There are no single threads in ESG software supply chains

image of hands picking at spaghetti brain | ESG software

Software is part of your supply chain too. Debra Lilley untangles an inside view of vendor, integrator and user sustainability relations. 

In the ERP vendor world, there is so much providers can do to facilitate transformational supply chain management (SCM) for customers, but I’ll leave that to the vendors who will write their own articles and hopefully share great customer case studies. 

Instead, let’s explore how software providers in this industry, from vendors to system integrators (SIs), are actually part of that very supply or value chain for their customers and the steps taken in any software partnership to ensure you can build a successful foundation in your software and services suppliers. 

While a traditional supply chain is about the process of sourcing goods or raw materials through to delivery to the customer, today these materials can be as abstract as a piece of cloud software; when used as-a-service, they may not exist in a physical or material form. So, what do you need to measure and account for?

Operating in circles, supplier sustainability and ethics

More recently, the scope of SCM has grown to ensure those in the supply chain align to an organization’s values, such as sustainability and ethics. This has been driven by customer demand for sustainable goods and services, but knowing your supply chain meets certain demands can also lessen the chance of problems while contributing to a better planet and people.

This can look like creating and maintaining processes that are environmentally responsible, socially equitable and economically viable over the long term, or else placing greater focus on the ethics of decision making, requiring transparency, integrity and accountability.

Interestingly, a growing number of individuals care about their own supply chain, looking at the sustainability and ethical manufacture of the brands they choose to buy from. In 2024, when we buy clothes, we are far more conscious of whether ethical labor and sustainable fabrics have been used in the manufacturing process. Now, in this internet world, it is much easier to research organizations. We buy fair trade coffee because we care about the farmers at the start of the value chain.

But, while many hide their heads in the sand until a brand has bad publicity, then become indignant and veto it (and ignore the fact they as customers didn’t do the due diligence first), this behavior won’t wash in business. 

It is a long way from the rigor we’re starting to see today in many organizations – the process is quite circular in a way. Speaking from the SI perspective for instance, we are a small yet important part of our customers’ supply chain, but we each have our own supply chain, which in turn have their own, and so on. Our customers care about who they buy from; they want to know we are ethical and sustainable, and that includes the organizations further down our chains.

Speaking to a fellow member of the Institute of Directors in Belfast and discussing “the living wage”, it was surprising to find that, where I live in Northern Ireland, there are so few organizations signed up to the initiative. Surely many organizations are happy to pay the living wage? He explained that the initiative is about more than simply paying your staff well – you have to show that everyone in your supply chain also pays the living wage. He owned a marketing company and in theory, he had a small supply chain, but he commented that he even had to check how much the window cleaner he uses gets paid.

From providers to partners

So for potential technology partners bidding for a piece of work, it’s no longer good enough just to say “I can do what you’re asking” for every business. It’s asking more about the way they’d operate as a partner – what their sustainability values are – because you have to consider their part in your supply chain ecosystem too. 

In the ERP world, our customers are particularly interested in how we work, and we see whole sections in tender documents. As a systems implementor, the vendor is in my supply chain and I need to give answers about their sustainability and operations. But that isn’t enough – even if my contract is just to implement that software – I also have to talk about our company, what we do for sustainability and so on.

Customers often nurture their supply chain and the relationship with their suppliers becomes more one of partners, who together achieve their values. A customer I worked with a few years back wanted to transform their ERP. One key area was their procurement; starting from almost no processes, the cost savings alone in this area could save enough to pay for the whole implementation. 

To be their systems implementor, we had to not only sign up to their values but understand their very public brand and take steps not to compromise that in any way. Once the project went live, we wanted them to talk about it, and to protect that brand I even had to do a short course with them before I could use their individual font in the presentation. Even though we were not part of the organization, we were an extension of the brand at that point.

No one link fits all chains – KPIs are in flux

When one of our current customers sends out a newsletter to its supply chain, they talk about how they are doing on their KPIs, and one I look at with interest is how promptly they pay their suppliers. I look at this because I know their new ERP is key to their improvements. Before their ERP project, they had good prompt payment statistics but not necessarily as good a process behind them. 

The problem came when looking for the right KPIs. Like most organizations, “No Purchase Order, No Payment” was a key requirement of the system, but it proved a big challenge when they first went live as they had underestimated how much purchasing in progress had bypassed this. 

It’s certainly not a unique occurrence; however much a customer is warned, it catches many of them out. Once they got over that challenge, the ERP now ensures not only correct process but facilitates those prompt payment KPIs as well.

Recently another US customer held a Technology Partner Summit, where all its technology supply chain was invited to see the business and hear the vision for its brand. 

I don’t think I really understood how much this was part of the procurement cycle. Becky Harris, from our bid support team at Inoapps, enlightened me. Naively, I thought we invested in a corporate response which we could use for each tender.

There is no single answer or standard you can attain. They differ by industry and region and customers want details – they rarely simply say, you must have a certain certification – and there is no guarantee that the next business will use them as pre-qualification or even accept them as an answer. It’s hoped that the new Procurement Act, due to go live on October 28, 2024, will be a step in the right direction here.

Industry requirements tend to be around what’s important for that industry. In the public sector there’s an emphasis on value for money and giving back; in more regulated industries such as financial services it’s around security and policies. Within the energy sector meanwhile it’s more about ESG and the environment; there will be synergy within the goals of the industry. 

Those organizations where profit fluctuates such as energy and utilities know that it’s perhaps the norm to ask their supply chain to reduce their costs when times are hard and even ask to have the right to negotiate in contracts. We see this every day in supermarkets where food suppliers are forced into ever smaller margins so prices can stay down.

Often the unseen side of bid management is answering the questions on an individual request for proposal (RFP). For SIs, telling your story the way the customer has asked may be an onerous task, but better that the RFP is transparent, and you know what to expect, rather than for a nugget of complication to hit you later. 

Incoming – sustainability standardization?

There is a buoyant sector that provides support for these subjective standards like Health and Safety, ISO etc., and supply chain, and it’s definitely a growth area. Companies like Achilles or B Corporation will assess your organization, and some customers will preapprove you for a tender if you comply. For smaller companies, this can be expensive, but if a customer or supplier demands it, you have no choice if you want to be part of it.

This supply chain scrutiny doesn’t stop at procurement – long-term customer contracts mean annual attestations, with examples including insurance, 2050 carbon neutral journey progress, SOCs reporting and credit scores.

Some things you can do in advance, some industries are more rigid in their requirements and if your business strategy includes them, then there are investments you can make upfront to be prepared. 

An example of this: We do a lot of work in the construction industry, and they even have a Supply Chain School that looks at all the aspects. Worth a look, full of ideas and a great diagram that shows the why, the what and the how. ERP is a “how”, an enabler. Much of it is free – it’s as much about education as certification – and they happily allowed me to use their graphic here (Fig 1).

 

Focusing on the built environment industry, it aims to equip industry professionals with the knowledge and skills needed to integrate sustainability practices into their supply chain operations. 

We all want to be ethical and equitable. There’s value in knowing and having a goal and tracking it, but it’s not a single thread. For SIs and vendors, opening an RFP is like opening a Pandora’s Box; it can be a big part of pre-qualification and due diligence is really important at this point, you may choose not to be involved with a potential customer if their values don’t match your own.

Ultimately, embracing sustainability and ethics in supply chain management is not just about compliance or risk management; it is about creating value for all stakeholders and ensuring the long-term viability of both businesses and the environments in which they operate.   

Debra Lilley is vice president of customer success at Inoapps.