In the first of this two-part blog series, I addressed the trends emerging from sustainability and innovation in the business model that are leading to the adoption a circular economy using circular supplies, servitization, and resource recovery.
Sustainability is no longer just nice to have. It has become a strategic imperative for companies to retain their competitiveness, win new business, and it has an increasingly significant impact on the triple bottom line.
CPO’s are moving away from monitoring suppliers’ compliance and risk management to how suppliers can add value by supporting sustainability, innovation, supply chain transparency, supply chain resilience, and be a part of organization growth.
Before we look at sustainable solutions, let us understand how companies are managing their suppliers today.
Companies are using the “code of conduct” for suppliers based on SA 8000, a global standard for the audit and certification of social accountability, working environment, social guidelines based on ILO conventions, and OECD, the Universal Declaration of Human Rights, and the UN Convention on the Rights of the Child.
Companies are monitoring supplier compliance through:
- Supplier self-assessment questionnaire
- Supplier sustainability database and scorecards from audit agency
- Evaluation of supplier production sites
- Assess the working conditions and sustainable material certification
- Suppliers risk assessment concerning the sector and geographical location and business-criticality of suppliers.
Responsible sourcing and sustainable material:
Companies have signed the Paris Climate Agreement, UK Modern Slavery Act 2015, EU Conflict Minerals Regulation Act and California Transparency in Supply Chains Act to ensure overall responsible sourcing of their products.
Sustainable sourcing means sourcing products and services in line with social, economic, and environmental sustainability principles, beyond the traditional aspects of cost, quality, and consistent supply. Product provenance, conflict materials, human rights abuses must be avoided, and essentially, suppliers help maintain the license to operate legally.
Companies are trying to increase sourcing of recycled and recyclable products from sustainable sources to lower the products’ negative impact in moving from a linear to a circular model. Companies consider diversity and inclusivity of the supplier’s base to promote an inclusive approach to procurement.
Suppliers are required to take responsibility, including supply chain upstream intermediaries for transparency and nurturing traceability in compliance with applicable regulations on the prevention of forced, bonded, and trafficked labor in their supply chain.
Integrated Architecture Framework (IAF):
Integrating the circular economy at an early stage in the product design process is essential because only minor changes are usually possible after product specifications are confirmed to product design.
Using a systems-thinking approach to sustainability enables us to see the interrelated changes in business models and design better. If we systemically approach the process from the beginning, we can create solutions that can adapt and change over time based on feedback while simultaneously increasing the positive impacts on the system.
At Capgemini, architects use IAF to support business outcomes with matching solutions to business needs to design a positive outcome within a sustainable context. The IAF framework supports integrating sustainability across the value chain and identifying business process hotspots during value stream mapping to increase the positive impact and minimize negative impact while designing target models and developing sustainability business cases.
Capgemini is working on a sustainability initiative which proactively brings together technology, business, and societal KPIs to create and enable a better world. It is purpose-driven, centered around SAP and leverages the power of our technological capabilities to help our clients operate a sustainable business, reduce carbon impact, and achieve their target SDGs.
Source-to-Pay use cases: Sustainable material and Supplier performance evaluation
Our solutions are based on identifying sustainability process hot spots at the end-to-end value chain. The solution aggregates data from the SAP transactions and calculates sustainability metrics by building analytic apps/dashboards to provide actionable insights.
Based on UN norms, suppliers’ social, environmental, and economic sustainability parameters can be maintained in the client SAP ERP system. The supplier performance app shows the sustainability single dashboard scorecard and suppliers’ overall ranking by combining operational parameters with sustainability parameters to display the supplier evaluation report.
The material sustainability app shows supplier material sustainability factors, i.e., consumption of direct energy, water, waste, and usage of recycled content for overall rating. The single dashboard helps in a comprehensive evaluation of material sustainability parameters, leading to holistically responsible sourcing decisions.
A sustainable solution is not just a dashboard that shows what’s happening and why. It is a digital data platform that can continuously monitor sustainability and identify improvement areas for actions. The solutions can be aligned based on the customer’s sustainability strategy objectives on sustainable goals.
Renewable enterprise example – supplier 360-degree view
Business continues to become more complex, forcing procurement departments to adapt to new market conditions and react to new opportunities.
Let us discuss how more and more dynamic supplier parameters are needed for real-time supplier evaluation and how Capgemini’s Renewable Enterprise and the
Multi-Pillar S/4 Architecture (MPSA) can support and realize the related future innovations.
As procurement lead for India SAP CoE and a certified senior architect, I need to consider sustainability to develop a sustainable and timely minimum viable architecture (MVA). It ensures the value drives everything we deliver and it adds to the decision-making process.
Let us go through one example of the supplier 360-degree performance view and understand how we can meet our customers’ dynamic requirements using MPSA.
Please see below the supplier data needed to decide the supplier 360-degree single view in a complex supply chain scenario.
Supplier data for 360-degree performance:
Operational KPI’s: Product and Product Cost Management, Quality, Delivery and services: Price competitiveness, supplier quality Management, Response to urgent delivery request, R&D capability etc.
Supplier Risk KPI’s: Regulation and Legal Compliance, Tier 2/3 Supply chain transparency, Social media monitoring, Supplier audit reports, Supplier self-assessment, Supplier experience data from Qualtrics, Data protection & cyber security etc.
Supplier Sustainability KPI’s: Human Rights, Health & Safety, Child Labour, Diversity Business, CSR, Usages of clean technology, Renewable energy, Water consumption, Water recycled, Green House gas emission, Waste Management, Waste recycled, Sustainable material & recycled content etc.
Supplier single 360-degree view as per dynamic business need
Capgemini’s MPSA supports by ensuring common SAP and tailored data models, right usages for API with ecosystem partner solutions, and extensions PaaS platform(s).
More and more data as per dynamic business needs can be added into a centralized enterprise data layer to support a single developed view of the Supplier 360-degree view, as explained in the figure above.
Data maintained by companies into their legacy system for supply chain transparency, audit, self-assessment, Supplier social media monitoring data, additional compliance data as per industry sector need can be easily added to provide a 360-degree view.
MPSA supports the enterprise data layer, where we can quickly bring new data-driven business requirements into the landscape. With extensibility, new features or functionality at a fast pace can be extended into the architecture using new APIs or adding new microservice examples to access third-party system/data into our system. If we need to make changes to an existing microservice, we do it on a small codebase.
When changes are required in a part of the application, only the related services have to be modified and redeployed; there is no need to modify and redeploy the entire application. With MPSA, we can independently scale up highly used services in the cloud or on premises as microservice is portable and can be deployed anywhere.
Business can make a dynamic decision by seeing the supplier 360-degree performance for
- Supplier selection process
- Change in supplier segmentation and trigger risk improvement action plan
- Change the sourcing from supplier plant (which is using more renewable energy in the manufacturing of parts) using scenario-based sourcing
- Identify a supplier who is responsible for emitting more emissions and trigger action plan
- Add new terms and conditions while renewing contract agreement, to name a few.
In a disrupted, fast-changing world, businesses have to respond effectively to business disruptions and opportunities. Companies that scale and adopt a sustainable solution can create the desired business impact, and gain sustained competitive advantage.
The procurement function’s purchasing power uses sustainability as a criterion in sourcing and procurement to shift entire supply chains to become more sustainable. The inclusion of sustainable supply base management could be one of the most significant step changes procurement can make.
The Capgemini SAP Center of Excellence (CoE) understands how to create solutions for a flawlessly running supply chain for our clients. The magnitude of climate impact is too vast to cover in a five-minute article, but I hope you get a sense that we’re ready to tackle our clients’ sustainability challenges.