"Sustainable Supplier Management for Greater Responsibility, Secured Supply Ability, and Happier Customers"

1. What does supplier management mean?
2. What are the objectives of supplier management?
3. What does the German supplier law include?
4. What does the process of supplier management look like?
5. What does sustainable supplier management look like?
6. What are the advantages of a sustainable supplier management?
7. What challenges are there in sustainable supplier management?
8. What tools are useful in sustainable supplier management?
9. Conclusion

Companies must increasingly ensure a responsible use of resources as well as emissions, and last but not least, fair working conditions. Thus, it is hardly surprising that specific strategies for targeted sustainability management have long since established themselves in business. Corresponding developments should also relate to the organization of supply networks: "should" because many companies still have considerable deficits in this area.

With the new supply chain due diligence law of 2023, shortly supply chain law, sustainable supplier management gains new relevance. But even before this, the ever-increasing mass consumption, the global pandemic, the war in Ukraine and the resulting supply shortages have made conscious handling of supplier relationships a weighty issue.

Are you (recently) responsible for sustainability in the supply chain in your company? Or do you simply want to inform yourself about the current requirements in supplier management? In any case, you will find many helpful facts about the situation and/or the optimization of your processes here - including an overview of the latest legal circumstances.

Here's a hint: If you manage to create an optimally sustainable supplier management, you will not only comply with all legal requirements in a sovereign way, but also profit from a stronger securing of your ability to offer and ultimately more satisfied customers.

What does supplier management mean?

Supplier management, also called Supplier-Relationship-Management or short SRM, primarily concerns the organization of central processes in the supply chain. Above all, it is about the strategic planning and control of relationships of companies with their suppliers.

This essentially covers the management of all measures for ensuring deliveries, the control and regulation of corresponding deals: from the selection of suppliers and the definition of the services to be provided, through the organization of testing and, if necessary, adjustment of deliveries, to the maintenance of business relationships.

What are the objectives of supplier management?

The main objective of supplier management is to establish solid and long-term partnerships with the most efficient suppliers in their own business area in order to secure their own competitiveness or production or offering ability.

Companies can significantly reduce costs and ultimately specific risks by appropriately organizing the supply network, while simultaneously increasing the quality of procurement and the goods in question.

What does the German supplier law include?

The new supply chain law - or simply supplier law - came into effect on January 1, 2023. It obliges companies to take responsibility in relation to adhering to internationally recognized human rights and certain environmental standards in connection with their supply relations. The measures are initially only mandatory for companies with 3,000+ employees. However, from 2024 the regulations will be extended to companies with 1,000 employees.

With the new law, companies that have their headquarters and main business in Germany can now be held more clearly accountable if, for example, worrying working conditions prevail or they are causing environmental damage at their (foreign) supplier companies.

This makes sustainable supplier management more important than ever before! Responsible managers of the relevant brands should in future pay very close attention to acting correspondingly environmentally friendly and fair in terms of supply chains. It is important to pursue any shortcomings and to avoid them immediately if possible. In the event of violations, state fines or warnings initiated by competitor companies are the main threats.

The supplier law essentially covers three points:

1. For the first time, companies are legally obliged to specific environmental and human rights related duties in connection with supply chains.

2. The authorities are given clear guidelines for the enforcement and control of due diligence in supplier relationships.

3. The regulations apply to the entire supply chain and are based on the UN Guiding Principles for Business and Human Rights (UNGBHR).

What does the process of supplier management look like?

Supplier management is divided into typical operational and strategic processes. These naturally vary from company to company in practice. However, the following basic processes are almost the same everywhere.

• Operational supplier management: The operational processes typically aim to ensure procurement, minimize costs and at the same time increase supplier performance. For this, it is necessary to evaluate the supplying companies in detail at first. This forms the basis for an optimal comparability. Through the insights, top supplier companies can be determined and relations to them can be specifically build up or expanded. Non-functioning supplier relationships are reliably sorted out. Concentrating on fewer but more profitable partnerships results in potentials for increasing efficiency. Detailed information about the individual supplier performances must be collected. After all, it is about bringing the best partner companies on board and integrating them into the company network. Long term controlling falls into the operational area as well.

• Strategic supplier management: At a strategic level, it is particularly about optimizing the supplier base. Procurement strategies form the basis for the development of measures with which the quality of delivery services can be increased and procurement costs can be reduced. Often the aim is to reduce the supply risk. Dependencies on individual supplier companies are to be reduced by strategically driving the development of relationships with alternatives. Regulation of procurement volumes also usually plays a major role here. The relationship to very important supplier companies is secured by special attention.

What does sustainable supplier management look like?

Sustainable supplier management is by definition an organization of supply chain relationships that is thoroughly responsibly designed. Companies that pursue a corresponding approach not only act sustainably themselves, but also ensure that their supplier companies meet the relevant standards as well. Even during typical planning, strategic and finally also operational processes, such conditions become central guidelines. The aim should be that all partner companies verifiably fulfill the (legal) sustainability requirements.

Fundamentally, action in the sense of the three currently applicable principles of sustainability with ecological, economic, and social goals should apply:

1. The approach of ecological sustainability is primarily about protecting the environment and natural resources as much as possible. The claim should only occur to an extent that can be balanced out quickly. This concerns in particular raw materials that are extracted from the earth, but also water and energy consumption.
2. Economic sustainability represents the interests of companies. It calls for good economics so that sufficient profits can be achieved. However, profit maximization is never seen as the only goal of sustainability. Rather, fair conditions for all sides are promoted here in order to favor a economically healthy society, which is capable and remains so in the long term. Only in this way can it effectively generate profits.
3. Social sustainability focuses on people and community-oriented actions. Important tools are fair payment models and the implementation of other interests of employees. Furthermore, conflicts and tensions between companies and employees should be dealt with peacefully and thoughtfully.

What are the advantages of a sustainable supplier management?

Basically, companies that focus on sustainability in suppliers or in connection with corresponding relationships benefit from the same possible advantages as those present in a traditional supplier management. Here of course, it is also about ensuring the competitiveness or production or offering ability through good relations, delivery processes and a suitable strategic orientation. Costs and specific risks are ideally massively reduced.

In addition, a comprehensive and well thought-out sustainable supplier management can certainly ensure that your own company complies with all requirements of the supplier law of 2023. The risk of being affected by state penalties or warnings from competitor companies is thus ideally reduced to null.

A very strong argument for an environment and employee friendly organization lies in the given chance for a considerable positive effect with the customers: 

1. Global warming, numerous environmental scandals, general resource scarcity and an increasing awareness for fair working conditions and human rights are important societal issues.
2. Against this background, (potential) customers now place great value on sustainable processes - also in terms of supply chains.
3. Companies that not only show a lot of initiative here, but also make this public, can generally benefit from a strong image push and ultimately more satisfied or more buyers.

What challenges are there in sustainable supplier management?

Analogous to the advantages listed above, the challenges in sustainable supplier management are quite similar to those in a conventional organization of the supplier relationship: The setting up a strategy that fits the own company and corresponding processes is generally not an easy task. Added to this is the additional integration of guidelines and legal regulations on sustainability.

• It is often already very difficult to create the right awareness. Here, a detailed code of conduct should be established as a basis, in which expectations in the areas of ethics, treatment of employees, health, security, environmental protection and quality are clearly defined. This means a lot of work.

• Suppliers who cannot (or will not) act in accordance with these guidelines are out. Thus, there are sometimes considerable restrictions on the selection of partner companies - more in some industries than in others. Finding enough sources and alternatives can become a big challenge.

• Last but not least, the principles of sustainability must also be pursued in the long term and it must be ensured that the supplier companies continuously maintain the agreed rules. A sufficient evaluation can only be achieved with the help of regular audits that take place according to specific standards. Central here are extensive on-site inspections based on the defined sustainability criteria.

What tools are useful in sustainable supplier management?

There are actually some softwares, that can be helpful for companies in the implementation of a sustainable supplier management and support the organization effectively in the long term. You can find such programs at OMR Reviews specifically in the areas of, Purchasing & procurement software, and Sustainability management software.

Here is a selection of some top-rated tools:

Conclusion

A clever organization of supplier relationships and the corresponding supply chain processes is vitally important for many companies to ensure competitiveness or production or offering ability. More and more companies have to pursue a sustainable orientation of their supplier management. With the coming into force of the supply chain law of 2023, corresponding structures have now gained a significantly greater legal relevance. Acting appropriately in the face of these circumstances is undoubtedly associated with great challenges. Fortunately, these can be significantly reduced with the support of specific software. The acceptance of the tasks is worth it not only in a legal context: Whoever finds the right way benefits from a strong image push and ultimately more satisfied or more buyers.“.