COVID – the Ultimate Stress Test for Business Operations & Sustainability
COVID-19 is reshaping how society functions and how businesses operate.
Our altered global reality came quickly and in the chaos, stark contrasts emerged into what communities would value as essential or nonessential, and demand fluctuated accordingly. Companies who were well positioned to support growing needs had strong product offerings, robust supply chains, and in particular, a history of sustainable procurement practices. As CPG portfolios underwent the ultimate stress test, supplier relationships came to the forefront. “Procurement leaders from Danone, PepsiCo, L’Oreal and more see the practices and tools gained through sustainability work as assets in the battle against pandemic supply chain disruptions” (Supply Chain Dive). Brands who were already partnering closely with their suppliers on sustainability initiatives were able to respond in an agile way, and rise above their competitors with innovative solutions that kept sales going and business running.
According to EcoVadis’ fourth annual edition of its Business Sustainability Risk & Performance Index, “Supply chains were extremely vulnerable leading up to the COVID-19 crisis. Assessments of 35,000 supplier ratings revealed that for every industry, more than a quarter of suppliers have no measures in place to protect employee health and safety and proper working conditions, nor are they monitoring these and other key due diligence indicators of their own suppliers.” Businesses that had not already prioritized sustainability fundamentals found it hard to shift to business continuity plans. Most were left scrambling in the dark suffering ongoing out of stocks, continuous delays, and ultimately consumer disappointment.
The aftermath of COVID revealed clearly that when transparency is enabled by strong sustainability partnerships, and supported by technology, companies can respond to supply chain disruptions, support suppliers better, and expand their sustainability footprints instead of retreating. Sustainability practices leveraged during the pandemic were heavily concentrated on transparency into supplier operations, safer working conditions at the factory level, and an ongoing commitment to sustainable procurement practices.
A closer look at brand resilience through transparency, safety, and sustainability.
The following examples highlight brand responses during COVID that sets them apart from most CPGs and shows a resilience strategy rooted in sustainability fundamentals:
Henkel
Henkel, a leader in adhesive technologies, beauty care and laundry & home care, has a long history of sustainability practices. Although not all product lines were deemed essential in 2020, the laundry and home care division showed strong performance as demand for cleaning products surged. In order to “mitigate potential shortages and delivery delays,” Henkel took “rapid and comprehensive measures to ensure the safety of employees, customers, partners and suppliers” (Henkel). Through their supplier partnership approach, Henkel was also able to shift some of their production facilities to produce much needed disinfectants, further helping critical organizations fight the virus (Henkel). In addition, due to Henkel’s strong infrastructure, they “did not introduce short-time working, apply for government aid or reduce (their) workforce due to the pandemic” (Henkel). Given their work in “driving internal engagement to roll out sustainable procurement programs in key dimensions including coverage (geographic, category, size or other diversity criteria),” Henkel was awarded the Sustainable Procurement: Best Internal Stakeholder Engagement award by EcoVadis in 2020. Henkel plans to continue their bold sustainability efforts and has set a target of 100 percent responsible sourcing by 2025 (EcoVadis).
Clorox
Clorox, maker of bleach, disinfecting wipes, and other cleaning supplies, is an example of a brand that met multiple COVID challenges head-on. First, Clorox products were in super-sonic-demand, with reports showing demand surged 500% for some products – and ultimately sales overall increased by 22% (EHSToday). Clorox also immediately prioritized safety measures at their factories in order to continue producing essential products that were helping to fight the spread of the virus, this included “temperature scanning, cleaning, staggered meals and breaks, social distancing, and masks” (SF Chronicle). Clorox audits of 21,000 suppliers by 2010, allowed for deeper insights into manufacturing practices (Clorox) and helped them to weather the storm. Their ongoing commitment to sustainability was already well established at this point, particularly in their efforts to reduce greenhouse-gas emissions, decrease energy use and a phase-out of harmful substances. It is no surprise that Barron ranked them #9 in their 2020 100 Most Sustainable Companies list. Their ongoing ESG goals include a commitment to 50% reduction in virgin packaging by 2030, 100% recyclable, reusable or compostable packaging by 2025, double plastic PCR in packaging by 2030, and 100% of plants achieving zero-waste-to-landfill by 2025 (Sustainability Consortium).
L’Oreal
L’Oreal, the world’s largest beauty brand, suffered losses at the beginning of the pandemic; however, their primary goal was for business continuity with their existing suppliers. “Keeping those suppliers in business was important not just to maintain operations continuity, but because suppliers play a large part in L’Oreal’s emissions goals. Losing suppliers to the pandemic would mean starting over with new players,” (Supply Chain Dive). L’Oreal’s long term commitment to sustainable procurement meant they would have to invest in their partners during the downturn, regardless of how well the brand was performing in sales. For their most “exposed suppliers,” they shortened lead time for payments for close to 9000 suppliers – putting more cash in the hand to their partners who needed it most (L’Oreal). In addition to this, L’Oreal was able to work closely with their manufacturing partners and began producing alcohol based sanitizer to be distributed within their network (Cosmetic Design). L’Oreal’s track record in sustainability earned them EcoVadis’ Sustainable Procurement: Best Value Chain Engagement award in 2020, which recognizes “excellence in engaging suppliers in sustainable procurement programs, such as training programs, as well as development program plans and efforts to train and reward suppliers for sustainability and CSR performance.”
Future Proofing.
By most accounts, industry volatility will continue well into 2021. As the pandemic continues to rage on around the world, different countries and regions will respond in different ways – leading to more unexpected shutdowns, outbreaks, and quarantines. Supply chains need to take the lessons learned from 2020, and embrace a new approach, rather than wait for a return to pre-pandemic times. Three key areas will be:
Regular scenario planning as a best practice and risk mitigation strategy.
Supply chain teams need to develop a new muscle that rests on their ability to respond quickly to dynamic changes during unprecedented times. The ability to be truly agile will require great supplier management technology and a “war room” mindset. Similar to holiday preparation teams at large retailers, companies will need to create a task-force and “control tower” that manages all potential scenarios and solutions that may arise in 2021 (McKinsey). This includes cross-functional representation, daily/weekly meetings to address critical bottlenecks, and top-down participation to ensure decisions happen quickly. A network and data approach with supply partners will also be key for integration in the planning process so they are well-prepared for any scenario that needs to be implemented immediately. The key for 2021 will be a robust and flexible operation that can handle any crisis that springs up from COVID or potentially a climate event.
Deepening supplier relationships to ensure partners are adequately prepared.
Suppliers are the key to a resilient operation. Brands need to see not just their owned suppliers, but their contracted suppliers as critical extensions of their brand operations. “Sustainable procurement continues to lag. While companies are addressing social and labor impacts within their own operations, they are neglecting the risks that exist among their suppliers – representing a missed opportunity to drive value and create resilience in the next tier of the supply chain” (EcoVadis 2020 Index). During these trying times, it will be important to strengthen relationships, honor contracts and terms, and support safety measures and the factory level whenever possible. In addition to strengthening existing partners, brands must also diversify key suppliers based on potential supply disruptions. Contingency plans will be critical in order to optimize capacity shifts, leverage backups, and offer alternatives if necessary. Developing plans with supplier buy-in is essential.
Transparency into supply chains as a marketing tool to build consumer trust.
Responsible manufacturing will be a new and potent loyalty driver as consumers become more determined to take control of their impact on climate change. “Ninety percent of consumer respondents said they were equally or more concerned about these [environmental] issues after the COVID-19 outbreak, and nearly 95% said they believed their personal actions could help reduce unsustainable waste, tackle climate change, and protect wildlife and biodiversity, with 27% to 30% noting that this belief had strengthened as a result of the crisis,” (BCG). Brands that continue to invest in their sustainability practices will reap the rewards as consumers become more savvy and demand evidence against marketing claims. Companies who have truly incorporated sustainable procurement practices into their product lines will be far ahead of the curve, not only in terms of risk mitigation, but in building consumer confidence.
Sustainability technology and consulting partners are key to long-term success.
As COVID-19 continues to wreak havoc on our world, with unknown disruptions lurking ahead, the imperative for brands is clear – establish and deepen their sustainable business practices. “In some cases, sustainability efforts made supply chains more resilient as pandemic stresses began to mount,” (Supply Chain Dive). Close supplier relationships rooted in a shared commitment to positive social and environmental impact, enabled by technology and agile working methods, is the key to success. “Companies that commit to sustainability during the Covid crisis will come out stronger, with more solid customer and supplier relationships, enhanced corporate reputations, and improved employee loyalty and productivity,” (Bain).
As companies navigate their sustainable procurement agendas, technology and external partners will be key to their success. EcoVadis offers a unique solution to drive supplier engagement through robust scorecard assessments that improve transparency and mitigate risk. GoodOps, a sustainable supply chain consultancy, works with leadership teams to benchmark, prioritize, and implement the right processes and teams to address their most pressing challenges. Together, teams will be well positioned for a resilient future.
Article modified. Previously published on EcoVadis.