shift the risk away from your firm and into the sphere of the sustainability data provider.
• Where data is unavailable but the need for information remains, self-initiated “Customized supplier sustainability assessments” must be explored. Even if service providers are hired to obtain the missing data, the request is unique, and because the data requested here is not available from other sources, the risk profile of using this data is greatly elevated.

For the time being, we will concentrate on Add 3 and return to Adds 1 and 2 in subsequent posts.

Customised supplier sustainability assessments can have a significant impact on procurement decisions because they address crucial knowledge gaps, but they also introduce a significant risk because the information must be manually obtained.

Depending on your scope, these customised assessments can include a wide range of criteria and indicators that, when combined, offer a clear picture of a supplier’s commitment to sustainability. The need to fill in the lacking data seems to typically revolve around:

• Environmental impact includes determining a supplier’s resource use, waste output, and adherence to environmentally friendly procedures.
• Labor practices, where data is typically not shared externally, are being closely examined, with a focus on fair wages, safe working conditions, and compliance with human rights norms.
• Ethical sourcing seeks information on a supplier’s commitment to ethical supply chain management, ensuring that raw materials are obtained without contributing to conflict or exploitation.

As these sustainability components interact, customized supplier sustainability assessments may become a vital component for gauging not only a supplier’s operational excellence, but also their alignment with the ideals guiding our shared future. Keep in mind that each buyer will have unique sustainability data requirements, and your customised supplier assessment may include only some or none of the aforementioned typical assessment topics.

While the potential benefits of customised supplier sustainability audits are clear, their successful implementation is fraught with difficulties. Before any sustainability data is used as the basis for your company decisions, the following hurdles must be considered and publicly discussed:

• Data reliability emerges as a major concern, with supplier-provided information susceptible to both unintentional inaccuracies and intentional misrepresentation, jeopardising assessment integrity and decision-making accuracy, ultimately jeopardising the purpose of sustainability assessments.
• Sustainability assessments are not widely accepted by all suppliers, who see them as additional responsibilities requiring additional resources and effort. This opposition can stymie important data collecting, preventing the complete examination required for valid sustainability assessments. To overcome this obstacle, good communication, educational programs, and joint goal alignment are required.
• Another barrier is the absence of consistent assessment procedures. Different industries and localities frequently have different sustainability requirements, resulting in differing assessment methodologies. This lack of consistency hinders global supplier comparison and benchmarking, while also adding problems for the supplier, who must likely reply not only to your sustainability data request, but also to a variety of other customers’ equally important and non-aligned requests. Mitigating this issue necessitates the development of standardised assessment frameworks that account for sector-specific subtleties, which is critical for fostering evaluation uniformity and equitable supplier evaluations.