As the fashion industry continues to grapple with the far-reaching impacts of the pandemic, it has become clear that the ability to swiftly respond to changes in the supply chain is a defining factor in achieving success.
On 6 June, 2023, SHEIN hosted a webinar that discussed how digitalization and agile supply chain models are helping fashion industry players gain a competitive edge in today’s market.
Panelists:
Donald Tang, Executive Vice Chairman, SHEIN
Divya Demato, CEO & Co-founder, GoodOps
Veronique Yang, Managing Director and Senior Partner, BCG
As the world recovers from the standstill that was the pandemic, the customer purchase decision process has changed, as have the products being prioritized. Customers are demanding greater product variety, including more responsible options and faster product fulfillment to feed their desire for almost instant gratification. Veronique Yang, Managing Director and Senior Partner, BCG, said consumers are demanding more inclusive products with speedier delivery. She added that the growth of ecommerce channels during the pandemic has also driven customer demand for speedier delivery times – while holding expectations on quality and price.
“Consumers are becoming quite demanding and less forgiving, and the battle for those hearts and minds has intensified. And the battle has moved online,” added Donald Tang, Executive Vice Chairman from SHEIN. He further referenced results of a recent survey of over 2,500 SHEIN customers, where 87% reported shifting to more affordable fashion choices as a result of inflationary pressures.
With increasing global economic pressures, there has been a notable shift in supply chains, with companies increasingly having to adapt their models to survive. Said Divya Demato, Co-Founder and CEO of GoodOps, “These changes were happening before the pandemic, but the pandemic exacerbated it.” This was echoed by Donald Tang, who shared SHEIN’s business model of on-demand production. Veronique Yang further explained that companies are rethinking their global supply chain network – diversifying their supply bases “and sometimes even changing their supply chain models to prevent disruption.”
This drove the conversation towards the topic of resilience, which all speakers agreed was fundamental for the advancement of the fashion industry. While Donald Tang further shared how SHEIN had made it its mission to empower the supply chain since the start of SHEIN’s business, whether it was by funding their adoption of new tools and technology, or providing training and up-skilling to their workers, or even offering flexible settlement terms that are much shorter than the 90-days standard of the industry. Veronique Yang also added that resilience required creating more openness and transparency across the entire value chain – from suppliers to retailers. “They have to work together to problem solve the potential frictions… and digitization is a big part of that.”
Speaking to the recent report, Creating Agile Supply Chains in the Fashion Industry | BCG, Veronique Yang shared key learnings from BCG’s research:
Digital technology can help improve performance across three measured commercial areas: balancing cost, speed to market and quality
Digitalization helps streamline supply chain tasks and save time for suppliers. For example, an online fabric ordering database and order system makes it effortless for suppliers to carry out material preparation ahead of production
People think it’s hard to control quality while keeping cost down. In reality, a digital system can predict and pre-empt potential quality issues, containing them from the very start of the value chain.
Donald Tang agreed, adding how on-demand fashion enables a brand to minimize waste while addressing the “fashion trilemma” – offering the broadest amount of choices, with frequent refresh while addressing inventory management. In this way, bespoke production can actually cost less than mass production.
Divya Demato countered that while there could be fewer articles of clothing upstream, fashion brands still need to consider downstream and post-consumption. She raised a call to innovation and investments in technologies and materials to support more sustainable fabrics for upstream.
In closing, speaking to forward looking change, Veronique Yang added: “Fashion industry companies – you have the responsibility and power and influence and to shape this together.”
In the short Q&A segment, there was much interest in SHEIN’s ability to replicate its business model in other markets. Donald Tang invited Marcelo Claure, Chairman of SHEIN Latin America, who was in the audience, to share about his plans and experience in rolling out manufacturing for SHEIN in Brazil.
PARIS & NEW YORK–(BUSINESS WIRE)–EcoVadis, the world’s most trusted provider of business sustainability ratings, today announces the winners of its sixth annual Sustainable Procurement Leadership Awards program. Winners were announced at the EcoVadis Sustain 2022 virtual conference.
The EcoVadis Sustainable Procurement Leadership Awards recognize companies who are leading the charge in engaging and integrating sustainability into their relationships with trading partners around the globe.
“Each year our nominees exemplify what it means to drive positive environmental and social change through their sustainable procurement initiatives,” said Pierre-François Thaler, Co-CEO, EcoVadis. “While every nominee is making great strides within their sustainability journeys, this year’s program winners stand out for the exceptional progress they are making to create a more sustainable future for our planet and its people.”
Winners were selected based on their EcoVadis scorecards published in 2021. This year’s nominees were evaluated on strategy and approach, procurement integration, scale and coverage, and program results across three main categories:
This award was given to two companies. It acknowledges excellence in engaging trading partners in sustainability initiatives and honors best-in-class examples of driving internal engagement to roll out global sustainable procurement programs.
The jury panel noted key attributes leading to Schneider Electric’s winning selection, including an integrated Supplier Sustainability Program (SSP) strategy and engagement, contribution to the United Nations’ Sustainable Development Goals (SDGs), a focus on working conditions and human rights, strong and sustainable supplier relationships, and more.
Dan Bartel, Chief Procurement Officer, Schneider Electric
“Sustainability is at the core of our mission and purpose, and our global supply chain plays a central role in Schneider Electric’s decarbonization strategy. The Zero Carbon Project is how we are engaging our top 1,000 suppliers to enable climate action. By creating this community of suppliers, they can benefit from best practice sharing as well as get access to our energy management and sustainability expertise. Our suppliers are able to reduce their carbon emissions and we in turn reduce our Tier 3 emissions — it’s a win-win. We are delighted and humbled with this recognition from EcoVadis.”
The jury panel also recognized W.R. Grace for its ambitious goals aligned with the United Nations’ SDGs, top management support and program leadership to cascade sustainability criteria into functions, processes and performance, creation of a Global Responsible Sourcing Committee, alignment with the Grace Responsible Mineral Approach with OECD Due Diligence standards, and more.
Chris Schult, VP of Strategic Sourcing, W.R. Grace
“Responsible Sourcing is a key pillar advancing Grace’s global sustainability objectives. Working with EcoVadis enables us to engage with our global value chain in ways that were simply not possible before. This engagement allows Grace to ensure that our raw materials are sourced responsibly and that our suppliers meet the highest standards of transparency thereby building both a responsible and resilient supply chain.”
Read the full profiles of the expert jury members and details on the key attributes of these winning programs here.
This award recognizes individuals with outstanding contribution to driving a sustainable procurement initiative forward within their company. The award is nominated and selected by the EcoVadis team based on sustainable procurement program results and demonstrated excellence in program strategy and execution.
Regarding Brad Adams, Compliance and Sustainability Manager, John Deere
“We are honored to accept the Outstanding Program Leadership award from EcoVadis, recognizing the outstanding efforts of Brad Adams and our Supply Chain Sustainability team. John Deere is committed to delivering outcomes to all stakeholders that are both more economic and more sustainable through our Smart Industrial strategy and recently launched business and sustainability goals. Our suppliers are a critical part of our journey to unlocking the innovation necessary to provide more sustainable solutions and technologies to our customers.” Jill Sanchez, Director of Sustainability, Deere & Company. Learn more about their goals and program here.
“On behalf of the whole Indirect Purchasing team of Auchan Retail, it’s a great honor to receive this award from Ecovadis. This award is a recognition for all the hard work that has been done already, and clearly demonstrates the positive impact of our Global sustainable procurement program. A warm thank you to all our purchasing and CSR teams worldwide, which all contributed to that success. Also, thank you to EcoVadis for your dedication in improving sustainability in our supply chain, and beyond, to our wide community of trusted suppliers and partners.”
This award is granted to companies who demonstrate the highest percentage of rated companies improving their sustainability performance. This category was not open for submissions and was instead granted based on the EcoVadis data.
Dave Ingram, Chief Procurement Officer, Unilever
“Unilever is pleased to share this award and achievement with both EcoVadis and our suppliers, in recognition of the partnership and collaboration required to make improvements to our supply chain. Our Responsible Sourcing Policy is the fundamental starting point for Unilever’s ambition to make sustainable living commonplace, and Ecovadis supports this journey by helping to identify where our partners can improve and progress on environmental and social commitments. Ultimately this award is the result of the hard work of our partners, so a big thank you, and congratulations to all our suppliers for your efforts.”
Sandro Avila, Operational Planning, Logistics and Supply Chain Director, Klabin
“It is an honor to be granted the Best Portfolio Performance Improvement award by EcoVadis, which has become a key partner in advancing the sustainability agenda. This award demonstrates the Company’s investments for a renewable future, such as the implementation of the Sustainable Supply Chain Management Program, which helps and fosters our suppliers in advancing with responsible socio-environmental practices. To EcoVadis, thank you very much for your support in improving sustainability in our supply chain.”
In addition to these awards, EcoVadis also recognizes a selection of small- and medium-sized rated companies (i.e., suppliers and trading partners) across the globe who achieved exceptionally high performance in their EcoVadis rating in the past year. Learn more on the EcoVadis 2022 Sustainability Leadership Awards page.
About EcoVadis
EcoVadis is the world’s most trusted provider of business sustainability ratings. Global supply chains, financial institutions and public organizations rely on EcoVadis to monitor and improve the sustainability performance of their business and trading partners. Backed by a powerful technology platform, EcoVadis’ evidence-based ratings are validated by a global team of experts, and are adapted to more than 200 industry categories, 160 countries, and companies of all sizes. Its actionable scorecards provide benchmarks, insights, and a guided improvement journey for environmental, social and ethical practices. Industry leaders such as Amazon, Johnson & Johnson, L’Oréal, Unilever, LVMH, Salesforce, Bridgestone, BASF, and ING Group are among the 90,000 businesses that collaborate with EcoVadis to drive resilience, sustainable growth and positive impact worldwide. Learn more on ecovadis.com, Twitter or LinkedIn.
The advantages of building sustainability in your supply chain
Increasing awareness worldwide of the impact of climate change and preserving the environment has thrust sustainability to the forefront. More and more companies are now implementing sustainable practices and innovation into their business. In this Buyer Fireside Chat, learn everything you need to know about sustainable sourcing – from the challenges and opportunities to the advantages of building sustainability in your supply chain and what lies ahead.
The panel
Pia Pinkawa
An independent communications and marketing professional and sustainable supply chain expert, Pia works with international organizations and service providers to engage procurement, supply chains and people to strive for and implement a sustainable way of making business.
Pia is part of the steering committee team of the Sustainable Procurement Pledge (SPP), a global initiative and growing procurement community of already more than 5,000 ambassadors.
Aaron Leonard
Sustainability has always been a passion for Aaron, one that he now combines with his years of experience and expertise to drive positive outcomes in corporations’ sustainability journeys. Aaron has more than 20 years of experience in offering innovative, business-changing digital and sustainability solutions to large multinational corporations.
Previously, he was Sales Director and co-founder of the successful startup Simple iD, a leading IT solution and consulting company helping to modernize companies’ collaboration and communication systems across the APAC region and beyond.
Divya Demato
Divya is the CEO and co-founder of GoodOps – a supply chain and sustainability consultancy that partners with high-growth startups and global enterprises to architect, accelerate and scale responsible operations.
Divya is also an advisor to Rethink Food VC and Radiant Ventures, is chairwoman emeritus for Nexus Global, and a mentor for Unreasonable Group. In 2021, she was named one of the Top 100 Women in Supply Chain by Supply Chain Digital.
COVID-19 is a potent accelerator for sustainable supply chains.
In the same way digital transformation consumed industries the last 15 years, ESG-centered systems will be the new essential mandate for any business that survives these turbulent times. Although both initiatives have been on the radar for most companies, many felt the time horizon for full adoption was still 3-5 years out. When the COVID-19 pandemic hit, extreme business disruption began wreaking havoc around the world in a matter of days. Most companies were not adequately prepared. In fact, most experts agree that even those companies with the most robust business continuity plans, which included dry-runs and mock scenarios, were not able to properly respond given the unique aspects of this pandemic, such as extended stay-at-home policies around the world. Global industries plummeted and market capitalization declined across sectors. A new reality was emerging and human-centered industries that relied on the movement of people were suddenly on the brink of collapse. Global supply chains broke leaving a wake of wreckage. Millions of workers lost their jobs, consumers were without essential items, suppliers were left in peril and as we’ve seen, investors retreated in fear.
When all of humanity suffers, business falters.
There has been no global event in recent times that has captured such a dominant role over the movement of people, nor an event that has connected human beings so intrinsically. Many have seen the campaign #WeAreInThisTogether which speaks to the underlying current between all of us as we struggle as a species to overcome this threat. Supply chains are no different and we are seeing the ripple effect across our industries. “Nearly 75 % of companies report supply chain disruptions in some capacity due to coronavirus-related transportation restrictions, and more than 80 % believe that their organization will experience some impact because of COVID-19 disruptions,” according to the Institute for Supply Chain Management COVID-19 Survey: Impacts On Global Supply Chains.
Companies quickly realized there was no recovery playbook to draw from and are now facing a myriad of obstacles and crisis. The only path forward, is one that is built on social and environmental responsibility. To deepen our understanding, we need to look at which industries are most impacted by the crisis, the best ESG metrics to prioritize and finally the specific frameworks to help guide teams as they begin to address stakeholder needs.
INDUSTRY IMPACT
The impact of COVID-19 has been two fold. Most companies are experiencing plummeting consumer demand, where virtually all orders have dropped off a cliff. Others are having the biggest spike in demand ever as their sales hit hockey-stick type growth organically. Both scenarios are leaving companies with critical decisions to make as they navigate this uncertain time. As organizations begin to address where they are on the spectrum, they must also look at the toll on social and environmental ecosystems as they build both long and short-term strategies.
Evaporating Demand
Global industries seeing evaporating demand include: Airlines, Hotels, Automotive, Oil & Gas, Apparel, Fashion & Luxury, Restaurants, Local Transportation, Wellness Services, Personal Care Services, Arts & Cultural Events and Personal & Office Goods. What’s important to note for sustainability considerations is the social and environmental impact this event has caused.
In terms of social, the human toll extends beyond loss of wages, healthcare and safety – but also the impact to the millions of small and medium sized businesses going bankrupt around the world. In the US alone, 99% of employers are small business owners and employ upwards of 57 million people. The pandemic has caused significant loss of wages across value chain, a lack of healthcare and benefits, increased safety risks for the most vulnerable, and bankruptcy for many independent businesses.
In terms of environmental impact, we know that a drop in demand will create substantial waste of unused natural resources already consumed into manufacturing products. We are seeing this play out in the food and apparel sectors as millions of pounds of unused product are being thrown away and burned. The residual effect of COVID-19 on these industries will reverberate for years to come. The temporary lower emissions leading to some climate relief for air, water and wildlife – is not enough to offset the excess supply of consumed resources and increase in waste without distribution due to COVID-19.
Exponential Growth
On the other hand, many industries are seeing exponential growth due to rising demand of stay-at-home consumers: Warehouse Fulfillment, Delivery Services, Cleaning Services, Online Grocery Stores, Farm-fresh Delivery, Pizza Delivery & Food Trucks, Streaming Services, Online Fitness, DIY Products, Hospital Care and Online Education. Direct to consumer businesses for items like food, toilet paper and personal care are all well positioned to reap the benefits of the pandemic.
In terms of social impact, it’s important to note the sudden spike in demand has all but crippled many suppliers and unfortunately many businesses are unable to fully realize the growth opportunity due to dried up or bottlenecked supply chains. In addition, the social and environmental toll will leave many of the temporary workers with health risks and an uncertain future. For those companies capitalizing on this moment and capturing market share, they need to also be held accountable for low wages for “essential” workers, high risk to health with no/few benefits and the impact of temporary work with no guarantees.
The link between global health and business resiliency begins to play out as more and more companies struggle to recover. Front line workers continue to fall ill, stoping production in its tracks. Factory workers with already compromised immune systems are at high risk, grocery store workers are dying after repeated exposure to shoppers, fulfillment centers can shut down overnight if just one worker tests positive to COVID-19. Safety measures are eroding or ignored, there is a reduction in recycling & upcycling, an increase in waste from PPE is seen in oceans and there is a spike in packaging for shipping DTC as individuals continue to shelter in place.
“The current global industry is bringing to the forefront how social and environmental sustainability is intrinsically linked to our global well-being,” says Marie-Claire Daveu, Chief Sustainability Officer & Head of International Institutional Relations at Kering.
Crisis Management
The path to resilience will be hard won. It will be tempting to neglect sustainability considerations and instead focus on securing supply, driving down price and reducing financial exposure at all cost. The need to generate revenue and get people back to work will dominate procurement and supply chain strategies, but we caution against this frantic approach. Companies, now more than ever, must be strategic in their response and recovery efforts to ensure successful restoration and reinforcement of their brands for long-term viability. The playbook in progress pre-COVID-19 that embraced a more responsible supply chain is not only relevant, but it is the key to managing the crisis.
There are 4 stages in Gartner’s Crisis Management Journey that lay out very clearly the time horizon for resilience. In the short term, response and recovery continue to face limited options due to continued global uncertainty. And in the long term, restoration and prevention depend on the stability of your rebuilt foundation and its ability to navigate the “new” normal.
So, yes, the primary goal is near-term survival, but what is the most fundamental thing to remember here is that the signals you send during this crisis will endure and permeate throughout your future efforts. Simone Cipriani, Head and Founder of the Ethical Fashion Initiative @UN International Trade Centre, calls out a cautionary point for companies trying to rush back to business without proper considerations and that is an unstable short-term solution can have damaging effects downstream: “The big question mark remains about the global supply chains. In fragile countries there could be increases in illegal and informal migration, a boom of the informal economy and a surge in terrorism and illicit trade. These factors could create further unsettlement.”
There is no quick fix and there is no turning back the clock. If you act irresponsibly now, forgiveness may not be awarded to you – especially if your competitors are able to navigate with minimal ESG fallout. Blackrock executives are also sounding the alarm around the correlation between environmental degradation and its impact to local populations, who are typically the backbone of all manufacturing models. “This pandemic is a “Gray Rhino”, a highly obvious, highly probable, but still neglected danger. Rising global temperature extends the reach of vector-borne illnesses, and localized air pollution and environmental degradation increase health risks for local populations,” according to Philipp Hildebrand during J.P. Morgan’s 5th Global ESG Conference.
Look to the fashion industry. A recent example is how H&M paid out all their supplier contracts in full even though they had to shutter all of their retail stores. Primark who tried to cancel contracts – were called out in comparison and have had to since reinstate contracts with garment suppliers they tried to cancel. The voices of workers are amplified by consumers and you’re seeing brands coming back to the table to structure more responsible agreements to safeguard their reputations.
Sustainability is the cornerstone of resilience.
Sustainability is meeting the needs of the present without compromising the ability of future generations to meet their needs; comprising three pillars – people, planet & profit. Resiliency is the ability to recover quickly from disruptive change, or misfortune without being overwhelmed or acting in dysfunctional or harmful ways. There is an inextricable link between sustainability and resilience. Essentially, both require the ability to survive in the face of threat using a holistic and balanced approach.
The current pandemic is giving every company an opportunity to infuse ESG strategies as they recover, rebuild and reimagine their business. To future-proof supply networks from another reality-altering event, companies must build business continuity plans centered on stabilizing the people and resources in their supply chain. Companies who place sustainability at the center of recovery efforts will ascend to the highest point in the hearts and minds of consumers, employees, suppliers and investors.
Given limited resources, it’s imperative to prioritize how teams think through sustainability efforts and respond in order to both get back online quickly and efficiently, as well as ensure the most stable foundation as you move forward into more developed stages of resiliency. The 3 key pillars of sustainability – Environmental, Social and Governance – must map to key considerations and needs of the 4 primary stakeholders – suppliers, investors, customers and employees.
SUSTAINABILITY PILLARS
When thinking about sustainability initiatives, the ESG model is the best framework to identify which areas to focus efforts on. Regardless of where your company prioritized initiatives pre-COVID-19, the recommendation now is to first prioritize “SOCIAL” efforts as this addresses the needs of the people your organization impacts. So, why prioritize social? First and foremost, when people are in such a vulnerable state they’re not able to support other initiatives. And while supply chains have historically focused on environmental sustainability – arguably due to the more easily quantifiable nature of the outcomes – COVID-19 is a uniquely human crisis. Never before have so many individuals and communities been so disrupted at the same time. This instability is a key risk to the future of our collective supply chains, and we can only solve the problem through individual but directionally aligned efforts.
For a recent example from an enterprise leader, Lars Petrsson, former US President of Ikea, said recently without a doubt, the most important aspect of sustainability today is taking care of people – and this includes all stakeholders: suppliers, customers, employees and communities – as these are the individuals who will help you recover, rebuild and restore business quickly. Key metrics include labor Standards, human rights & continuity, health & safety and customer responsibility. Once the people aspect is on a solid ground, companies can move to environmental considerations, key metrics being climate change, pollution & resources, water security and biodiversity. And then finally, governance, which includes measuring risk mitigation, anti-corruption, corporate governance and tax transparency.
STAKEHOLDER PRIORITIES
The four main stakeholders companies must address with urgency, authenticity and action are: Suppliers, Investors, Consumers and Employees.
Suppliers: The Power Dynamics are Shifting
For all companies, and procurement executives in particular, the supplier relationship is the most critical. Without the right amount of quality supply at the right cost and the right time, companies are left vulnerable. The pandemic has exacerbated this dynamic and companies must navigate strategically. Although some industries are experiencing a knee-jerk reaction to the pandemic and trying to cut orders, cancel contracts and deepening their push for even lower prices, others realize the long-game is to support suppliers with their own rebuilding efforts to ensure a more stable and enduring supply network for the foreseeable future.
For many industries, existing models are breaking. “Just in time” inventory is leaving many products out of stock, “centralized production” is choking flow if capacity can’t be met, and “vetting alternative suppliers” may be nearly impossible without breaking rigorous compliance protocols. We are seeing this acutely play out in medical supply chains where scarce ingredients made in China and India are leading to shortages in life-saving drugs and testing kits. In a highly globalized economy facing a global pandemic, very few companies have the luxury of just bouncing back with aggressive tactics and a business as usual approach. Power dynamics are shifting to suppliers who are in the best position to provide much needed quality capacity at the right time.
For long-term viability, the most strategic response is a socially responsible path that supports and invests in suppliers, enabling them to build financially sound enterprises operated by a safe, healthy and trusted workforce.
Identify strategic suppliers & map relationships against current strengths & weaknesses both short/long term. During the recovery and restoration period, begin mapping out which suppliers are key to both a short and long-term competitive advantage. Identify current strengths and weaknesses to see which levers you can pull.
Honor contracts & offer supplier relief: throttle orders, pay invoices early, low interest loans, send PPE.. Honor ALL contracts – regardless if you plan to work with them post-crisis. All industries are small and suppliers will quickly learn which companies didn’t respect agreed upon terms. At the same time, offer relief – especially financially. The quicker your partners stabilize, the sooner they can begin to perform.
Right any wrongs from the past: return to fair prices, relax penalties, extend grace periods, shorter terms. Fix anything from the past that needs to be addressed. Whether it’s adjusting prices back to reasonable levels or offering favorable payment terms, see this as an opportunity to reset with your suppliers and nurture a new foundation built on mutual-long term success. It will be tempting to want to fight for even lower prices given current economic pressures; however, this is precisely why it should be the opposite. By further squeezing your suppliers, you are damaging ecosystems already on the edge of collapse. If you push too hard, you may lose whatever is left remaining and recovery at that point will be near impossible.
Build a roadmap for each supplier using a “social” impact ambition framework, committing the right resources. Not all supplier strategies are the same. It’s important to build a framework to better help you identify your ambitions and properly dedicate resources accordingly.
The Sustainability Ambition Matrix squarely frames “Social” impact in supply chains around a company’s commitment in addressing the well-being of their supplier’s extended workforce. CORE is essentially “Business as Usual” and means seeing suppliers as predominantly a transactional entity, with the primary goal of getting the lowest price at the most favorable terms. Unfortunately, this approach will suffer in the “new normal” as more long-term success metrics come to light demonstrating a more “partnership approach” will endure over time. ADJACENT is essentially incremental improvement in terms of supplier relations. This path speaks to offering more processes, products and assets to suppliers – including payment upon receipt, extending credit lines, waving debts, offering bonus payments and offering even more benefits. BREAKTHROUGH is what is possible when you start to invest in long-term supplier resilience, such as supporting living wages, toxic-free production, sponsored audits, profit sharing and more. Companies have the chance to help suppliers rebuild and reimagine what is possible for themselves and each other. By thinking beyond the transaction, companies can unlock new ways of working that have yet to be realized across industries and dominate responsibly in the new normal.
Investors: The Growing Case for ESG Investing
In recent years, we’ve seen a tremendous rise in socially responsible investing around the world. This trend comes on the heels of a decades-long explosive campaign around climate change and the role of businesses in acknowledging their contribution to it and now moving to address it.
As a result of the coronavirus, ESG investing is only going to grow and expand its reach. Companies will need to explain to investors how they plan to rebuild their already fragile supply networks without making them even more fragile. Investors realize the most enduring returns will generate from companies with responsible foundations where all stakeholders thrive.
ESG Investment Indicators: We see this as one of the key pillars to acting now because whereas before you may have had up to 5 years to switch to an ESG based supply chain model, now you only have 1-2 years, and that means starting yesterday given the complexity of most supply chains. When you take a step back, it is clear to see why responsible investing will pick up steam in the aftermath of COVID-19. There was already a healthy appetite given strong performances in the stock market, however, the fact that right after coronavirus started to hit the news, ESG funds returned higher returns than their counterparts. In addition, millennial investors have already shown an overwhelming interest in supporting companies with a triple-bottom line. More of them see the best way to scale their impact is through business, versus traditional philanthropy. And lastly, the correlation between both climate and labor risks on business disruption continues to grow. More and more companies are faced with having to abruptly switch or stop production altogether due to negative reputational and operational risks – largely due to unstable environments related issues. Companies must think about how their actions today will impact their long-term opportunity to tap this growing investor segment.
Consumers:The Demand for Action Accelerates
Another growing trend in the marketplace has been consumer activism. This trend has also been exponentially growing in recent years, however, the big shift after COVID-19 is consumers expect companies to rebuild with decency and humanity in mind.
Signals are already permeating across industries that because of extended stay-at-home measures, more people are rethinking their purpose in the world and which brands they want to associate with based on that. Consumers have overwhelmingly indicated they are very interested in the social impact aspect of business restoration, and companies must realize that there are no short-cuts here. Savvy consumers will know how authentic your efforts are versus those that were solely for marketing purposes.
The immediate sustainability priorities for consumers are both meaningful and actionable. As more and more people stay at home, a large portion of the population is shifting value sets, and consumption patterns are changing. Customers will want to see all workers being treated fairly. They will want a strict focus on decarbonization and circularity when it comes to environmental stewardship. And lastly, they want operational efficiencies that reduce/limit waste – which can spark innovation in both designs and packaging.
Employees: Rebuilding Trust to Win Back Workers
There are many correlations between the wants and needs of customers and employees – but employees are distinctly looking for trust. Millions of them were abruptly let-go, or were thrust into unsafe working conditions. Companies like Amazon are already under fire for how they’re treating their employees and putting them in harm’s way. At this moment in time, many see a lack of sufficient health policies in place – leaving all of them vulnerable to illness.
To provide some context, Eagle Hill Consulting did a national poll and uncovered several important conclusions:
Over 163M Americans told to stay home to control the spread
51% say their organization has the technology, tools and training for WFH
49% say their company is increasing remote work in light of COVID-19
55% U.S. employees say they are worried about their job security
39% believe employer is proactive in addressing health concerns of employees
31% say employer is proactive in addressing economic health of the org
And, key EMPLOYEE Trust Considerations are: Wage & Benefits, Safety, Business Health and Dignity & Respect.
In conclusion, the world is watching and we hope companies will consider sustainability as their key to resilience in a post-COVID-19 world.
It has been over four months since the COVID-19 crisis has gripped our world. This exposed the fragility, inequities and lack of redundancies in our material supply chains. As a response, the world is moving through exponentially rapid change and social turmoil amplified by digitization. Organizations are rethinking, responding and reinventing everything to respond to the needs of their customers and employees.
Prior to the Great Disruption, materials flowed in what we thought was an efficient system of supply chains. Goods and services criss-crossed the planet while logistics managers and procurement specialists managed the risks and disruptions through the digital flow of information. The operating systems were built to meet the needs of customers to provide the most amount of goods at the lowest cost options. Supply chains connected companies through win-lose negotiations. Compromises ruled.
We thought it was working pretty well. Until it broke. When COVID the future came fast. Faster than any business was prepared for. The low cost had come at a price. Multi-year roadmaps for digital transformation, sustainability and global expansion came to a head. Nearly overnight, companies froze in place; whatever they had in that moment was all they had to weather an unprecedented storm. Most, if not all, faltered. Companies either found themselves paralyzed by the sudden drop in demand, or a dried up supply. There were no alternative playbooks or clear pivots. The waste built into the chain, previously only sometimes visible, became an anchor.
Everything broke. That is what chains under stress do—they break. They are only as strong as their weakest links.
The companies who are surviving, even thriving during this time, have supply webs, not supply chains. A web is the best way to future proof your previously linear chain. The digital world is a network, a web. Companies who never wish to face this crisis again will retire the concept of a supply chain, and instead adopt a material model that is resilient, a supply web.
Why A Web?
The world of arachnids is an inspiration. A spider creates her web by linking many threads together. The more threads linked, the stronger the web. Out of crickets and other bugs, at ambient temperatures, the crafty spider creates a silk, a complex composite material that is five times stronger, ounce to ounce, than steel, able, compared to Kevlar, to absorb five times the impact force without breaking. For the web to maintain its structural integrity under force, the material is also highly elastic, stretching up to 40% longer than rubber and bouncing back as good as new. The interconnected structure can withstand wind and the elements. Waste is unheard of. A web begins at the center – what is available locally and then moves beyond the center to acquire needed materials.
Future supply webs will rely on both the amount and strength of partners. This includes: farmers, suppliers, factories, manufacturers, shippers, packagers, retailers, fulfillment centers and more. A supply web allows a company to move in and out of situations dynamically, without sacrificing quality, efficiency or cost. A sustainable supply web does all that, and ensures protection and advancement of people and planet.
In a post-COVID world, no company alone can resurrect their industry. It will take many partners, even adversaries, to work together to find new meaning and market purpose. It will also require collaboration of supply partners, who are now only a fraction of what they once were. Previous competitors will need to band together to provide the capacity, quality and cost optimization needed to save their industries. All parties have to be equal, treated equally, all weathering the storm together. Future systems must be dynamic and have the ability to work across systems, partners and time zones, all in real time, meeting the expectations of the post-COVID consumer.
The Rise Of The Conscious Consumer
A recent Futerra study in the UK and US found “that nearly 80% [of consumers] are willing to make lifestyle changes to stop climate change as big as those they’ve made for coronavirus.” The COVID-19 pandemic has accelerated the need for operational excellence, as it has propelled the conscious consumer into the mainstream economy. There is no turning back for brands who have compartmentalized their ecosystem. No longer can marketing claims sit apart from production practices. Company accountability now encompasses the entire supply network – from the farms where raw materials originate to the consumer packaging used at point of sale.
Brands who are already working to address other complex consumer trends like personalization, omni-channel purchasing and technology enabled experiences—will now have to address their ‘purpose’ claims in an authentic and measurable way. Transparency will become the backbone of any brand story, and without a powerful supply web to support this, brands who fall short will be abandoned.
The Supply Web
A supply web is a network of partners, all intrinsically linked together. One can not survive without the other. The strength of each entity enriches the strength of the whole. For supply chains, this means building a democratic ecosystem centered on the viability of the group. It is initiated by a single entity and then expands out, locally at first, carefully building the foundation. As the core structure stabilizes, it expands. Each connector thoughtfully engages with the other, nimble enough to move and expand.
For companies, it is no different. As brands begin creating their products, they start a journey that will involve numerous other entities that are composed of people and natural resources. As each brand chooses their partners, they should first look locally, where they have the best ability to judge the quality of partner business practices. From there, product needs will dictate where the web expands. Throughout this process, it will be imperative to maintain the same principles and values to ensure all members of the web flow in unison, as the business itself will ebb and flow.
Circularity is a key component of the supply web. It is by nature meant to stay intact, producing no waste. The same goes for brands who are creating goods of the future. There is no room for excess materials or toxic chemicals, polluting natural systems or human bodies.
ReInventing Everything
ReInventing Everything is how we prepare for an uncertain future. Moving from supply chains to supply webs is a key element to creating a diverse, equitable, resilient and frankly much better company. This is the moment in time where the once impossible is now possible. We can help.
“Above all we understood we went way too far. Our reckless actions have burned the house we live in,” says Gucci creative director, Alessandro Michele.
Angeli Mehta explores the troubling reality facing the fashion industry in her recent article in Ethical Corporation: “‘Pandemic forces fashion industry to take stock.”
The dire conditions facing manufacturing communities, due to abrupt cancellations of apparel orders from global brands, is accelerating the already critical crisis.
Highlights from the report include:
The average market capitalization of apparel, fashion and luxury brands dropped almost 40% in the year to the end of March.
McKinsey expects “a large number” of global fashion companies will go bankrupt in the next 12 to 18 months.
In 2016, WRAP estimated the fashion industry global supply chain waste was 800,000 tonnes, even before any clothing reached the consumer. In the UK alone that year 300,000 tonnes of clothing went to landfill.
The industry accounts for 10% of global carbon emissions.
McKinsey’s survey of North American and western European sourcing executives reveals not all brands are taking steps to support their supplier base. And only 19% are providing pre-payment for orders, even though 64% of respondents said this action would have a significant impact.
The pandemic has increased consumer interest in sustainability: a survey of consumers carried out in Europe and the US in March suggested 20% of them want to support local business, and in Europe 16% said they’d be buying more socially and ecologically sustainable clothing in future.
Consumers have also taken note of efforts by brands to look after their employees, contributing items like PPE, or donating to their communities.
The Textile Recycling Association fears that unsold stock will take the place of secondhand clothing in many markets in eastern Europe.
Pierre-Francois Thaler, Co-founder and Co-CEO of EcoVadis, perfectly articulates the new business imperative – sustainable supply chains – in his piece in Future of Sourcing, “The Growing Business Criticality of a Sustainable Supply Chain.”
Key insights include:
88% of studies found companies adhering to social or environmental standards showed better operational performance, with 80% showing a positive impact on stock performance.
Sustainably minded shoppers will spend $150 billion on sustainable products by next year. That’s $14-22 billion more compared to prior years, pointing to new sales opportunities for businesses that prioritize sustainability in product devleopment.
Sustainable supply chain practices reduce costs by 9-16% and create a 15-30% increase in brand value. 73% of CEOs report sustainable business builds trust and reputation.
Ignoring ESG exposes investments to huge risks and erodes returns. This behavior has wiped out $534bn of valuation in the last five years.
Greenwashing is as pervasive now as it was pre-COVID. Sustainability marketing claims have spiked, but they don’t always mean action. Conscious consumerism is bringing a tsunami of accountability like never before.
How do brands navigate? How can consumers cut through the noise? And what really drives social and environmental impact in fashion and food?
Transparency, supplier partnerships and ESG innovation are just some of the solutions we explored in our NextGenChef Table Talk.
NextGenChef’s white paper, The State and Future of the Food System post-COVID-19, explores today’s most pressing questions.
COVID-19 has exposed the weak points in the U.S. food supply chain, raising fears of food shortage among consumers. The disruptions have drawn widespread attention to the problems that entrench the food industry, simultaneously urging the country to reflect on sustainable alternatives.
As consumers alter shopping behavior, suppliers run low on supply, and logistics buckle under pressure, brands who will emerge as winners will be the ones who lead with environmentally and socially responsible operations.
In this NextGenChef whitepaper, the team speaks with eight industry experts across the country, including senior supply chain consultants and CEOs who represent more than 180 organizations to uncover how COVID-19 has changed the food supply chain.
GoodOps’ CEO, Divya Demato, touches upon the importance of DTC food models and how the path to resiliency lies in supplier recovery.
FASHINNOVATION’s Worldwide Talks 2020 panel on Supply Chain and Circular Economy explores the role of equal justice, standardizing sustainability metrics, power of being an early adopter of ESG and future trends like plant-based materials.
