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How supplier relationships help supply chain leaders save costs, improve processes and innovate via sustainability practices.
Supplier relationships, more than technology and governance alone, help supply chain leaders save costs, improve processes and innovate through sustainability practices.
When you meet a new person, the conversation quickly turns to where you grew up, went to school, and, inevitably, who you know. Just like the warning our parents gave us as teenagers experimenting with new friends, who we become is inseparable from the company we keep.
Relationships are social context, from the casual, “so, are you related to the Smiths from Sheboygan area?” to the “you may also know” friend recommendation in social media engines. This shared context remains true in business where lines blur from a resume reference check to viewing applicants’ social media posts, or when companies display client logos and leverage referrals and case studies to win business.
Organizations, like people, are judged by the company they keep, especially their supply chains.
“Responsible and sustainable supply chain management doesn’t end with the contract, it’s ongoing. Because if a supplier acts outside of the law, or indeed in a way that doesn’t match societal — or company — expectations, it is most likely the big, well-known brand associated with that supplier who will be targeted,” said Kate Hughes, Chief Risk Ofﬁcer for Telstra.
Supply chain sustainability efforts are increasing as pressures from consumers and investors increase. “Expectations are changing. [Customers] want to know exactly where products are coming from, how they were made and under what conditions,” continues Hughes. “Some companies have more than 10,000 suppliers, so the procurement part of their business can be really challenging.”
Hughes is one of the supply chain, procurement, and sustainability executives interviewed for a joint research report by Ernst & Young and the UN Global Compact, “Building Responsible and Resilient Supply Chains.” Leaders in supply chain sustainability, the research shows, create shared value with their suppliers, view them as an extension of their own business, and engage in a two-way relationship.
Few brands have a deeper commitment or more recognition for environmental sustainability than the outdoor retailer, and nation’s largest consumer co-op, REI. The co-op was founded in 1938 by a community of climbers in search of quality outdoor gear. Now with more than 16,000 members, and 151 stores, across the country, REI continues to support and inspire active outdoor communities who share its belief that an outdoor life is a life well lived.
No stranger to sustainability initiatives, according to a recent revenue report, in 2016 nearly 70 percent of REI’s profits went back into supporting the outdoor community. The co-op also completed its latest distribution center in Arizona, the first high-tech, energy net-neutral facility that is also certified LEED Platinum. Currently, the co-op is engaging its wholesale brand partners to transition the industry to standardized tools for measuring sustainability, most notably the Sustainable Apparel Coalition’s Higg Index.
But REI’s biggest sustainability effort may just be their support of smaller suppliers like Wild Zora.
“We’re a family business,” says Josh Tabin, owner of Wild Zora. We have to work with retailers who are the right partner for us. They are less common, but they are out there.”
Tabin says that he values the collaboration with buyers like REI. The small startup creates meat and veggie bars for hiking and on-the-go nutrition. They directly source local, grass-fed meats and sustainably-grown produce from family farms. The bars are packed by hand using minimal, recyclable packaging. Wild Zora bars are not a mainstream product, as Tabin explains. But REI understands the product quality and, like the Tabins, has a clear understanding of the passionate outdoor audience that both serve. Wild Zora and REI share the same values when it comes to sustainability.
“You have to expand your version of success. If you have a world-view that you see a benefit in improving the community, the environment, and in having a business that provides jobs for your staff and yourself, then going down a sustainable path is the right way to do it. You just have to have a broader world-view than profit alone is king,” says Tabin of his goals for Wild Zora.
“We feel it’s the right way to do it. That’s all you can do, is affect your own little corner of the world, right? Hopefully, by having a good life and bringing health and happiness to those around us, we can inspire others.”
Another shared value is REI’s support of suppliers’ businesses even as they navigate increased pressure on retail. One of their solutions included offering C2FO to help suppliers accelerate payment.
“Knowing we had the tool to help suppliers went a long way,” explains Lorraine Steed, Senior Manager, Treasury at REI. Plus, C2FO knows REI’s supplier base, she adds. “C2FO fits with our culture.”
When companies collaborate with their suppliers, both sides win. The UN research found evidence that improving the environmental, social and governance performance in supply chains helps corporates save costs, improve processes, increase labor productivity, uncover product innovation and achieve market differentiation as well as positively impact society.
Costco’s commitment to customer service makes them the perfect retail partner for Grape Solar. The renewable energy company is one of the few that sell home solar systems through retailers. While Grape Solar offers a few off-the-shelf solar solutions for RVs or off-the-grid cabins, most of their products require custom ordering and installation.
Grape Solar’s revolutionary model requires exceptional retail partners; ones that can scale from clear-cut, off-grid product inventory to handing off a customer to Grape Solar for this custom solution.
“What Costco lets us do is custom orders on their web site, Costco.com. It’s one of the biggest lead and revenue generators that we have. So, they are aware that [solar] is something their customers want,” says Jack Caruso, Project Executive for Grape Solar. Caruso notes that not many retailers would support this model, but Costco does. It is a successful model, too.
Grape Solar grew by 700 percent in revenue in just three years. That kind of growth, plus the supply chain challenges of the solar industry where there is a finite number of suppliers for materials, make cash flow an important key to success. Costco supports suppliers like Grape Solar by offering the C2FO program.
“When we get a good price on inventory — and it’s a quality product, and we want to move on it — C2FO is a good way for us to move some cash. It’s more competitive than getting a loan from a bank. It’s just another tool you can use to diversify the options you have,” he says. Caruso adds that C2FO is a valuable tool to bridge cash flow. It allows Grape Solar to take advantage of lower cost inventory and then pass those savings along to retailers and customers.
Despite rapid growth, Grape Solar retains the same focus on customer service as their retail partner.
“It’s sad, but we’re one of the few solar companies that you can call and speak to someone in the office, in the US. We’ll give you a straight answer to ‘is this going to work for me?’ or ‘I’m having some issues can you help me?’” says Caruso.
Grape Solar’s team also focuses on customer education and building a community of solar power users.
“Part of what we’re trying to do — and pride ourselves on — is being able to teach people. We instill that knowledge into our customer base so when people review our products online or ask questions on boards, there’s a knowledgeable customer base to answer and to help each other out. It kind of feeds on itself,” Caruso explains.
Relationships with customers and Costco are key to innovation for Grape Solar, says Caruso. “Sometimes people call, and they are more knowledgeable than us in certain areas and aspects. It helps us out in adapting and getting ahead of something before it happens. Sometimes they introduce product ideas that are not financially feasible or don’t make business sense, but it’s a cool idea coming from consumers.”
“Other times they bring products to our attention that are really interesting, and we’re kind of ashamed we weren’t aware of them before. It’s a two-way street,” he says.
Costco’s understanding of customer demand for solar products also supports Grape Solar when it comes to innovation. “[Costco’s support] gives you the confidence to develop new items without having to fight to prove why they should be trying to sell these and why their customers ask for these,” says Caruso.
Outdoor Living Today is another Costco supplier that shares the retailer’s values when it comes to sustainability, customer service, and worker welfare. The company makes kits for outdoor living including sheds, garden beds, pergolas and gazebos, and even tiny houses. They use only sustainable Western Red Cedar and have developed manufacturing methods that use 20 percent more from each piece of lumber than other manufacturers.
“Reducing your environmental footprint by 20 percent is massive, and it’s something we believe our customers value,” says Greg Bailey, Outdoor Living Today founder. “I believe it’s our responsibility to conserve the precious resources we have and it’s my way to make an impactful and meaningful contribution to this cause.”
Outdoor Living Today’s commitment to fair practices means more than responsible materials sourcing and reducing waste. To Bailey, reducing worker injuries is just as imperative.
“Our company has spent so much effort and dollars on making sure that our workers are safe and that’s probably our number one thing that we do better than anyone else in our industry and the forestry industry,” he says.
OLT voluntarily holds itself to safety standards that are two levels above Canada’s requirements. At the time of this article, OLT had 1200 days without an accident in their specialty plant and 1000 days without any accident in their shake and shingle manufacturing.
Their commitment to doing the right thing paid off.
“When Martin from Costco came out, I think he keyed onto our practices and liked that we were concentrating so much on those areas. He said ‘I want to do business with you in particular. I like you. I like what you do,’” says Bailey.
Like Grape Solar, OLT relies on Costco.com online ordering and provides excellent customer service. The company will not ship a kit without calling each customer and reviewing their order and assembly requirements. “Last year we shipped 7,000 kits. That’s a lot of phone calls,” says Bailey.
The personal touch saves time and cost. Each year, the OLT team prevents 50-to-100 kits from being shipped out and returned when customers don’t understand the assembly involved. OLT also offers video tutorials on kit assembly and customer support on weekends when most consumers do backyard projects.
One thing that differentiates Costco from other retailers is their customers, explains Bailey. OLT values the Costco team just as much, describing them as “amazing people.”
“We know all the buyers, and they know us and like what we are doing. That’s probably the reason we’re growing the way we are,” Bailey says.
OLT grows by 20 percent per year. As a seasonal business, they have used product innovation, marketing strategy and relationships with retail partners like Costco to meet challenges and eliminate the “shoulder season” that many seasonal businesses face.
Being able to manage cash flow helps OLT with both seasonal peaks and valleys and managing growth. Costco, like REI, offers a C2FO program to help suppliers like OLT manage cash flow.
“We have to finance all that wood and materials to run a plant like this, then store it in a climate-controlled warehouse, so it doesn’t get damaged by the environment. There’s plenty of planning and financing involved when you are making as many kits as we are,” Bailey says.
Sometimes, with success and growth, businesses can be tempted to cut corners and maximize profits while there is an opportunity. OLT has resisted that pull and stayed true to its commitment to the environment and their employees.
“I believe taking the sustainability road creates longevity and strength in your brand and ultimately will create the success you’re looking for, however you must be in it for the long-term,” Bailey says.
Costco’s own sustainability mission is similar: Costco is committed to providing our members with high-quality goods at the lowest possible price in a way that is respectful to the environment and to the people and animals that produce these goods.
Sustainability does have rewards, especially when it comes to customer demand. A study by Unilever of 20,000 consumers in five countries indicated 53% of shoppers in the UK and 78% in the US say they feel better when they buy products that are sustainably produced. That number rises in emerging economies to 88% in India and 85% in both Brazil and Turkey.
Even with obvious business value, sustainability is not the easiest path for companies.
“I don’t think people should be unrealistic about the need to shift their emphasis away from a pure profit mode. I’m the first to admit that going down the path that we have is not the shortest path to the most profit,” says Tabin of founding Wild Zora. He adds that, for Wild Zora, success means focusing not on profit alone, but their overall value regarding a “triple bottom line” of people, profits, and environment.
“I think that if you’re going to get into this business, the first thing is, it’s more of a long-term process. It kind of goes against businesses that only have profit as a reason for existing,” notes Bailey.
The key to success, for these suppliers and supply chain leaders alike, is that long-term vision, a commitment to the triple bottom line, and a focus on sustaining the most important resource of all: relationships.
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