Procurement

While firms today might be more worried about the possibility of inventory pile-ups than product scarcity, the age of port congestion, empty shelves and toilet paper shortages is not far behind us. 

Risks beyond the pandemic abound — political, economic, environmental, financial and more.

“If 2023 was the year of ‘what’ in terms of what the problem is or what the challenge is, in 2024 we’re going to start getting into the how’s and then actually doing it,” said Simon Geale, executive vice president at procurement services firm Proxima. “I think we’re going to see quite a lot of progress on localization, reshoring and resilience in the early part of 2024.”

Despite the scars of the pandemic, the sharp swing from high demand and product scarcity to overabundance of inventory and weak spending have renewed longstanding priorities around cost and profit margins. 

“Currently, there is a strong focus on cost management and cost insulation to protect profitability. Most companies try to avoid a holistic transformation of their supply chains,” said Philipp Oemler, a managing director with FTI Consulting. 

At the same time, Oemler thinks attitudes have changed in organizations since the pandemic brought widespread disruptions to supply chains. 

“From my point of view, there is a mind shift,” Oemler said, noting that since the pandemic “people came to the conclusion that the supply chain is one of their strategic forces and that they need to secure it. The pendulum is going more to the direction of cost, but still there is still a mindset of resilience.” 

And there is cause for a resilience-mentality. Circumstances and systemic challenges continued to put pressure on supplies of some key commodities, while other hard-to-predict risks could create shortages no one can foresee with perfect accuracy today. 

Here is a look at where shortages might strike in 2024:

Pharmaceuticals and medical supplies

Shortages of certain medicines continued to plague hospitals and providers through 2023, and many of the underlying dynamics have not been resolved.

The Food & Drug administration still lists shortages for some cancer treatments such as carboplatin and cisplatin — which have caused astronomical price spikes. Those are in addition to dozens of other medicines in short supply.

Stocks of some medical machinery have also been under strain. Supply disruptions for both devices and treatments have caused surgical cases to be rescheduled, postponed or canceled, according to a 2023 survey by the patient safety nonprofit ECRI and the Institute for Safe Medication Practices. 

In the medical device space, many of the supply chain issues are upstream from manufacturers.

“When I’m working with medical device companies — with nine out of 10 — the question is: ‘How do I increase the stability of supply for my suppliers,’” said Rick van der Vegte,  a senior managing director in FTI’s life science practice. “You cannot switch suppliers that easily and quickly in the medical device space.”

Supply disruptions can be exacerbated by the long lead times in manufacturing supply chains for both medicines and devices, van der Vegte noted. Mitigating those risks also takes time. Finding and onboarding another qualified supplier can take at least a year, he added.

Given the time it takes to bring in new suppliers, assessing and addressing risk early can potentially head off disruptions. Van der Vegte pointed to a European medical device company he worked with to conduct a full risk assessment on its supply. 

“We found out that most of these risks could be eliminated by either changing contracts or by identifying alternative suppliers,” he said. 

Food

War and weather have put the broader food system on alert, where it may remain for the foreseeable future. 

“I don’t think it’s possible to go into any year at the moment without having food supply at the top of your risk register,” Geale said. 

Analytics firm Everstream listed agricultural commodity shortages as one of its top supply chain risks in 2024, citing in part production halts in 2023 during a turbulent year for crops.

Last year has brought spiking cocoa and sugar prices, the latter of which spurred a federal government watchdog agency to push for policy changes. Heat and drought in Europe created shortages of olive oil that drove prices up globally.

Going into 2023, concerns swirled around potential shortages as war raged between two large grain-producing countries — Ukraine and Russia. Ukraine’s exports fell in 2023, and farmers in the country have abandoned millions of acres of land. So far, though, the worst has not come to pass. 

“While lower exports of agricultural commodities from Ukraine continue to contribute to tighter and more volatile global markets, trends in Ukrainian exports are becoming less and less important to overall expectations for global commodity markets, as supply chains and the global market have largely adapted,” the Famine Early Warning Systems Network said in an October analysis. 

“Rather, greater concern exists for the impacts of future potential shocks,” the organization added, pointing to the potential of war in the Middle East.

Battery minerals

As countries and businesses scramble to revamp their energy use, companies are competing for key materials used to make batteries for electric vehicles and other green technologies. 

Between 2017 and 2022, global demand for lithium tripled, while demand for cobalt jumped 70% and nickel demand climbed by 40%, according to a market review from the International Energy Agency. Prices, meanwhile, continue to “remain well above historical averages.”

Concerns continue around whether the supply of those and other minerals will be able to keep up with increasing demand. Geographical concentration of mining and refining adds to the tension over battery materials. In response, the Biden administration has put money and energy behind developing a domestic supply chain for minerals such as lithium.

Major private sector players have also invested in mining and refining. Just this year, the fossil fuel giant Exxon Mobil said it was looking to break into the EV battery lithium supply market, starting with a drilling site and processing plant in southwest Arkansas.

Manufacturers, meanwhile, are racing to secure their own supply. Ford has signed multiple long-term lithium contracts. Fellow automaker GM has invested in a lithium producer and plans to invest another $650 million with a Canada-based lithium mining specialist to develop a Nevada lithium mine. The list goes on, and for other minerals as well.

Climate-driven shortages

The climate is changing, with extreme weather events happening with greater frequency and ferocity. That will only worsen with time, especially if humanity fails to speedily reduce carbon emissions. And impacts on supply chains will increase as well. 

Any extreme weather event can slow or even halt the production or transport of supplies. Last summer, for example, a tornado damaged a Pfizer pharmaceutical plant in North Carolina, leading to a temporary closure.  The closure sparked concerns about supply shortages. Months passed before the factory could return to full-capacity. 

Elsewhere in the world, protracted droughts slowed major shipping channels, including the Panama Canal and Mississippi River. Droughts and heat waves also hit olive oil production in Spain and cocoa harvests. Extreme weather in India caused shortages and massive price spikes of tomatoes, a dietary staple in the country. 

Everstream, which listed extreme weather disruptions as its top supply chain risk for 2023, pointed to shipping delays caused by wildfires in Canada last year as well as heavy rains and flooding in the Southwest. 

“As we saw last year, particularly in India, a bad harvest, or climate disruption, and a significant proportion of the world’s [food] supply gets out of kilter,” Geale said.

These are just previews of challenges to come. At a Senate hearing in October, experts pointed to the effects climate disruption could have on ports and commodity supplies such those for semiconductors, many of which are produced in Taiwan — where typhoons could have an increasing impact on manufacturing.     

Geopolitical-driven shortages

Procurement and supply chain teams are also watching political developments as they make plans for 2024 and beyond. 

Since the China tariffs first instituted by the Trump administration, imports from the country have decreased significantly and firms have looked to diversify their sourcing. Republican candidates have voiced support for the idea of ending China’s permanent normal trade relations status, which would give rise to yet heftier tariff rates on imports. The National Retail Federation took the proposals seriously enough to commission a study on the potential impact, which found such a policy move would lead to $31 billion in added costs for consumers. 

Recent wars have also given rise to concerns about shortages, with increases in fuel costs and grain prices following Russia’s invasion of Ukraine, and war in the Middle East slowing ocean transport and creating jitters over fertilizer supplies.

Oemler also noted the possibility of conflict around Taiwan — another major supply chain risk looming over this year highlighted by Everstream — as potentially having a major impact on global trade and production. Firms are already thinking about the potential for conflict as they make sourcing decisions. 

“They’re investing more in diversification of their supplier base and also on long-term agreements,” he said.

When Big Lots began evaluating its import penetration by category, it became clear that there were additional sourcing opportunities and capabilities, Kevin Kuehl, SVP and general merchandise manager, told Supply Chain Dive in an interview.

Kuehl has been leading the effort to expand the retailer’s sourcing network since the start of his role in 2023.

Evaluating its import processes and procedures got the “ball rolling” to strategically open two in-house buying offices in Vietnam, and Shanghai, Kuehl said.

“We've been importing products from Asia through a third-party agent, and it was kind of precipitated by my oversight that we should be looking at owning and operating our own overseas facilities,” he said.

Reducing costs, strengthening product sourcing

Sourcing through a third-party agent came with commission-based fees for the retailer, Kuehl said. The flat commission rate was not only an added cost but came with limited incentive for cost of goods reduction, he added.

By shifting to a self-operating sourcing strategy, Big Lots can avoid excess fees and expand its resource base and have their own professional buyers negotiate on their behalf.

In-house sourcing also drives operational efficiency in addition to cost savings, Vijay Kasi, partner in the strategic operations practice of Kearney, a global management consulting firm, said in an email to Supply Chain Dive.

“While [the buying offices in Asia] provide access to less costly local talent, beyond labor arbitrage, they provide greater control and visibility and help streamline processes and improve quality standards,” Kasi said.

With 30 staff in Shanghai and 10 in Ho Chi Minh City, the buyers “will be on the ground within an hour or two hours [from] 90% of our imported resources,” Kuehl said.

By “sourcing and procuring product on our behalf and negotiating cost of goods, it absolutely provides us with a much stronger competitive advantage when we’re buying and procuring product,” he added.

Building a supply base in a crucial region

Big Lots relies heavily on imports coming from China and Vietnam — with 90% of imports coming from Southeast Asia. Sourced goods include furniture, decor and home textiles categories, Kuehl said.

China and Vietnam are central hubs for these types of commodities and Big Lots’ new offices bring the retailer closer to the vendor community and manufacturing facilities. 

“It’s worth noting that the role of an in-house buying office is not limited to only sourcing. It can also shape and develop the supply market,” Kearney’s Kasi said. “This can include scaling, promoting technology adoption, establishing required quality standards, and more.”

Over time, the buying offices will develop and shape suppliers by helping them scale their operations and help them increase quality, Kasi said.

That's a task third-party agents are capable of doing, according to Kasi. However, when it comes to developing the supplier ecosystem — such as building capabilities, developing partnerships and introducing quality standards — it’s more critical to have in-house teams closely managing the buying activity.

In-house buyers will also drive country diversification as well as logistics operations to support procurement and product shipments, Kuehl said.

The Asia-based buying offices, which are the retailer’s first self-operated buying locations, are just the beginning of Big Lots’ journey as it looks to actively expand its in-house sourcing network, Kuehl said despite declining to provide specific locations.

Currently, the retailer works exclusively with two outside sourcing agencies in Delhi, India, in addition to a third-party-operated office in Europe, Kuehl said.

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The robustness of an organization’s supply chain has become a litmus test for business resilience and global crises like the COVID-19 pandemic made operational vulnerabilities even more painfully obvious. At the root of these vulnerabilities is a lack of analytical visibility. Without the ability to draw insights from current data — and use that data to predict possible outcomes and take action — organizations are flying blind.

Supply chain leaders should embrace the tremendous business opportunities presented by applying a full-fledged Cloud analytics platform to their operations. In fact, the similarities between supply chain and analytics processes are surprisingly similar and, for that reason, make them naturally synergistic.

In the analytics value chain (the analytics version of the supply chain) data is the raw material that is acquired from diverse sources, which is processed and refined through data cleansing and analysis and is ultimately delivered as finished goods in the form of actionable insights.

This is a discipline that benefits from more unified, automated, and accessible analytics. From reporting the days sales to predicting demand and now leveraging generative AI so that any supply worker can pose business questions to a chatbot, the analytics process itself is a metaphorical representation of a supply chain and just as complex. Ideally raw material data inputs are transformed into actionable insight with little friction, mirroring the journey of materials through the most efficient supply chains.

A Cloud analytics platform acts as a kind of sophisticated logistics network, ensuring the efficient movement of “goods” (data and insights) across different “departments” (decision makers) within an organization. Streamlined access to actionable insights removes barriers to this flow, enhancing the organization’s analytics maturity and, by extension, its financial performance. 

These parallels underscore the adaptability and transformative potential for analytics as an indispensable guide for businesses navigating today’s unpredictable markets. By facilitating efficient data harmonization, rapid change management, and shedding light on operational variances, analytics empowers organizations to refine their strategies literally on demand, enhancing their market agility and responsiveness.

Amway and The LEGO Group are two organizations that have experienced the transformative power of analytics on their supply chains. By integrating and analyzing data across diverse sources, Amway has refined its global strategies and responsiveness. Similarly, The LEGO Group has optimized its manufacturing processes with Alteryx. Both of these market-leading companies have enabled a unified view that enhances their supply chain agility and decision-making.

Continuity is Key 

Continuity and minimizing disruption are key to the success of both analytics and supply chain initiatives. Much like a supply chain relies on the collaboration of various stakeholders for its success, an analytics platform that is easy to use, through no-code and AI-enhanced usability, ensures the continuity of digital transformation efforts. Through what we call this “democratization” of analytics, critical analyses and insights can be delivered despite the constraints of talent shortages and skill gaps.

Generative AI introduces new levels of automation, efficiency, and usability into this analytics supply chain. At Alteryx, we believe that generative AI has tremendous power to accelerate analytics insights — and absolutely must come with transparency, security and governance that is embedded, not added on.

With a collection of generative AI-powered capabilities called AiDIN, the Alteryx Analytics Cloud automates the insight assembly line, generating more impactful analyses and reports for decision-makers with increased speed and accuracy. For analysts, AiDIN documents analytics workflows in support of data governance, and helps communicate use case outcomes in plain spoken business language. In the rapidly changing business environment, this capability is similar to a supply chain’s need for transparency, agility, and adaptability to external pressures.

Making analytics easy to use and available to a broader set of knowledge workers ensures that the “production” of insights is not halted by a lack of specialized skills, making the analytics process a continuous and collective endeavor across the organization where everyone has a stake in success.

The Alteryx Approach to Supply Chain Analytics

At Alteryx, we see analytics having massive business impact across all elements of the supply chain — from creating a predictive forecast and helping a supply chain application ingest the data it needs to optimize inventory costs, to evaluating supplier performance and ensuring the uptime of in-service equipment such as factory equipment and vehicles.

The Alteryx Analytics Cloud provides a visual, no-code user experience, with applications that each play a vital role in the analytics supply chain:

• Designer Cloud: Automates data preparation of first, second, and third-party data so that supply chain decisions reflect important influences in the customer, supplier, partner, and external environments.
• Auto Insights: Identifies trends and anomalies in the performance of a supply chain metric, process or outcome, mirroring the quality control phase and ensuring customer satisfaction while creating a closed loop of collaboration between analysts and decisions makers fueling continuous improvement.
• Machine Learning: Predicts future trends, offering foresight like predictive maintenance in supply chains. Machine Learning allows novices to safely and understandably develop production models to support use cases ranging from demand forecasting to predicting machine downtime events.
• Location Intelligence: Provides visual spatial analysis to optimize decision-making, comparable to logistics route optimization. Incorporating interactive maps improves decision making by workers in the field, on the ground, and in the factory. 
• AppBuilder: Allows analysts to package their work as web applications so thousands of workers can easily access up-to-date answers to recurring questions like: what machine requires maintenance, what product is expected out of stock this week, or how soon must components be ordered to meet demand this quarter? No special skills required. 

By optimizing the flow of data through its “stages”—from input to insight—an analytics platform equips organizations to navigate the present complexities and prepares them for future demands. By making advanced analytics accessible and producing actionable insights across the decision-making spectrum, Alteryx not only mirrors the supply chain process but enhances it, promising a future where insights move as seamlessly as goods, from origin to delivery.

Learn More about Alteryx Supply Chain Solutions 

Check out 8 Areas of Your Supply Chain That Can Create Growth Right Now. Read Now 

To decarbonize the world, the world must decarbonize the supply chain, and quickly.

Some 75% of all greenhouse gas emissions fall under Scope 3 emissions, which includes the upstream supply chain as well as the end use of a company’s goods and services. 

To cut those emissions enough to avoid catastrophic climate change will take technology, infrastructure, operational changes — and money. 

The total cost of transitioning the global economy to net zero emissions could cost an extra $3.5 trillion a year in capital spending, or roughly half the profits of the world's global corporations, according to a 2022 McKinsey estimate. 

As more businesses look to reduce the carbon footprint of their supply chains, the question of who will pay for the necessary changes — buyers or suppliers — will become more pressing. Even the world's wealthiest brands are discovering the true cost of decarbonizing their supply chains. 

“The amount of internal investment being put into decarbonization activities varies enormously between organizations,” said Simon Geale, EVP of procurement at the consultancy Proxima. “It's not just suppliers that are struggling with ‘How do I pay for this?’ It’s organizations.”

And while some major brands are investing to help suppliers lower their emissions, some may simply be dumping the issue and its costs onto their supplier base for them to figure out on their own. 

In some industries, such as fashion, those suppliers are already struggling with tight operating margins. “How are they going to invest when there's no cash flow? Cash flow is the problem,” said Chana Rosenthal, principal of reDesign Consulting. “That makes it challenging to invest in green [technologies].”

‘The biggest hill’ in climate action

At many companies, cost-control — not carbon reduction — remains the top priority.

In an Efficio study this year, only a third of surveyed executives and managers said they were “very confident” in their ability to hit their carbon reduction goals. The study shows cost control remained a top responsibility for procurement leaders over others, including sustainability. 

Even within environmental reduction investments, cost reduction is the top driver, according to a GEP survey of executives this year.

“Behind closed doors, a lot of CFOs are saying, ‘Well, I know that I'm going to have to do it. But when do I have to do it?’” Geale said, referring to action on supply chain emissions. “Because there's an immediate cost rather than an immediate payback.”

Unfortunately for humanity and the rest of Earthly life, the climate is indifferent to budget plans and profit targets. The world needs to cut greenhouse gas emissions by 43% by 2030 to avoid some of the most extreme outcomes of climate change, according to the United Nations’ Intergovernmental Panel on Climate Change.

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“Behind closed doors, a lot of CFOs are saying, ‘Well, I know that I’m going have to do it. But when do I have to do it?’ Because there’s an immediate cost rather than an immediate payback.”

Simon Geale

EVP for procurement, Proxima

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Scope 3 emissions, specifically those tied to the supply chain, present an especially steep challenge and cost burden. Simply understanding the extent of a footprint takes time, data and often technology. All of that takes money. Because these emissions occur outside the company's purview, they are the most expensive to track, while also often being by far the biggest chunk of most carbon footprints.

“The biggest hill is Scope 3,” Jackie Sturm, Intel VP for global supply chain operations, told Supply Chain Dive in an interview earlier this summer. “If you look at Scopes 1 and 2, we have converted to renewables — well before this was popular.” In 2022, Intel’s U.S. and European operations ran on 100% renewable energy, and the company aims to operate on 100% renewables across global operations by 2030, according to its corporate responsibility report.

“But to bring that back to our supply chain is challenging because, as a semiconductor company, we use almost everything on the periodic chart.”

For Intel, that means its climate footprint size is tied to the mining of a range of minerals, each of which comes with its own emissions creation. Mitigating that footprint takes an enormous toolbox, including data collection, choice of more sustainable materials and working with suppliers, to find out how much of their carbon footprint is intrinsic to their production and what they are doing to mitigate it. 

Some carbon-reduction efforts could pay for themselves in the long run through operational changes that produce value by increasing efficiency or cutting down on energy costs, Sturm said. “How do I maybe reduce consumption? How do I shift my consumption to greener chemicals? How do I bring things in more regionally rather than transport them across the ocean?”

For suppliers that can afford it, they may have their own incentives to invest in emissions reduction, particularly in consumer goods sectors where more customers want sustainable products.

“What we found generally is, at least in our industry, it's really moving towards suppliers seeing climate as a competitive advantage, and really investing in their own value chains,” Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, said during an Economist Impact conference panel in Washington, D.C., earlier this year.

But many suppliers may not have the resources to make investments without help. 

How to get a CFO interested in cutting Scope 3

Finance may be able to help bridge at least some of the gap between global environmental imperatives and corporate financial goals, and between buyers and suppliers when it comes to cutting emissions.

For CFOs, “one of the things that really perks their ears up is the idea that they can get access to better financing rates by performing better on green initiatives, which I think is super interesting,” Geale said. 

The market for green capital has expanded rapidly in recent years. One area where investors can put their money to work funding the climate transition is through so-called green bonds and other lending instruments. 

These can help finance environmentally-focused projects. Apple, for example, announced $4.7 billion in green bonds last year to “jump-start the development of new low-carbon manufacturing and recycling technologies,” including carbon-free aluminum for its products, as the computing giant aims for a carbon-neutral supply chain by 2030.

Walmart, the world’s largest retailer, announced an “inaugural” $2 billion in green bonds in 2021, with some of the proceeds going to waste-reduction and sustainable transport initiatives in its supply chain. So far, projects include a program working with tire supplier Apache Mills to turn used tire materials into heavy-duty commercial entrance mats sold at the company’s Sam’s Club stores. 

Walmart is also trying to help its vendors decarbonize through a supply chain finance program tied to environmental goals. Introduced in late 2021 as an “industry first,” the program — offered through HSBC — gives suppliers better financing terms if they meet science-based greenhouse gas reduction targets tied to the retail giant’s Project Gigaton, which aims to cut 1 billion metric tons of emissions from its supply chain by 2030.  

In effect, big retailers like Walmart can use their solid credit ratings to get cheaper finance and faster payments for their suppliers, and use that as a carrot to incentivize lower emissions. 

“When we propose one of these programs to a CFO, they're like, ‘Sure, this is great if we get more capital,’” said Eric Fisch, head of retail and apparel for HSBC’s U.S. commercial banking business. “And then we propose it to their chief sustainability officer, and they're like, ‘This is amazing. I want to do this.’”

The programs also can include capital for some supplier projects to help them with environmental and carbon-reduction initiatives. 

How supplier projects are chosen is still being fine tuned, and Fisch noted there is a limit to the number of projects such a program can fund. “If you did it for every vendor, all of a sudden you'd be out a lot of money,” he said.  

Outsourcing sustainability to suppliers

Whatever the usefulness and limits of such financing programs, they are far from ubiquitous. 

For many suppliers, especially in low-margin industries like apparel, buyers’ Scope 3 targets are just another challenging demand and expense leveled by the powerful brands they depend on as buyers. 

“More and more, you’re putting all of the pressure on suppliers,” Rosenthal said, pointing to the history of outsourcing manufacturing and other functions to suppliers outside of big consumer-facing brands. Sustainability, in that model, can be outsourced too.

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"More and more, you’re putting all of the pressure on suppliers."

Chana Rosenthal

Principal, reDesign Consulting

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Some garment manufacturers have reported this as happening. In a study that Rosenthal co-authored with Natasja Sheriff Wells for the NYU Stern Center for Business and Human Rights, some manufacturers in Bangladesh reported “expensive new environmental mandates to reduce water use and carbon emissions,” that added to their economic pressures. Brands, the report noted, generally declined to incentivize those mandates with financial benefits. 

Yet suppliers may well be interested in reducing their footprints. “We talked to many suppliers around renewable energy, and they're all interested — they want to, at least the ones we spoke to — but that's not an easy solution,” Rosenthal said. “It takes time and money.” 

Complicating matters is that buyers’ requirements around the environment keep changing and often vary from buyer to buyer. “What some suppliers are having trouble with is, they have invested in something and then something else comes along, and then they have to reinvest,” Rosenthal said. 

Across industries, there are a range of approaches, some more conducive to working with more financially strapped suppliers than others. 

“I've seen companies go to their supplier base and say, ‘Here's my target, comply or die. If you're not able to reduce your emissions in line with my target, I'm gonna kick you out,’” Proxima’s Geale said. “Which is a particularly draconian and ineffective way of running a decarbonization program.”

Geale went on to note, “I've also seen examples of where organizations are saying, ‘Let's have a more structured supplier engagement approach. Let’s figure out where you are, how we can help you, can we unlock financing solutions for you and be more collaborative.’” HSBC’s Fisch said he expects that the costs of the carbon transition will ultimately be split in some way among suppliers, buyers and consumers. He pointed to the recent period of historic inflation sparked by 2021’s supply chain snarls, which came with “a collective sharing of the pain" of cost inflation.

“Some of it got absorbed by the factory, and then some by the wholesaler, then some by the retailer, and then the price increased to some degree,” Fisch said of inflation. “It ends up becoming a collective burden. And that's the way I would envision any transition,” related to climate initiatives.

One simple way to help finance the transition for suppliers may be through generally good buying practices like paying on time and committing to purchases, according to Rosenthal. 

“If you truly want to decarbonize, you have to start there and allow them the ability to mend their business,” Rosenthal said. “Talk to them and figure out what their needs are.”

With over 100,000 suppliers, the scale of Walmart’s supply chain is mind-boggling.

And so when the world’s largest retailer takes on a supply chain initiative, the results can have global ramifications. Moreover, it can set the pace for the entire industry.

On climate initiatives, that pace has been swift. In February, the company announced it had blown through its Project Gigaton goal of cutting 1 billion metric tons of greenhouse gas emissions from its supply chain — six years early.

Described as a “game changer” when Walmart first announced the goal — with an original deadline of 2030 — the retailer’s rapid progress is a major win for the climate. It can show just what is possible when companies within a supply chain work together toward a common good.

Walmart’s Gigaton work is instructive for the entire industry. The retailer leaned on its resources and size to provide suppliers with education, financing and various programs to help them set goals and get there.

“From our perspective, it's a long journey, and it's one we started in 2017,” Ron Voglewede, Walmart’s global director of sustainable retail, said in an interview. “It is really about building the expectation, raising the bar continuously over time and creating those on-ramps for companies to engage with us alongside and create the collective action.”

Supplier emission cuts: ‘Better for their business’

When it launched Gigaton, Walmart invited — rather than compelled — its suppliers to join the initiative and commit to reductions.

Since then, more than 5,900 suppliers have participated in the Project Gigaton effort, according to the company.

Crucial to getting suppliers on board was giving them access to tools and platforms, Voglewede said. Broadly, that includes three key incentives: education, financing and recognition.

Education can help suppliers see emission reductions can be “actually better for their business,” Voglewede said. “It makes them more efficient.”

The retailer identified key areas for reduction under the umbrella of scope 3, including energy, agriculture, waste, packaging, deforestation, and product use and design. Walmart also worked with organizations such as the World Wildlife Fund and Environmental Defense Fund to develop a toolkit for suppliers.

Walmart’s scale, sterling credit ratings and capital structure makes it easier to provide suppliers with some financial tools for meeting sustainability and scope 3 targets. That includes a sustainability-based supply chain finance program through HSBC, which can provide earlier payments for goods for those vendors that meet certain goals.

As another financial tool, Voglewede pointed to the Gigaton PPA program launched in 2020 to help Walmart’s supply base access renewable energy as instrumental and representative of how to bring major sustainability initiatives “to life.”

Through the program, a collaboration with Schneider Electric, suppliers could pool their resources and numbers to contract renewable energy purchases as well as get education on the renewable energy market and guidance on projects.

“Individually, it's hard to access renewable energy,” Voglewede said. So Walmart looked at how it “can we help bring together people within our supply chain to deliver renewable energy for them. That had a very large impact.”

As for recognizing for suppliers participating in Project Gigaton, it can give them a sense of “helping to be part of a much larger thing, and being part of a bigger thing is a big deal,” Voglewede said.

To do that, the retailer awards badges such as “Giga Guru” status for what it describes as “excellence in target setting, action and results.” Voglewede said suppliers have pulled him aside to tell him that they are proud of their listing under the program.

“It really energizes people and gives them a sense of hope, too,” he said. “And I think that's sorely needed in a discussion that sometimes gets very negative at times.”

‘A position of sustainability leadership’

Walmart has said it plans to keep Project Gigaton alive even though it hit its initial goal. The company is also “working really hard” to set a new scope 3 goal, according to Voglewede.

After announcing meeting its initial target, Walmart said it is improving its scope 3 estimates based on emerging standards and guidance while also looking at its value chain to determine the costs around various reduction opportunities. The company aims to have net-zero emissions in its own operations by 2040.

“Regardless of the external environment, it really is about better making a better more resilient supply base for all,” Voglewede said.

A retailer of Walmart’s size focused on scope 3 and other sustainability initiatives can send a signal to the entire market. Executives of brands selling to Walmart have noted the ripple effects of Walmart’s and other retailers’ scope 3 initiatives down through supply chains.

In a Feb. 8 report, analysts with Jefferies noted that a top priority for Walmart is “reducing its impact on the environment through more sustainable and efficient energy management.”

They went on to note, “This practice includes the management of carbon emissions not only for its own operations but also for all stakeholders, placing [Walmart] in a position of sustainability leadership across the broader retail landscape.”

In March, the Securities and Exchange Commission passed its much-debated climate disclosure rule. 

The rule mandates that public companies disclose climate-related risks in their SEC filings. The SEC notably dropped the requirement that companies include Scope 3 emissions in their disclosures.

The agency also adopted a "phased in" approach for requiring companies to disclose Scope 1 and Scope 2 emissions. 

Large accelerated filers – those with at least $700 million in shares held by public investors – must begin disclosing Scope 1 and Scope 2 emissions in fiscal year 2026. Accelerated filers, including companies with between $75 million and $700 million in publicly held shares, must begin making disclosures in FY2028. 

Companies required to make greenhouse gas disclosures will also have a phased compliance timeline for receiving assurance on those emissions.

With the SEC mandate unveiled, manufacturers and their suppliers must begin determining how to comply with the rule. 

While the current rule does not include Scope 3 emissions produced by down-tier suppliers, state laws like California's climate disclosure rule and the EU's Corporate Sustainability Reporting Directive do, which makes tracking this portion of the supply chain important. 

"Nobody's out of the woods," said Karen Davis, partner at Fox Rothschild and co-chair of the firm's ESG practice group. "The SEC did note that the Scope 3 emissions may be something that they will revisit at a later date. With or without the SEC, suppliers [and] companies are going to have to provide information on their emissions to their customers and their suppliers."

When it comes to down-tier manufacturers and suppliers that will need to report their emissions up the value chain, Davis said one of the issues with the current process is that Scope 3 data is often hard to find or is unreliable. This is often because of challenges in how these companies consolidate and manage the data. 

"It's not part of a company-wide system, or you know, certainly hasn't been integrated into their enterprise risk management system," Davis said. "The first thing they should do is an assessment of what data they already have.”

She also advised that companies implement a data collection system to consolidate and verify emissions information. 

Davis noted that bigger, public companies that fall directly under the rule are likely to build the standardized infrastructures to collect and verify emissions data. Smaller manufacturers and suppliers would then be able to take that framework and apply it to their operations. 

Contract manufacturers with multiple large clients that could be affected by the SEC rule should be aware of which geographies their up-tier supply chains touch, and therefore to what rules they must comply, said Chris McClure, partner and ESG services leader at Crowe. 

The same applies to potential clients and reviewing what information they would need during the procurement process. 

"If you're aligning with a new client, see what they're looking for. You can look on their website, do due diligence on them to understand what the potentially additional costs might be of doing business with companies that are going to be pushing on these things," McClure said. 

Manufacturers should also evaluate their own down-tier supply chains to ensure compliance. Many manufacturers still lack visibility into these early stages of the supply chain, something that could increasingly become problematic when it comes to climate disclosures.

Looking to the future, more disclosure rules are likely on the horizon. New York is considering a bill modeled after California's climate rule, as is Illinois. 

And in the private sector, companies like Walmart are requiring suppliers to disclose their emissions, yet another way the market is making standardized emissions data a regular part of business.

"If we get a few more of these big states aligned, plus the EU and everything that's happening, it's going to become fairly commonplace that reporting emissions in some manner is going to be the cost of doing business in a lot of industries [and] certainly in most manufacturing," McClure said.

WASHINGTON — For Nike Chief Sustainability Officer Noel Kinder, Scope 3 emissions are “one of the things that keep me up at night.”

Scope 3 is a category comprised of a company’s indirect greenhouse gas emissions up and down the value chain, from materials and supply chains to the end use of a product or service. The sportswear giant’s supply chain represents more than 90% of the company’s climate footprint, making it among the very top sustainability issues facing Nike.

Scope 3’s share of emissions at Nike is standard for the fashion industry and most other sectors in the economy. Many companies are just beginning the complicated task of tracking their Scope 3 footprints, not to mention reducing them.

Data, supplier partnerships and creativity are key to tracking and reducing emissions in the supply chain, several corporate executives noted in late May at the Economist Impact's Sustainability Week U.S. conference in Washington, D.C

During a panel on corporate efforts to achieve net zero emissions, Kinder pointed to two primary levers Nike can manipulate to reduce its supply chain emissions.

The first is what he called the “feedstock” — i.e., the materials such as polyester, leather and rubber that the brand’s products are made from. The other lever is the energy it takes to convert that material into finished product, and which is supplied to grids where Nike sources its goods.

“Today, collaboration among brands, collaboration across industries has become really, really important to us,” Kinder said.

He added: “We can send a collective demand signal in places like Vietnam and Indonesia, to say, ‘We have these Science Based target goals. Our Scope 3 is really the largest component, the most meaningful. We need to collectively signal that demand so that our suppliers can use renewable energy to fuel their operations.’”

Nike has looked to on-site solar power at overseas production facilities, Kinder noted, adding, “Which is really great, but it doesn’t have the generation capacity to cover our entire footprint.”

What’s needed, then, is for more sustainable energy feeding grids in heavy producing companies, which Kinder and others hope will happen as more brands work to reduce their Scope 3 emissions and create demand for that energy.

Working with suppliers to cut Scope 3

While Kinder noted the importance of industry collaboration, others also pointed to how crucial collaboration with suppliers is to Scope 3 reductions. 

For spice company McCormick & Co., Scope 3 accounts for more than 95% of greenhouse gas emissions. That means key factors in reducing the company’s overall footprint are outside of the company’s direct control.

“So you need to make sure you have partnerships with your suppliers,” Michael Okoroafor, chief sustainability officer for McCormick, said on a panel focused on Scope 3.

Okoroafor pointed to the company’s participation in the Supplier Leadership on Climate Transition program. The collaborative provides vendors with training and mentorship — financed by brands — to develop a strategy to reduce greenhouse gas emissions in line with global targets.

McCormick doesn’t just have a supply chain, it is a key player in the supply chain of others. That includes some of the largest food retailers in the world, who can impact the climate goals for an entire ecosystem of companies.

“In our own case, we don’t have a choice,” Okoroafor said. He pointed to Walmart and other large retailers that are pushing for more sustainable products and are working to reduce their own Scope 3 emissions. “This customer, this retailer, they hold the key to the kingdom,” Okorafor said. “You’ve got to make sure you comply.”

External pressure to reduce emissions 

Investors can also influence a company’s path and speed toward Scope 3 reduction. They also indirectly create an impetus for buyers and suppliers to share data on emissions.

Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, noted that her company’s shares are held in several climate investment funds, and investors regularly ask the company to produce specific information about its footprint.

“If you can’t produce it, they can’t invest in you,” Mahon said. “We're able then to go back to our suppliers and say, ‘This is the reality we're facing.’”

Brand marketers can also drive sustainability initiatives in supply chains, Mahon noted. Marketers might say, “I want to make XYZ claim on XYZ product,” Mahon said. “The environmental team says that’s possible or not possible. And then we go back to the supplier and say, ‘What would need to be true in order for us to make this claim?’”

Simple communication with suppliers can also drive progress on climate. Dave Duncan, vice president of sustainability at digital manufacturing solutions company PTC, said the company goes through its spend data and reaches out to suppliers about their path to emissions reduction.

“‘Are you committed, yes or no?’” Duncan said, describing conversations between his company and suppliers. “Frankly, those are the phone calls driving the exponential increase in commitments.”

Dive Brief:

• Overstock is attracting more suppliers after buying Bed Bath & Beyond’s intellectual property in a bankruptcy auction for over $20 million in June. Overstock officially relaunched under the Bed Bath & Beyond name this week with a merged website.
• Overstock CEO Jonathan Johnson told analysts in late July that the company’s funnel conversion rate, a metric tracking the merchandising team’s success in reaching out to prospective vendors, has increased 60% since the acquisition.
• “Simply put, knowing we will be operating as Bed Bath & Beyond has made us more attractive to supplier partners,” Johnson added.

Dive Insight:

When a large retailer fails, analysts often try to predict how that player’s market share and customer base will be distributed among competitors. But suppliers also need somewhere to go when one of their retail partners closes shop.

Overstock had been courting Bed Bath & Beyond suppliers prior to the latter’s Chapter 11 and store liquidation. Johnson told Supply Chain Dive earlier in 2023 that the company brought on Bed Bath & Beyond vendors in categories, including small appliances, new to Overstock amid Bed Bath’s growing financial distress and risk of losses to suppliers.

The onboarding of new suppliers has picked up with the IP acquisition, which Overstock has used to brand itself under the Bed Bath & Beyond banner.

“The merchandising team is clearly seeing the tailwind from attaching our business model to the well-known and much-loved Bed Bath & Beyond brand name that ranks much higher than the Overstock brand name in its association with home,” Johnson said on the company’s earnings call last week.

Johnson went on to explain that Overstock has historically had an 80% overlap with Bed Bath & Beyond’s vendor base. “However, in the past some of our partners have not offered us their entire catalog of these branded home products,” Johnson told analysts. “That is now changing in a meaningful way.”

Overstock’s SKUs have increased by 600,000 since July when news of the Bed Bath & Beyond acquisition broke, Johnson noted.

The boost from the Bed Bath & Beyond brand comes at a critical time for Overstock, which has been losing sales in recent quarters. Overstock’s revenue fell 20% in Q2 and the company posted an operating loss of $4 million. Neil Saunders, managing director with GlobalData, called the company’s earnings a “grim set of results.”

Based on GlobalData analysis, Overstock has “fallen off the consumer radar somewhat and is not drawing in customers, even to browse, like it used to,” Saunders said in emailed comments.

The Bed Bath & Beyond acquisition offers some assistance there, as it is “a much more powerful, much better-known brand than Overstock” despite Bed Bath & Beyond’s struggles over recent years, Saunders added.

The brand power of Bed Bath is in large part the attraction for suppliers, who are looking to connect with customers through retail banners. “Over time, we will sunset the Overstock logo and brand. Customers and suppliers like the Bed Bath & Beyond brand,” Johnson said on the call. “So do we. That is who we are becoming.”

Keith Lambert has been running his oxidation and mechanical services company, Oxidizers, for a decade. His 35 technicians service up to 700 aerospace and other manufacturing sites each year, ensuring that their pollution abatement equipment works.

However, it wasn’t until five years ago that it occurred to Lambert, who has worked in the environmental industry since 1990, to register as an accredited minority business enterprise.

Throughout his career, Lambert has often thought, “I just happened to be an African American. I'm the Black guy that works here with this particular company, or that group.”

Oxidizers became an accredited MBE through the National Minority Supplier Development Council. By that time, the company already worked with aerospace companies like Lockheed Martin, and manufacturers including Tesla and Cargill.

Many of his clients don’t know Oxidizers is an MBE, and when meeting him, some clients seem surprised to see a Black man at the helm, Lambert said.

“I’ll have a project manager working on the project, and when I come down, people are a little shocked,” he said.

The movement to bring in diverse suppliers to the manufacturing industry is not new. General Motors had one of the earliest supplier diversity programs, starting in 1968. And aerospace manufacturer Boeing added one in the late 1990s.

Supplier diversity efforts support corporate DEI goals, but how helpful are they at bringing MBEs and other diverse groups into the industry?

While some aerospace companies are making public efforts to bring in these suppliers, the efforts don’t always succeed in making it easier for them to bid on or obtain contracts.

Signing onto a vendor platform is one thing. Getting the chance to actually sell goods or services is another, particularly in a sector where trust is critical and stakes are high.

Defining diversity in supplier relations

Diverse supplier definitions often differ by company. Some use “small businesses” and “supplier diversity” interchangeably, though they are different, Amber Hanlon, senior manager of social responsibility regulatory programs for Collins Aerospace, told Supply Chain Dive. Hanlon is also a past president of the Alliance of Supplier Diversity Professionals.

“When we say small business, we are always talking about the U.S. government program,” she said, referring to the definitions set by the federal Small Business Administration.

But supplier diversity includes more than small businesses, Hanlon said. It can include those such as minority-owned, veteran-owned, LGBTQ+-owned or woman-owned businesses — so long as the company is at least 51% owned by members of these groups.

Getting diverse suppliers a seat at the table

It’s hard to know the extent to which these aerospace manufacturers’ programs have created opportunities for diverse suppliers.

Boeing boasted of working with 6,000 small and diverse suppliers in 2020, including 600 veteran-owned businesses and 850 women-owned entities.

Lambert said his certification has increased communications between his company and manufacturers, but “I can’t say it’s brought about a revenue increase.”

He noted, however, that getting new aerospace clients can take years, regardless of diversity status.

“It’s a challenge to get to the table, no matter who you are,” Lambert said.

This difficulty is partly due to the fact that providing goods and services to aerospace companies is more difficult than to other manufacturers, said Rhonda Dibachi, co-founder and CEO of HeyScottie, an AI-enabled metal finishing services marketplace.

“There are standards you have to conform to,” Dibachi said. “You don’t want to blow up a rocket. From a liability perspective, it’s much greater than the car window motor going out.”

Pilar Bernd started the Hispanic, woman-owned business The Bernd Group in 1989 to streamline the procurement process for high-tech manufacturers.

She got her initial customers through self-promotion and word of mouth. She later joined the National Minority Supplier Development Council and started attending its trade shows, where CEOs would share how to do business with them.

“NMSDC brings interested buyers to the table. That helps a lot. They already have a mindset that they want to do business with minority-owned companies,” Bernd told Supply Chain Dive. That said, “I don’t promote myself as an MBE. It’s more about who I am as a supplier.”

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“It’s a challenge to get to the table, no matter who you are."

Keith Lambert

President, Oxidizers

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While companies want to meet their diverse sourcing targets, Bernd said it can take at least a year to get onboarded as a vendor.

“Don’t expect a miracle with one meeting,” she said. “Once you show your value, [the companies you contract with] develop you and help you.”

Finding a champion inside the company can help the supplier increase the contract size or secure work at sister companies, as has been Bernd’s experience working with Collins Aerospace.

Hanlon knows the difficulty vendors face. She is now onboarding a vendor she’s been talking with for six years.

It takes patience and follow-up. Collins Aerospace has 70,000 employees and a few thousand in the supply chain, Hanlon said. But Hanlon’s supplier diversity team includes only four people.

Hanlon said diverse suppliers that wish to be added as a vendor should target specific products within a company, and include who their potential customers are.

“It helps us do a better job at supporting them,” Hanlon said. “I can target my search on who to get in front of, as opposed to a generic blast.”

But even for those who know their expertise and target customer base, finding the right contact is still an obstacle course, Oxidizers’ Lambert said.

“I’m in a specialized field. When I talk to people in a diversity department, they don’t know what to do with me,” he said, even if he tells them he provides technical support for pollution control equipment. “Then the tough part is finding the facility manager.”

Manufacturers struggle to track diversity programs

Even with supplier diversity programs in place, companies still have a hard time tracking the status of these contractors.

Dibachi only tells customers her MBE status when she needs to complete a service requiring a technical certification. Along with the certification, she’ll provide her ownership status.

Lambert has worked with some companies longer than he’s had his MBE accreditation. When he’s tried to tell some product managers that his company is an MBE, the client may not know what to do with the information internally.

“Maybe one or two (customers) have logged the information that we’re a minority-owned company. Most, unless it’s brought up to them, don’t even put it on the radar,” Lambert said.

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“If you lead with diversity first, you’re missing the point. No one wants to buy a part that is made by a woman in this industry. They want to buy a part that’s made well. If this can help a woman-owned business, that is certainly wonderful.”

Rhonda Dibachi

Co-founder and CEO, HeyScottie

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Dibachi said her status as a woman-owned business is a “nice to have” not a “must have.”

“The ‘must have’ is that you can do the job,” she said.

“If you lead with diversity first, you’re missing the point. No one wants to buy a part that is made by a woman in this industry,” Dibachi said. “They want to buy a part that’s made well. If this can help a woman-owned business, that is certainly wonderful.”

Successful initiatives in bringing in diverse suppliers

Hanlon said that Collins Aerospace participates in the Department of Defense’s Mentor-Protégé Program, which helps small businesses get involved in the defense industry.

As part of the program, Collins Aerospace provides technical assessments to the vendor regarding supply chain, quality and process improvement needs. The government tracks metrics following program completion, assessing if the vendor increased its employee count, contracts with the company, and revenue.

Supplier diversity summits are another way to bring in more vendors. Boeing sponsors a diverse supplier summit that provides prospective contractors with an overview of the company’s current business priorities, as well as assigns a supplier advocate for each small or diverse business to help match their capabilities with the company’s needs.

Diversity is most helpful in bringing in a new point of view, Dibachi said.

“If you want diversity, you want it because you want to test the edges, you want to see what creative solutions you can find in new, undiscovered areas,” she said. “You don’t get creative doing the same thing over and over again.”

Volkswagen Group in 2022 ratcheted up its analysis and due diligence to prevent and root out human rights violations in its supply chain for key materials, according to the company’s third and most recent report on responsible raw materials sourcing.

The overhaul was in part preparation for a German law that adds new supply chain due diligence requirements on companies doing business in the country, which went into effect earlier in 2023.

The company said that its new approach “aims to prevent or minimize human rights and environmental risks along the Volkswagen Group’s supply chains based on a systematic risk analysis.”

That analysis is based on the business models of suppliers and includes both internal and external risk data, and also takes into account country-level risk when rating suppliers along with their individual business profiles.

Volkswagen Group, which includes the Porsche and Audi brands along with its namesake and other lines, says it has more than 59,000 suppliers across 90 countries. Its various automotive brands source a range of materials, from steel, copper and aluminum to battery ingredients such as lithium and cobalt, as well as conflict materials including tin, tungsten and gold.

In its 2022 sustainability report, Volkswagen said it has more than 12,600 sustainability ratings for suppliers across its supply chain, covering 75% of its procurement spend. More than half of those have an A rating.

The company also said it handled 145 reports of breaches through its supply chain grievance process, and four suppliers were blocked from new contracts because of “serious breaches.”

Volkswagen listed in its materials report several steps and milestones over the past year toward more responsible sourcing in materials, including:

• It became a member of the Initiative for Responsible Mining Assurance.
• Most of its supplier sites were certified by the Leather Working group by year’s end, and the company introduced a new specification sheet for leather. (Leather is mainly used in the company’s Porsche Line.)
• It increased due diligence engagement with suppliers in its battery supply chain.
• The automaker contributed a hydrological study as part of a Responsible Lithium Partnership dialogue on water-related risks in lithium mining in Chile.
• Company representatives visited cobalt-related project sites and took part in a workshop in the Democratic Republic of Congo around cobalt and copper mining.

Dirk Große-Loheide, a member of Volkswagen’s management board responsible for procurement, said in a statement that the company has been “continuously working with indirect suppliers in upstream supply chains — where the challenge is greatest.”

In a letter included in the materials report, Große-Loheide noted that the company believes that the most severe human rights risks, as well as environmental risks, are at the mining level in Volkswagen’s materials supply chains.

Even the purchase of a new forklift is done with sustainability in mind at Colgate-Palmolive.

“If someone is going to put forklifts in a warehouse, there’s no question it is going to be electric,” Chief Supply Chain Officer Luciano Sieber said in an interview. “No one is going to come and propose one that needs fossil fuels as an energy source.”

The CPG company has for more than two decades made sustainability issues and data part of the DNA of its supply chain. Its sustainability team grew out of the supply chain organization and today has personnel still embedded in Colgate’s supply chain and packaging teams.

Colgate sets aside a minimum of 5% of its capital spending for waste reduction, climate initiatives and other sustainability efforts.

The company won’t invest in new machines if they can’t run recyclable structures, Sieber noted. Packaging types, even if they have other benefits, are rejected without argument internally for similar reasons, because they can’t be recycled.

“The strategy is so ingrained in our organization that it is part of every single function in the supply chain,” Sieber said. “We know the targets, we know what we want to achieve, and then it’s just part of the decision-making.”

When the company set a goal for reducing the waste its factories send to landfills, its manufacturing facilities competed among themselves to see which division would be first.

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Sustainability strategy "is so ingrained in our organization that it is part of every single function in the supply chain. We know the targets, we know what we want to achieve, and then it’s just part of the decision-making.”

Luciano Sieber

Chief Supply Chain Officer, Colgate-Palmolive

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“They get very creative,” Chief Sustainability Officer Ann Tracy said in an interview. On the waste-reduction target, factories started with a literal dumpster dive, examining contents of dumpsters to see what materials they could cut out, reuse or recycle, Tracy said.

For example, one factory in South Africa producing bar soap found that it had a “huge issue” with boiler ash after assessing its waste, and ended up supplying it to a brick factory that could use the boiler ash in manufacturing, Tracy said.

Sustainability ‘swords and shields’

Colgate takes on sustainability issues with what Tracy calls swords and shields. “Shields are the things we have to do,” she said, pointing to areas such as responsible resourcing where there may be reputational risks involved, or because regulations, tax law and other factors compel action from the company.

“Swords are where we want to lead,” Tracy said. “We can’t lead everywhere. We have to choose what’s relevant for Colgate as a business to focus on.”

One of those areas is action on the climate. “We really believe we’re punching above our weight there,” Tracy said.

Colgate was the first large multinational corporation in its sector to get its net zero targets approved by the Science Based Targets initiative (SBTi), according to the company’s latest sustainability report.

The company’s targets call for 100% renewable electricity in its global operations by 2030 and a 42% reduction its Scope 1 and Scope 2 emissions by the same time. That's along with a 42% cut in emissions from its purchased goods and services — i.e., its supply chain — in the same time frame.

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"We consider plastic waste an existential issue for us."

Ann Tracy

Chief Sustainability Officer, Colgate-Palmolive

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Materials and their end destinations are also of intrinsic importance to the company, which sells some 9 billion tubes of toothpaste worldwide every year, among many other packaged consumer products.

“We consider plastic waste an existential issue for us,” Tracy said. “All our packaging is plastic today. An so it’s a huge risk. It’s just a crime how much plastic ends up in the landfill today.”

Colgate is on track to convert entirely to recyclable toothpaste tubes by 2025. Getting to that point means converting all its factories to equipment that can handle recyclable material.

To scale and get the recyclers on board and willing to accept their tubes, Colgate shared the technology around its recyclable tubes with the industry. Now, other major brands have committed to recyclable tubes as well so that an estimated 75% of the 20 billion toothpaste tubes used worldwide will be recyclable by 2025, per Colgate’s sustainability report. “We kind of led a movement there,” Tracy said.

All of these efforts come amid broader efforts to transform the company’s supply chain. That includes a system and analytics overhaul to get digital systems communicating with each other and get personnel all the data they need, from across the supply chain, in one place.

Beyond profits, operational efficiency can also lessen the company’s environmental footprint.

“If my lines are running well, I’m going to improve energy consumption, I’m going to waste less water, I’m going to waste less product materials, which is also driving sustainability,” Sieber said. “If I'm running my trucks at 99% efficiency, I'm not only improving financials, I'm improving our sustainability footprint.”

Dive Brief:

• Just under a third of high-tech companies globally and in North America specifically have set Scope 3 greenhouse gas reduction targets, according to an Accenture analysis.
• High tech’s Scope 3 emissions — which includes greenhouse gasses originating in supply chains — are 24 times higher than the industry’s Scope 1 emissions and 13 times higher than Scope 2, Accenture found.
• In the high-tech industry, most Scope 3 emissions originate in companies’ indirect suppliers, with 86% of upstream Scope 3 emissions coming from Tiers 2, 3, 4 and beyond, according to the report.

Dive Insight:

For many industries, Scope 3 emissions make up the largest share of company climate footprints. Those emissions are also generally the most challenging to tackle for the simple reason that they are generated outside the company’s operations.

Reduction involves measuring the footprint of the supply chain — a complicated task regardless of the rubric one uses and one that only gets more complicated when trying to gather more accurate data. 

Both data gathering and actual action on emissions reduction requires collaboration with suppliers, who provide data and are the ones who have to make changes to their operations to reduce supply chain carbon footprints. 

With 2030 climate milestones and possible regulation coming soon, companies are starting to give attention to the issue of Scope 3 emissions. On the conference calls of North American companies, talk of “Scope 3” has gone from essentially zero in 2018 to 11.7% of calls by the end of 2022, Accenture found. 

But with the large majority of high-tech companies yet to set Scope 3 targets, there is still much work to be done in the sector. “To move the needle in Scope 3 emissions, they need to act now,” the Accenture authors wrote in their report.

The key is increasing companies’ visibility into their supply chains and the source of their emissions, according to the study. This is especially difficult, the authors note, because the high-tech supply chain is comprised of “multiple tiers of suppliers around the world.” And high-tech is among the sectors with the largest amount of emissions stemming from Tier 3 suppliers and beyond, according to Accenture’s research. 

Visibility into emissions can help high-tech companies locate hot spots within their supply chains, while accounting for supplier locations can help them in reaching reduction goals as they rethink their networks, the Accenture authors write. Also key are supplier collaboration programs, which set baselines, as well as reporting standards along with reduction targets. 

Dive Brief:

• Chief procurement officers are enjoying an expanded suite of priorities and responsibilities, though they are struggling to meet their cost plans in an era of persistent inflation, according to a recent survey from Deloitte.
• Top priorities for businesses include operational efficiency, ESG and corporate responsibility, digital transformation, and cost reductions, with more than 70% of surveyed CPOs citing each of the above.
• Increasing collaboration with suppliers was the top strategy for delivering value, with 61% of executives listing it, followed by investing in digital transformations (42%) and enhancing demand management capabilities (37%). Another 36% said they were negotiating with existing suppliers to drive value.

Dive Insight:

Cost reduction has decreased slightly as a priority among organizations, but remains among the top goals for procurement. It’s also a hard one to achieve in the current environment.  

Only 30% of procurement executives had met their cost savings targets, compared to about 50% from Deloitte’s previous CPO study. 

“Any CPO who thinks cost competitiveness can be parked while they ride the new wave of exciting priorities is in for a shock,” the Deloitte authors said in the report. “We are already seeing CFOs press hard on cost. CFOs have agreed that cost control and reduction remain top priorities in the next 12 months, and procurement leaders must remain laser focused on this oldest of procurement goals.”

Yet other goals have risen in importance. The number of procurement executives ranking ESG efforts as a top priority rose by four percentage points since 2021, pushing it to the second most-cited priority behind operational efficiency. 

ESG is also now among top areas for talent development, ranking second behind strategic sourcing/category management. It’s also potentially deepening relationships between purchasers and their supply base, with 63% of respondents saying they are collaborating with suppliers on ESG initiatives.

As with costs, there’s some evidence that businesses are falling short of their ESG goals for procurement. In a separate study earlier by the consultancy Efficio, just 33% of business leaders said they were “very confident” in their goals of eradicating greenhouse emissions, though were somewhat more optimistic about goals on waste reduction, resource consumption and social impact. 

The number of people living in modern slavery has grown to 50 million as global conflict, COVID-19 and climate change exacerbate exploitative conditions, according to the latest Global Slavery Index from human rights advocacy group Walk Free.

The group contends that government action on the issue has “stagnated,” with no world government on track to achieve the United Nations’ target goal of ending modern slavery, forced labor and human trafficking by 2030.

The U.S. is “by far” the biggest importer of at-risk products, which Walk Free estimated at $169.6 billion in imports, according to a June press release. That figure is more than three times that of the next largest single importer, Japan. 

In a statement, Walk Free Founding Director Grace Forrest described modern slavery as a “manifestation of extreme inequality” and pointed to supply chains’ outsized role in causing the crisis.

“It is a mirror held to power, reflecting who in any given society has it and who does not,” Forrest said. “Nowhere is this paradox more present than in our global economy through transnational supply chains.”

The U.S. is also among the G20 nations and countries overall with the most people living in modern slavery, defined as forced labor or marriage, according to Walk Free’s estimates.

At the same time, the U.S. is among the top five countries taking the most action currently to address the issue, along with the U.K., Australia, the Netherlands and Portugal.

Countries with the highest prevalence rates per population tend to be affected by arm conflict, have weak governance and often state-sponsored forced labor, according to the group.

The index also breaks down the products that are most at-risk for links to slavery in their supply chains. Walk Free bases its estimates on countries and industries involved in production and suspected cases of forced labor identified in manufacturing the goods.

When looking at value, chief among at-risk products are electronics, followed by garments, palm oil, solar panels and textiles.

The group issued five key recommendations for policymakers to combat the issue, including stronger measures to block governments and businesses from sourcing products and services linked to modern slavery.

Few places were better visual representations of pandemic-induced supply chain chaos than grocery stores, where consumer stared down empty shelves of toilet paper and price spikes for everything from eggs to lettuce.

The Federal Trade Commission examined these supply chain shocks in a study published in March, exploring how pandemic-related disruptions impacted the grocery supply chain, and consequently, competition among retailers, wholesalers and producers.

In addition to examining publicly available data on industry costs and revenues, the FTC issued orders to nine companies, including grocery retailers, producers and wholesalers, to better understand their responses to supply chain challenges.

Disruptions included glitches in transportation and trucking, labor shortages, raw material and input constraints, and sudden shifts in consumer demand, according to the report.

These challenges showcased the overall dependence of the industry on a small pool of suppliers, the FTC reported. As the pandemic continued to disrupt operations, firms began strategizing supplier alternatives in a bid to protect themselves from overly concentrated markets and take firmer control of their product supply.

The study also revealed how bottlenecks escalate supply chain shocks for businesses and consumers. These challenges can then create opportunities for large retailers to influence and distort product supplies and pricing during shortages, enabling them to absorb market power.

Read on for three takeaways from the FTC’s study on the lasting impacts of pandemic disruptions on the grocery supply chain.

1. Consolidated supply chains are a liability

After historically using a just-in-time stocking model for products, retailers began to focus on strengthening their supplier bases during the pandemic, particularly for private-label products. But maintaining stock levels of private-label goods proved challenging when those products were only available from one or two suppliers, leaving companies vulnerable to shortages.

As an alternative option, some retailers considered directly manufacturing these products themselves. However, this can create market fragility as not all companies can self-supply.

Acquisitions in the space also bring challenges, as when a large company buys one of only a few producers, it leaves less product availability for the rest of the market.

2. Supply chain disruptions changed trade promotion dynamics

In the grocery industry, producers provide funds to retailers and wholesalers to promote their goods, whether it be shelf space, prominent placement, discounts or other strategies, the FTC reported. This changed during the pandemic as producers couldn’t fulfill outstanding orders amid sudden supply shortages.

The sudden reduction in trade promotion funds sent ripples throughout the industry, lowering manufacturers’ promotional spending on short-supply items and hitting a significant revenue stream for many wholesalers and retailers.

Some retailers fared better than others. For instance, “Every Day Low Price” retailers like Walmart were less affected because they rely less heavily on promotions and sales.

Both pricing models are expected to remain common.

3. Larger firms leveraged policies to pressure suppliers

Products with limited supply are typically put “on allocation,” or limitedly distributed, according to the FTC, which happened occasionally prior to the pandemic. But as producers and wholesalers were swamped with more orders than they could fill, allocating available product across customers became a bit more challenging.

The study reported that in some cases, large customers pressured suppliers on allocation decisions to improve their access to specific products. As an example, some large customers used “on time and in full delivery policies to pressure their suppliers to favor them over rivals.” This incentivized suppliers to allocate products in short supply to customers that imposed OTIF penalties.

Although OTIF policies were suspended early in the pandemic, wholesalers and retailers adjusted their requirements and penalized suppliers for incomplete or late deliveries. More than half of consumer-packaged goods companies reported that retailers tightened their OTIF requirements, including Walmart.

Meanwhile, smaller retailers were faced with less product than their larger competitors, leaving them at a disadvantage, according to the report.

When Barbara Buhr joined DXL Group’s sourcing segment six years ago, the men’s apparel company — like countless clothing sellers — had a China conundrum. 

At the time, DXL sourced more than a third of its merchandise from China, with just a few factories accounting for a significant amount of production. 

This was even before the Trump administration had imposed new tariffs on apparel imports from China in 2018, and well before the supply chain travails created by COVID-19. Buhr was focused then on how more common disasters could disrupt DXL, such as the effect a fire or earthquake at one of the China-based factories could have on the company’s supply.

“You come in and you look at it from a risk perspective, and we really needed to de-risk and set up options,” Buhr, today DXL’s SVP of sourcing, told Supply Chain Dive in an interview.

By the time DXL started addressing sourcing in its 10-Ks, beginning with fiscal year 2018, the bulk of its private label merchandise came out of Southeast Asia, specifically Vietnam, Bangladesh, Cambodia and India.

The company has since embarked on a diversification journey that would lead to sourcing more from the Western Hemisphere. Today, China’s share of DXL production is in single digits, while the company has shrunk its footprint in Asia by roughly a third from the pre-pandemic years as it seeks to move production nearer to home, according to CEO Harvey Kanter. 

“We have instrumentally moved into Central America,” Kanter told Supply Chain Dive in an interview, citing Nicaragua and Mexico. 

In addition, Buhr noted that DXL is currently testing a sourcing program in the Dominican Republic and Guatemala, while exploring the other countries included in the Central America-Dominican Republic Free Trade Agreement. 

Sourcing from Central America has several advantages for DXL and others, including shorter lead times and faster speed-to-market. But there are also challenges — both policy-related and economic — that DXL and other apparel companies have run into as they look to source closer to their operations and customer base.

Seeking agility

There are plenty of reasons why DXL, which is based in Massachusetts, would want to shift more production closer to home. Yet the company also has several priorities it is always working to balance. 

“DXL has a very strong desire to turn their goods faster, have the highest quality product we can get, and balance risk, timelines and costs,” Kanter said.  

The time elements tied to geography are a big factor in nearshoring’s attraction, as DXL has seen in production from Mexico.

“There's 45 days to get goods from Asia to here, and there's a certain cost associated with it,” Kanter said. “It takes one week to get goods from Mexico. Mexico costs more money, but we have more agility to chase goods, and we have deep relationships.”

In recent years, DXL has, for example, started sourcing more production from Mexico that uses luxury suiting fabrics, with the higher product price points helping it take more advantage of duty-free savings, Buhr noted. The proximity helps the company order closer to the size range it needs with less risk of out-of-stocks or over-ordering for any given SKU thanks to shorter lead times — a major plus for a big-and-tall clothing seller for whom precise fitting is a key competitive advantage.

On the whole, shorter lead times can have a positive impact on a retailer or apparel brand’s entire business. Being quicker to market means the company can pursue in-demand products as they see demand signals pop up. They can also hold less inventory and re-stock more quickly. Meanwhile, leaner inventories allow for smoother store and warehouse operations, and reduce the risk of overstocks and markdowns.

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“There's 45 days to get goods from Asia to here, and there's a certain cost associated with it. It takes one week to get goods from Mexico. Mexico costs more money, but we have more agility to chase goods, and we have deep relationships.”

Harvey Kanter

CEO, DXL Group

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However, Kanter cautions that there is no “silver bullet” to its sourcing needs. The company has multiple ways of pursuing merchandise with speed.

“It's moving goods up, moving goods down, buying more, buying less, holding inventory, holding raw materials, buying greige goods — all with the intent to be agile and provide DXL the greatest opportunity to source the right product at the right place at the right cost at the right quality to support the needs of our underserved customer,” Kanter said. 

As DXL has increased the countries and factories it sources from, seeking more agility, it has made more revenue on lower inventory levels. DXL ended FY2022 with $545.8 million in sales and $93 million in inventory. That’s a sizable improvement from 2018, when it made $473.8 million in sales and finished with $106.8 million in inventory.

A “chicken-and-egg” problem in fabric production

Asked if DXL would like to move even more production to Central America, Buhr replied with an enthusiastic, “Sure.”

She’s not alone. Given its benefits, many are eying the Central America region for apparel production. In the fashion industry, there is “robust excitement about increasing apparel sourcing” from CAFTA-DR countries, according to a report from the U.S. Fashion Industry Association published earlier this year.  

USFIA’s member survey found that over 80% of respondents had sourced from CAFTA-DR countries in 2023, up from 60% a few years ago. 

A third of respondents had increased their sourcing from the region by more than 10%, also up from years past, and 40% said they planned to ramp up their CAFTA-DR sourcing in the next two years.

But there challenges in ramping up sourcing from Central America. “It's hard,” Buhr added. “There's a price associated with it.” 

She pointed to the higher labor costs relative to Southeast Asian countries, as well as financial and logistical obstacles related to CAFTA-DR.

To take advantage of duty exemptions in the trade agreement — which help offset the higher relative labor costs — garments shipped out of those countries must be made with fabrics also manufactured in the U.S. or CAFTA-DR countries. 

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“The fabrics coming out of those countries, they're few and far between. There's investments that have been made, but those investments are going to take at least another three years to really get it to where it needs to be.”

Barbara Buhr

SVP of Sourcing, DXL Group

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The rule of origin specifications are known as the “yarn-forward” standard, stipulating that yarn spinning and later operations such as fabric weaving or knitting, along with apparel assembly, occur in either the U.S. or the CAFTA-DR region. 

The challenge for DXL and other apparel brands is the relatively small supply of fabrics that are made in the U.S. and Central America compared to Asia. Just to give some idea of the differences in scale, the U.S. imported about $24.2 million worth of fabrics from CAFTA-DR countries in 2022 — compared to $1.3 billion from China alone, according to International Trade Administration data.

“The fabrics coming out of those countries, they're few and far between,” Buhr said. “There's investments that have been made, but those investments are going to take at least another three years to really get it to where it needs to be.”

As Beth Hughes, VP of trade and customs policy at the industry group American Apparel & Footwear Association, explains, heavy automation makes fabric production a capital-intensive enterprise, while cut-and-sew operations are labor-heavy. Central America has the labor to make garments, but it doesn’t have capital investments yet to support large-scale fabric production. 

“For investors to come in and say we're going to put up a yarn or fabric facility, they have to know that the demand is there,” Hughes said. “But the brands can't make orders if they don’t know the supply is there. So it’s a chicken-and-egg problem.” 

A trade agreement that has slowed trade

DXL is by no means alone in facing those barriers to nearshoring more production to Central America. 

Researchers at Texas A&M University estimate that apparel exports from CAFTA-DR are actually down by more than half compared to what they would have been without the trade agreement, according to a paper published in August. 

"Though trade agreements aim to expand trade, there are often huge divergences in their effects," the researchers wrote in a blog post. "Stringent requirements in a free trade agreement with the US, for instance, actually led to a 58% contraction of apparel exports for Central American countries."

By contrast, the researchers found that the North American Free Trade Agreement increased apparel trade among the U.S., Canada,  and Mexico by about 640%.

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“For investors to come in and say we're going to put up a yarn or fabric facility, they have to know that the demand is there. But the brands can't make orders if they don’t know the supply is there. So it’s a chicken-and-egg problem.” 

Beth Hughes

VP of Trade and Customs Policy, American Apparel & Footwear Association

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Hampering more apparel production in CAFTA-DR countries are the rules of origin requirements in the trade agreement, which are much more restrictive than other trade deals, according to Raymond Robertson, a professor at Texas A&M and director of the Mosbacher Institute for Trade, Economics and Public Policy, who co-authored the Texas A&M study.  

In the long run, more fabric production may ultimately come to Central America, given the advantages. 

“It tightens up the supply chain, rather than shipping your fabrics over the Pacific,” Robertson said. “But you have to let the demand grow first.” And doing that means growing garment manufacturing in the region. 

Complicating things even more are changing tastes in clothing, among them the appetite for more stretch in fabric, which requires spandex or other specialized materials.

There are exceptions given to the rules of origin restrictions tied to specific products and materials. Granting more of these could help in the short term, Robertson said. “The deeper fix is obviously to revise the rules of origin per se.” 

Aside from geopolitical tensions with China, creating more Central American jobs in apparel — historically an industry that is a gateway for economic development, Robertson notes — could improve regional economies and reduce cross-border migration.

There have been pushes to revise the CAFTA-DR rules in the past, but the yarn-forward standard also has staunch supporters. Last year, the U.S. textile industry group the National Council of Textile Organizations warned of a “devastating impact” from loosening the rules of origin in CAFTA-DR. 

The organization cited a Werner International study that estimated 105,000 U.S. jobs would be directly lost without the rules, while the CAFTA-DR region would suffer job losses by opening up textile sourcing beyond the agreement’s parties.

Other costs to sourcing from Central America

CAFTA-DR isn’t the only obstacle apparel companies face. 

Wages tend to be higher in the region, as Central American countries on the whole have higher GDP per capita and smaller labor pools than some of the large apparel manufacturing nations in Asia. 

At the same time, Central American countries generally have better labor conditions than many Asian countries, thanks in part to a stronger labor union culture, Robertson said.

While that might contribute to higher labor costs, it can also raise a company’s reputation and sustainability profile as well as that of their products — things that consumers are paying ever more attention to.

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“When I was in Nicaragua, I was touring garment factories, and one of the things that they consistently said was, ‘We have all these people that can sew, but we don't have people that can fix the sewing machine.’” 

Raymond Robertson

Texas A&M Professor and director of the Mosbacher Institute for Trade, Economics, and Public Policy

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Electricity costs also tend to be higher in Central America than Asia, something Robertson attributes in part to national policies as well as the need for more infrastructure. 

Training is another issue. “When I was in Nicaragua, I was touring garment factories, and one of the things that they consistently said was, ‘We have all these people that can sew, but we don't have people that can fix the sewing machine,’” Robertson said. 

And while the country’s government had programs to train mechanics and engineers, those who spoke with Robertson said that the specific skills they needed at their shops weren’t in the curriculum. “You really need a lot more communication and coordination between the private sector and the government.”

Growing interest, and competition for supply

For DXL, a new sourcing partner — wherever they might reside — is a major investment in time and resources. Kanter noted it takes around a year to onboard a new supplier. 

That is partly because of the company’s sizing needs, which takes specialized equipment and skills, as well as its environmental and human rights audits. 

“There’s not, like, hundreds of factories to go to in our view, based on quality and cost and human rights issues,” Kanter said. “It’s tens, not hundreds and hundreds.”

The limits to duty-free importing combined with the growing industry interest with sourcing closer to home means competition for manufacturers in Central America. 

“It's not easy,” Buhr said. “They start filling up capacity pretty quickly.”

Dive Brief:

• Whirlpool Corp. is "on track" to deliver $800 million in cost reductions in 2023, after reducing parts complexity and leveraging dual sourcing tactics, company executives said in a Q3 earnings call.
• The home appliance company adopted procurement-based strategies to mitigate risk of supplier-driven disruptions in 2021, efforts that helped its quarterly results, CEO Marc Bitzer said in the call.
• "Our operational priorities delivered 100 basis point improvement of margin expansion, improved supply chain execution, share gains in North America and $300 million of cost takeout actions," Bitzer said.

Dive Insight:

Supplier disruptions have plagued Whirlpool Corp. In response, the company has leveraged procurement strategies such as dual sourcing and reducing parts complexity to minimize interruptions to its supply chain.

In 2017, Whirlpool and Sears split as the retailer struggled to retain suppliers and customers amid a sinking retail market. Then, in 2021, the home appliance maker told analysts during a Q4 2021 earnings call that the Omicron variant of COVID-19 was impacting suppliers as were higher steel and resin costs. Earlier this year, Whirlpool’s Q4 production volumes fell 5% because of a “one-off” disruption at an unnamed supplier that has since been resolved.

Whirlpool has been assessing risks in its supply chain before committing to a plan.

For dual sourcing, the company assessed geopolitical instability, natural disasters, and supplier-related issues. Evaluating these issues provided the company insight on its vulnerabilities and where dual sourcing could be beneficial, Whirlpool Corp. SVP of Global Strategic Sourcing Alessandro Lombardi told Supply Chain Dive in an email.

"We have protocols established for compliance, quality control, supply chain management, etc, which help signal when we may need to switch to an alternative supplier," Lombardi said. "We constantly monitor the performance of our suppliers to assess the effectiveness of the dual sourcing strategy and make necessary adjustments as needed."

The company’s risk assessment allowed it to introduce dual sourcing for electrical and structural components.

In terms of parts complexity, Whirlpool also used an assessment to determine the adequate parts to optimize.

"We know that reducing parts complexity can lead to cost savings, streamlined operations, and improved product quality," Lombardi said. "So we started by assessing our existing parts inventory and identifying opportunities to consolidate similar parts or components. Wherever possible, we streamlined the variety of parts by standardizing designs, materials, or specifications."

The company also collaborated with its supply partners to explore ways in reducing manufacturing complexity.

"As a result of the actions we’ve already taken, we’ve seen significant cost savings, streamlined production processes, and reduced supply chain disruptions,” he said. “We expect this forward momentum to continue into Q4 and 2024."