The latest insights from the We Mean Business coalition

Top questions around supplier engagement answered

Through our seven tips we answer the tricky questions that companies have around supplier engagement

Resilient supply chains — ones that have the capacity to adapt and recover quickly when faced with disruptions — are essential to a company’s overall health and competitive edge.

Companies are facing more frequent disruptions to their supply chains than ever before, with geopolitical instability, labor strikes, cyber attacks and climate change among the most common drivers.

According to a recent study, climate-related disruption to global supply chains could lead to US $25 trillion in net losses by the middle of the century, with impacts such as reduced inventory, distribution stoppages and worker shortages becoming more common as the planet gets hotter and extreme weather events become more frequent.

Corporate supply chains are only as resilient as their suppliers. So for any company focused on managing risk in a warming world, it is essential to ensure your suppliers are also becoming resilient, future-proofed businesses.

Building relationships with suppliers and supporting them to prepare for climate-related shocks — and seize the opportunities of the transition to a low carbon economy — are some of the most effective ways to do this. According to CDP, suppliers who received training and support from corporate customers were 1.7 times more likely to complete climate-related risk assessments compared to those who did not. And suppliers who received buyer support on setting emissions reduction targets aligned with science were 2.6 times more likely to set a target than those without such support.

How do companies go about engaging their suppliers on climate? There is no one-size-fits-all approach, and there are many variables for companies to consider. Having clear goals, and understanding the characteristics of your suppliers and how to tailor the approach for them, will be key.

We have spent the last year working with a group of companies testing approaches to supplier engagement in their own supply chains. To help companies develop a supplier engagement strategy that works for them, we’ve condensed the learnings into a piece of guidance that sets out our seven top tips for success.

While every company’s supplier engagement program will look different, we found there is plenty of overlap in the questions that come up. Here we look at three of the most common ones.

How do we know where to start?

Supply chains operate outside of a company’s direct control and so can be inherently tricky to manage. Many companies are dealing with large supply chains with suppliers dispersed around the world, as well as varying levels of awareness and action on climate risk. Getting started can feel like a daunting task.

We recommend getting really clear on what you are trying to achieve.

Setting a clear “north star” supplier engagement goal – with shorter-term sub-goals and KPIs – can help guide the development and implementation of your supplier engagement program, ensure you can track progress and make improvements, and create a framework for shared accountability between teams. It can also make the task of addressing supply chain emissions more manageable — as you can get specific about which groups of suppliers you are going to prioritize for engagement, and start there. Ultimately your supplier engagement goal should join up with your company’s overarching net zero or Scope 3 goal, and it will be a key pillar for achieving these.

Another essential foundation is building a cross-functional team with procurement and sustainability at the helm. The teams should work together to identify your company’s specific business case for supplier engagement by asking questions like: what risks within the value chain can be managed by implementing a supplier engagement program? What cost savings or other management priorities can you and your suppliers realize because of this program?

Your procurement team may already have a wealth of data about suppliers that can be helpful to you, and you can work with procurement to streamline engagement with suppliers as much as possible to avoid any duplication.

If your company has a Chief Supply Chain Officer, they can be a powerful ally in the C-suite. Engaging additional internal teams, such as finance, operations, and legal, can also strengthen supplier engagement efforts. For example, finance teams can help explore incentives like preferential financing or joint investments in decarbonization projects; operations teams can collaborate with suppliers on emissions reductions through efficiency improvements; and legal teams can help integrate climate requirements into contracts.

Building a cross-organizational strategy and a team to engage suppliers on climate can be a win for everyone. Ultimately teams in your business will be looking for ways to strengthen relationships with suppliers, and engaging them on climate action provides an excellent opportunity for this.

What should we be asking our suppliers to do?

There is a spectrum of different asks you can make of your suppliers, and you may ask different suppliers to do different things based on where they are in their climate risk management journey. It is important to meet your suppliers where they are, while keeping your company’s longer-term goal in mind.

Most companies start by asking their suppliers to calculate their emissions and report publicly — this will likely be most appropriate for a supplier that is just getting started on their climate work. Companies might focus on building a relationship with the supplier to learn what might incentivize or motivate them.

Once you are ready to ask your suppliers to set targets, there are multiple ways to do so. They could be emission-based targets, or focus on a non-emission based metric like renewable energy procurement or the engagement of their own suppliers. They could be near-term, or long-term targets. Targets are useful for securing leadership buy-in and getting resources allocated to a program or project, so they are a common objective for many supplier engagement programs. Regardless of what the targets are, they provide a clear direction of travel and a way to track and measure performance as you engage your suppliers.

Our recommendation is to meet the supplier where they are at, consider their readiness for different types of target, and emphasize that suppliers should aim to ramp up to longer-term, company-wide or formally validated targets as soon as they are able to.

How do we incentivize action and deal with pushback?

It’s important for companies to figure out the right mix of incentives that work for them and their suppliers. There are lots of ways that companies can support and incentivize their suppliers to take action – including recognizing and publicly celebrating those that are performing well, offering better contract terms to suppliers based on their climate action, and providing training and access to tools and resources to help with emissions reporting and decarbonization.

Companies can also consider how they might work with suppliers to jointly initiate projects on the ground in their value chains, whether that’s helping farmers find and use more resilient agricultural practices, or making investments in factories to have more renewable energy or to increase their energy efficiency.

It’s likely that you will be faced with some non-responders, or suppliers that push back on your request saying they don’t have capacity, don’t want to set targets, or are struggling with the costs of emissions reporting or target implementation.

One way to minimize pushback is to integrate your supplier engagement expectations into your procurement documents, contracts, and supplier code of conduct. This allows you to set expectations for both new and renewed contracts during a time when suppliers are more motivated to accept and plan for such requests. Another key tactic is to celebrate suppliers demonstrating positive engagement and amplify their success stories to share best practice and facilitate peer learning.

Overall, it’s very helpful to adjust your approach to a supplier’s specific concerns. By following the tips in our guidance, you can help to preempt pushback and tailor an effective engagement program that works for your company and your suppliers.

The business case for building a resilient supply chain is clear and compelling. Engaging suppliers on climate change is a win-win: it empowers suppliers to become resilient, successful businesses while building value chains that are fit to withstand the increasing pressures of a heating planet and thrive in the transition to a zero-carbon economy.

Building a successful supplier engagement program requires getting clear on your goals, understanding your suppliers, and tailoring the approach to both your business and theirs. Supplier engagement is a journey, and you will need to be willing to respond to feedback and evolve your approach. Our guidance helps you navigate the most important considerations, scenarios, and pain points to help you get the most out of supplier engagement and build a resilient supply chain.

Read the full guidance here.