A first step for any company to achieve internal alignment
is to put sustainability at the core of its supply chain strategy. Companies must commit to placing sustainability on an equal footing to furthering commercial objectives.
However, commitment to sustainable supply chain practices is not sufficient. It must be backed by day-to-day business practices that drive better performance of supply chain partners. The discipline of ensuring that business practices incorporate and support sustainability is the essence of internal alignment.
Definition of Internal Alignment
Internal Alignment is the set of commitments, strategies, policies, procedures, systems and behaviours that support integrated customer decision making based on suppliers’ commercial and ethical commitment and performance.
Internal alignment is important both:
- Vertically (i.e., from the CEO level to the factory floor), and
- Horizontally (i.e., across departmental silos).
Components of Internal Alignment
In this section, we explore five components of internal alignment. Most companies are at the very beginning stages of working toward internal alignment, and best practices in these areas are still being defined. The following components help these companies achieve the goal of internal alignment:
1. Executive Commitment and Support
Executive commitment and support are crucial in setting the correct tone and direction for supply chain sustainability. For example, Wal-Mart’s CEO has been very vocal about the company’s increased focus and energy on supply chain sustainability. This commitment from the very top has enabled buy-in throughout Wal-Mart’s large and complex organization.
Best practices:
- Written and oral communication from top executives that emphasizes the importance of sustainability as a way of doing business
- Clear articulation of the vision and approach with concrete milestones and metrics
- Regular internal updates around the company’s sustainability priorities, successes and challenges
Potential pitfalls:
- Limited Follow-up: One common pitfall is a mismatch between stated priorities and the resources devoted to achieving them
- Pockets of Resistance: In some cases, the top leadership at the CEO and Board of Directors level may be committed, in addition to those responsible for the program; but the management in between can effectively kill efforts by not having the same level of commitment
- Risk Mitigation: Often sustainability is perceived as a risk management program rather than a proactive business strategy
2. Integrated Policies, Strategy and Structure
Policies: This includes a clear articulation on how procurement, design, marketing and other key departments must integrate labour and environmental standards into their job functions.
Strategy: For supply chain sustainability and business objectives to be mutually reinforcing, it is critical that sustainability become an input into the strategy planning process.
Structure: Historically, sustainability functions—particularly those with a supply chain focus—often reported into legal departments (which illustrated a risk mitigation standpoint) or into communications departments (which meant a focus on external messaging as opposed to an inward focus).
Today, leading companies are placing sustainability responsibilities within purchasing (or reporting into or closely linked to purchasing) to ensure integrated decision making and to prevent mixed messages on the factory floor. Some companies have noted the importance of having on-the-ground sustainability and sourcing personnel sharing office space and being in close proximity in order to ensure frequent communication.
Best practices:
- Sustainable supply chain personnel provide input to strategic planning processes
- Sustainability expertise is embedded in every team with an impact on the supply chain
- Sustainability objectives are backed by incentives and consequences
Potential pitfalls:
- Insufficient knowledge of sustainability issues within functions that impact suppliers
- Adversarial relationship between sustainability and procurement departments (e.g., “buyers are king” and sustainability priorities take a back-seat to procurement needs)
4. Incentives and Accountability for Desired Behaviours and Outcomes
To establish accountability, it is necessary to define what behaviours are expected, to measure the extent to which those behaviours are manifest, and to incorporate measurements into performance evaluations.
Additional incentives, such as tying performance evaluations to bonuses, can further motivate desired behaviours. For example, requiring sample runs of product beyond what is truly needed can delay full production runs and cause suppliers to use excessive overtime to meet deadlines. Limiting sample runs to what is actually needed to verify product quality would avoid a potential root-cause of non-compliance.
In addition to specifying desired behaviours, it is important to specify desired outcomes and empower buyers to achieve them. It is an empowered buyer that implemented a creative solution—open-book costing to ensure payment of minimum wages—that resulted in remediation of a non-compliance issue.
Best practices:
- Identify potential negative impacts on suppliers’ sustainability performance across all departments
- Define desired behaviours and provide cross-departmental training
- Improve business processes for efficient integration of sustainability
- Incorporate supply chain sustainability into performance evaluations for teams and individuals
- Provide incentives for teamwork across functional boundaries
Potential pitfalls:
- Identifying negative impacts without defining better practices or providing incentives for changes in behaviour
- Conflicting incentives regarding cost-down objectives and timing of order execution
Take a look at the detailed post on the topic -
