Three years ago at this time, thousands of retail doors across the U.S. were shuttered as COVID-19 began its rapid, deadly spread.

Factories in Bangladesh, Sri Lanka, Pakistan, Cambodia, Ethiopia and other global manufacturing hubs also shut their doors after large retailers and brands — facing deep uncertainty in their own businesses — canceled many billions of dollars’ worth of orders.

The two sets of closures are related, but the ultimate outcomes were vastly different and unequal.

Most retailers and brands in the U.S. shrugged off the financial impact of the store closures within a year. Meanwhile, many smaller factories closed for good, while workers were laid off and lost desperately needed income. Debt, forced labor and hunger followed the lost wages for many factory workers, especially in apparel and footwear, where incomes historically have been low to begin with.

The early period of the pandemic revealed the cracks in supply chains as well as the underlying dynamics that are still very present by many accounts, and which predated the crisis.

For all the talk of partnership between buyers and suppliers, the COVID-19 crisis showed just how contingent the relationship often is between powerful brands and overseas vendors and their workers, as research since that time has shown.

“It lays bare the vulnerability of the supply chain for the workers,” Pamela Abbott, a professor of education and director of the Centre for Global Development at the University of Aberdeen in Scotland, said in an interview.

‘They were just in shock’

Walmart. Target. Aldi. Kohl’s. Gap Inc. H&M. Inditex. VF Corp. Carter’s. J.C. Penney. Tesco. Those are just some of the companies that canceled orders with suppliers early in the pandemic crisis, according to academic researchers.

By late April of 2020, major brands had canceled $3.8 billion worth of apparel orders in Bangladesh alone, as Mark Anner, labor professor and director of the Center for Global Workers’ Rights at Penn State, found by using a database released at the time by a trade association of Bangladeshi manufacturers. And that was in just one country.

Some of the order cancellations were especially damaging financially. In many cases, suppliers had already spent capital to procure raw materials or had manufactured the products — some orders were even on boats in transit to their buyers.

“They were just in shock,” Anner said in an interview with Supply Chain Dive. “[Suppliers] were in debt, operating on credit, and getting paid later and later over time. … When you cancel on them, when they’re in debt to the banks and everyone else, the ripple effects are very severe.”

Force majeure — previously a boilerplate contract and legal term — took on new and dire meaning for suppliers. Literally meaning “a superior force,” buyers began invoking it to cancel orders en masse. Many suppliers were caught completely off guard. “‘Where is this clause?’” Anner said, describing supplier confusion at the time.

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"When you cancel on them, when they’re in debt to the banks and everyone else, the ripple effects are very severe."

Mark Anner

Professor and Director of the Center for Global Workers’ Rights, Penn State

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If the orders were already produced, suppliers were typically stuck with the goods. Garment factories in Bangladesh, for example, had to sell into local markets at much lower prices given that clothes for Western markets are very different from what people in those areas wear on a daily basis, as Muhammad Azizul Islam, chair in accounting and professor of sustainability accounting and transparency at the University of Aberdeen, noted in an interview.

And cancellations weren’t the only damaging actions by buyers. Brands also reduced new orders, delayed payments and started paying on longer terms as they tried to minimize their own risk. In effect, they shifted financial and operational risks to their suppliers, researchers and activists said.

About half of factories in a survey of Bangladeshi apparel producers reported that retailers engaged in at least one practice deemed unfair, whether it be order cancellation, price reduction, refusal to pay for dispatched goods and delayed payments, according to a paper from this January by Abbott, Islam and other University of Aberdeen researchers. Larger brands and retailers were more likely to engage in those practices compared to their smaller counterparts.

Debt, hunger and instability

Suppliers didn’t simply absorb all of the financial pain. As research has found, it moved further down the chain to workers. And many are still living with the ramifications today, three years later.

As store and factory doors shut, workers had their hours cut, or were furloughed or laid off.

The University of Aberdeen authors found that at least 25% of factory workers in Bangladesh lost their jobs during the March-April period in 2020, based on a survey with factory owners. The figure could be similar in other production areas around the globe.

Nearly 80% of garment workers who lost their pre-pandemic contracts had not received full severance pay, and more than two-thirds had received nothing, according to a 2021 report from University of Sheffield and Workers Rights Consortium researchers that surveyed over 1,110 workers.

Wage claims amounted to $24 million across 467 factories in six countries for Levi’s, Nike and VF Corp., according to a joint report from Asia Floor Wage Alliance and Global Labor Justice-International Labor Rights Forum.

That number covers only a small fraction of the supply chain. But if the average from that survey — $1.1 million in wage claims per factory — is any gauge, the unpaid pages owed to workers from the COVID-19 crisis would amount to many, many billions of dollars across the global supply chain just for the fashion industry.

The decimation of worker incomes had several consequences. Looking at workers in Ethiopia, Honduras, India and Myanmar, a team of researchers working with the WRC found that supply chain workers in the garment industry saw their living conditions worsen, as the few who had savings had to spend it to survive, and many more took on new debt. Along with borrowing costs, the nature of lending in many areas has made workers more vulnerable to forced labor and other abuses since 2020.

Workers also faced food insecurity and outright hunger. In a survey from November 2020, 88% of garment workers reported that their household had to reduce food consumption because of diminished income, and 77% said they or a family member had gone hungry at some point, according to a separate WRC study. Twenty percent of workers said they experienced hunger on a daily basis at the time.

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“Workers weren’t very well off before COVID-19. COVID-19 just exacerbated pre-existing issues.”

Pamela Abbott

Professor and Director of the Centre for Global Development, University of Aberdeen

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Returning to factories after economies reopened in the West didn’t resolve the difficulties for workers. Islam said that employers pushed new contracts on those who had been laid off, and workers were desperate enough to sign even at less pay.

“Whatever the employer offered, you had to accept it,” Islam said.

When sales in wealthy countries picked back up and brands tried to restock in a hurry, schedules became frenetic, and many workers reported unpaid overtime.

Accelerated production schedules put even more pressure on those workers who still had jobs after the initial crisis. Many since have reported unpaid overtime. Those overtime wages are critical, as many workers in poor countries rely on them to make ends meet.

"Intensified production targets and all types of wage and hour violations that the garment industry is kind of known for has been heightened over the past years, because of the instability in supply chains and suppliers trying to make up for their margins on the backs of workers," said Sahiba Gill, senior staff attorney with GLJ-ILRF.

None of these ills for workers were new to the pandemic. Below-cost purchasing, rapid timelines, and last-minute order changes by buyers have pressured factories and in turn their employees.

“Workers weren’t very well off before COVID-19,” Abbott said. “COVID-19 just exacerbated pre-existing issues.”

A ‘character moment’ for buyers

After the initial crisis, many brands began paying for canceled orders. Anner pointed out that this was in part due to public pressure on brands, as they were called out for their actions in public.

Workers and suppliers began collaborating on activism, including through what was dubbed #PayUp, a campaign to pressure buyers to pay for canceled orders during the crisis.

As Anner wrote in a 2022 paper, collaboration between workers and factory owners on activism happened as “suppliers realized that they needed the moral legitimacy of activists and worker rights advocates, and because worker rights advocates understood that if suppliers went out of business, millions of workers would lose their jobs.”

Much of the visibility to the issue has passed with the initial crisis. And the cases of brands financing lost severance remain extremely small in number. One of the very few is Victoria’s Secret, which came to a historic settlement with workers in Thailand in early 2022 over wages lost amid a 2021 factory closure.

Again, that’s the exception for now. At the end of 2022, 90% of factories studied by the Asia Floor Wage Alliance had not resolved workers’ wage claims going back to 2020, and more than half had not paid for owed overtime also tracing back to 2020.

And that is after years of activist pressure on the brands in the study. One of those brands, Nike, was recently the subject of a complaint by unions and activist groups with Organisation for Economic Co-operation and Development over treatment of workers in the sportswear giant’s supply chain, much of it tracing back to the early 2020 period.

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“We're really hoping that they will find a way to pay back workers and their supply chain, and they can also change the way they do business moving forward.”

Sahiba Gill

Senior Staff Attorney, Global Labor Justice-International Labor Rights Forum

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For Anner and others who study the relationships between buyers and suppliers in fashion and other markets, the crisis in 2020 highlighted just how unequal the partnership can be, and how workers in poorer countries ultimately absorb the brunt of buyers’ actions.

“Buyers squeezed suppliers on price, order volume and payment terms, with devastating consequences for suppliers and especially for workers,” Anner summed up in his 2022 paper. “Millions of workers lost wages, jobs and severance payments.”

The lasting impact is relational as well as material. “Partnerships and trust were severely damaged — between buyers and suppliers, and between factory owners and their workers,” Anner said in an interview. “That has to be rebuilt.”

It’s unclear what has changed in the relationship between large buyers and overseas suppliers. Among big brands, 72% were paying below the cost of production in late 2021, and 68% were buying from factories that were struggling to pay their workers the local minimum wage, according to the University of Aberdeen authors.

Some say the plight of workers in supply chains is just as precarious today, if not more so, and that buyers’ actions remain just as problematic.

“From what we've heard, I would say a lot of the buyers have not improved their relationships, and they've actually doubled down on some of their practices,” said one researcher who studies labor issues in supply chains.

For Abbott and Islam, the issues are systemic. As they explain, countries compete to be manufacturing hubs and attract foreign investment. Factories within those countries and in others all compete to win contracts. Buyers, facing investor pressure to generate profits, push down suppliers’ prices as far as they can. The rock-bottom prices and pressures on factories can lead to all manner of abuses against workers. And everyone in the system is competing to supply consumers vying for status and trying to keep up with cultural norms.

While the global supply chain crisis of 2021 showed just how much buyers rely on their suppliers, the following year saw buyers rolling back and canceling orders — albeit not with the same level of destructiveness as in early 2020 — once sales began to decline. But researchers Supply Chain Dive spoke with said workers are once again feeling the pain of buyers’ defensive actions.

"It is a real bellwether character moment for the industry, and they can still make good,” Gill said. “We're really hoping that they will find a way to pay back workers and their supply chain, and they can also change the way they do business moving forward.”

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.”

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Procurement and supply chain professionals face numerous challenges that can lead to the online phenomenon known as "quiet quitting." This refers to a situation where employees disengage from their roles without openly expressing their dissatisfaction or intent to leave. The prevalence of quiet quitting has a significant impact on organizations and the industry with a recent Gallup survey reporting that $7.8 trillion in productivity was lost worldwide in 2021 due to disengagement. Whilst an obvious place to start in reducing its impact is with leadership, we believe that corporate training also has the potential to effectively help.

To grasp the concept of quiet quitting, leaders must recognize its significance within the context of supply chain procurement. Quiet quitting occurs when professionals feel frustrated due to factors like the lack of skill development opportunities, stagnant career growth prospects, lack of company culture and limited motivation. The consequences of this issue are far-reaching, affecting both organizations and the industry at large. At the Gartner Supply Chain Expo earlier this year, Susan Boylan (Senior Research Director in the Logistics, Customer Fulfilment and Network Design) stressed the importance of developing a compelling Employee Value Proposition (EVP) to help combat quiet quitting. An EVP is the value an employee perceives they get from working somewhere, such as rewards, flexibility, the nature of the work itself, culture and career opportunities. Boylan also highlighted that “[EVP strategies] need to deliver not only on the ‘what’ the employees get from their organizations but also the ‘how’ they feel while working for your organization”. Which got us thinking, employee value propositions can support career opportunities with effective learning that makes people feel valued and empowered to do a great job.

Adding corporate training in Employee Value Proposition strategies

Whilst many organizations will begin to improve EVPs through rewards, recognition, and fan favorite ‘pizza parties’, at Skill Dynamics we’d suggest also introducing a culture of learning throughout the organization.

eLearning has emerged as a powerful tool for professional development, gaining popularity across various industries due to its advantages over in-person training methods. It provides both the learner and the organization with flexibility, accessibility, tailoring and is often more cost-effective. By implementing team training, supply chain and procurement leaders can aid their teams in enhancing their skills, increasing job satisfaction, and helping each learner define their career.

Impact of technology on quiet quitting

With investments in digital technology continuing to increase year after year, our research found that many teams are lacking the core technical skills required for your supply chain and procurement team to reach digital fluency. Without the necessary skills, employees may feel overwhelmed and uncertain about how to effectively utilize a new technology. This lack of knowledge may lead to feelings of frustration, inadequacy, and a decrease in confidence. Moreover, employees may interpret the absence of training as a sign of insufficient support from the organization, which can make them feel undervalued and disconnected. As a result, employees are more likely to disengage, experiencing a decline in motivation and job satisfaction.

Addressing quiet quitting through training

A 2023 Deloitte Global CPO Survey found that "organizations with a skills-based approach are 107% more likely to place talent effectively, are 98% more likely to retain high performers, and have a reputation as a great place to grow and develop." And corporate training solutions, like ours, offer a comprehensive range of courses and resources tailor-made for supply chain and procurement professionals. Through self-paced learning, individuals can conveniently acquire new skills while progressing at their own pace and personalized training will help to focus on the individual learning needs and skills gaps of each learner. Moreover, eLearning incorporates interactive features such as virtual simulations and collaborative learning, promote engagement and enhancing knowledge retention. These aspects make eLearning an effective tool to combat quiet quitting and encourage employees to grow and develop their careers.

Training holds immense potential in reducing quiet quitting among supply chain and procurement professionals. By investing in eLearning, organizations can overcome the obstacles that often lead to employee disengagement and eventually, quitting. It’s crucial for the industry to recognize the positive impact of learning and embrace it as a powerful tool for professional development and retention.

Aerospace specialist Incora’s bankruptcy, filed in early June, serves as a stark reminder of how closely supply chains are tied to financial fates throughout an ecosystem.

Incora plays a key role in the supply chains of manufacturers and maintenance providers by supplying, storing and distributing everything from paint to lubricants to fasteners and machined parts, and more, according to CFO Ray Carney.

The company has its own supply chain as well, from which it sources from more than 7,000 suppliers to meet demand for its 8,400-plus customers, Carney noted in court papers.

Over the past year, the dollar value of late shipments from Incora’s suppliers has increased by ninefold, with on-time deliveries at around 50%, according to Carney. Average lead time for shipments of parts has doubled to 18 months from nine months.

That caused a major problem for Incora, “because its role in the aerospace industry (and some of its contracts) require it to maintain substantial inventory that manufacturers and maintenance service providers can call upon at any time,” Carney noted.

Those supply chain disruptions have been “one of the most significant drags on Incora’s financial performance over the past year,” Carney said.

Spiraling costs, falling profits

Incora was created in 2020 when private equity firm Platinum Equity combined Wesco, an aerospace hardware and service company started in California in 1953, and Pattonair, an aerospace and parts supplier founded in 1970 in England.

The combined business gets over 40% of its revenue from the U.S. military and large defense contractors, a business that has stayed stable through the pandemic, Carney noted.

But disruptions to airlines and commercial aircraft makers led to an 18.3% drop in total revenue between 2019 and 2021, and also caused a dip in margins and profits. A stoppage of Boeing’s 787 deliveries also hit the company, for which Boeing is “one of Incora’s largest sources of customer activity,” Carney said.

Supply chain turbulence in the aerospace industry — which mirrored that of other sectors, as capacity struggled to keep up with rebounding industry demand — has more recently taken a financial toll on the company.

Incora has taken on added costs because of shortfalls, in part by buying alternative supply at higher costs to fill gaps, leaning on expedited freight to move goods more quickly, and because of labor costs to turn late-arriving inventory faster, according to Carney.

Moreover, the company has had to pay higher prices for inputs as inflation spiked for raw materials, costs that Incora can’t pass on to its customers because of the timing of its contracts. Carney also said that “many suppliers of proprietary parts have exploited their position to raise prices in excess of general inflation rates.”

Incora has looked to both ends of its business for help with the liquidity crunch facing the company.

It has tried to negotiate more favorable payment terms with suppliers as well as faster payments from its customers, including British aircraft manufacturer Rolls Royce, which accounts for about 16% of Incora’s revenue. But both suppliers and customers have suffered from the same disruptions in the aerospace supply chain writ large, according to Carney.

‘It’s going to get messy out there’

The supply chain issues have been seen up and down the industry, with supply disruptions continuing of late at Boeing, Bombardier, Spirit Aerosystems and other players.

Outside data shows the stress of operational disruptions in the industry.

The collective short-term and long-term health ratings for private companies in aerospace and defense supply chains have been deteriorating steadily since 2020, according to research from analysis firm RapidRatings shared with Supply Chain Dive.

RapidRatings found that EBIDTA has fallen 16% among private companies, while cash as a share of total assets has fallen by nearly 22%. A presentation from RapidRatings found that companies in the space will either thrive and grow, fail, or survive “with problems,” and noted, “It’s going to get messy out there.”

As for Incora, the company is looking to address its debt burden — partly a legacy of its leveraged buyout by Platinum Equity. The company also aims to use the Chapter 11 process to, as Carney put it, bring “unprofitable customer contracts” in line with “current economic and commercial reality.”

“Demand for Incora’s services remains strong, and Incora is poised for growth as the commercial aerospace industry continues its recovery from the COVID-19 pandemic,” Carney said.

For Destination XL CEO Harvey Kanter, too much inventory is “the kiss of death.”

That fear comes from Kanter’s experience on the merchandising side of the retail industry. “You’re chasing your tail when you get over-inventoried and you can’t bring in fresh receipts,” he told Supply Chain Dive in a late-April interview. “Fresh goods are the lifeblood of retail.”

Plenty of retailers might agree, in principle, especially after the inventory flood of 2022. But executing isn’t always easy. In the minds of many, inventory is not seen as a cost or a drag but as a future sale.

Destination XL ended fiscal 2022 with its inventories at $93 million, up 13.7% over the past year. While in the double digits, that growth was substantially lower than the apparel sector on the whole. A Telsey Advisory Group analysis found inventory growth at 53.8% at the end of Q4 for the companies they covered in the apparel sector.

DXL noted that levels were up over the inventory-strained year of 2021, and by the end of 2022 inventory was 9.2% lower than the pre-pandemic year of 2019. Inventory turnover has increased 30% in that time.

To do that, DXL looks at inventory from across the supply chain, from the source to the store. “Every store in every market has some unique peculiarity,” Kanter said. “It may be a brand that sells better, it may be a size they sell better, it may be a color they sell better.”

Kanter said that DXL has “put in place the best AI, [machine learning] and inventory management practice that allows us to most efficiently create unique, relevant sorting in our stores.”

Chasing inventory

The effort to keep inventory under control starts with procurement and purchasing. “We have a philosophical point of view where we'd rather be chasing goods than chasing cancellations,” Kanter said.

In other words, DXL errs on the side of buying too little to stock its stores. Getting the numbers right is even more important, given how many different sizes the retailer stocks. CFO Peter Stratton said that DXL has a low unit-to-SKU count compared to other apparel retailers.

“They might be four or five units deep per size but, because we have two, three, four times the number of sizes, it's a lot fewer units that are in that stack of shirts on the on the shelf,” Stratton said. “Because our business is all about fit.”

Compared to pre-pandemic, “we are turning goods faster, we have less inventory, and we have not experienced some of the challenges that other retailers are which is they're really heavy on inventory and being promotional to get inventories back in line,” Kanter said.

To be more nimble about chasing inventory when the company needs it, DXL’s sourcing team lays the groundwork upstream.

The company procures materials in a pre-finished state and materials that are dyed but uncut. Even if the materials aren’t used the way DXL originally intended, they can still be made into other products for the company, meaning the supplier isn’t stuck with unpurchased finished products. Kanter says this reduces risk for both the company and its suppliers.

“We don’t have a lot of on-order in the warehouse. We don’t even necessarily have a lot of on-order with suppliers,” he said. “Because of all of the elements of procuring some part of the production process, they can produce much quicker.”

And while most of DXL’s come in on a boat, the company opts to send by air if it needs inventory shipped quickly.

Looking west to source apparel

Also helping to speed up shipping times is DXL’s increased sourcing from the Western hemisphere.

Some production programs have been moved to Western countries including Mexico and Nicaragua, according to the company’s most recent 10-K. Kanter couldn’t disclose exact figures but said Western hemisphere sourcing was in the double digits as a proportion of the total. The company is also eyeing possible sourcing opportunities in Guatemala and Peru, Kanter noted.

When deciding where to source, “quality trumps everything,” Kanter said. “But then it’s a balancing act between speed-to-market and cost.”

A significant chunk of sourcing comes from southeast Asian countries including Vietnam, Bangladesh, Cambodia and India. Less than 10% of products for DXL’s owned brands are sourced from China, a reduction process that has been ongoing over recent years.

“We’re basically not in China anymore,” Kanter said, pointing to the forced labor of the Uyghur people in the Xinjiang region as the primary risk prompting DXL to avoid in sourcing from the country.

Being specialists in big-and-tall apparel for men, DXL typically relies on specialized suppliers. In the clothing factories that make its products, equipment and production runs often are unique to the category given the complexity of the sizing and manufacturing. Even cutting tables need to be twice as large for shirts that are twice as large as standard sizes.

In all, DXL sourcing network includes just over 20 suppliers, in eight countries, with about 34 factories among them, and DXL sources a majority of its products directly.

“We have a pretty finite supplier base,” Kanter said. “It’s not like we have 100 [suppliers].” Ultimately that means deeper relationships with manufacturers, who, in Kanter’s view, benefit from the retailer’s growing market share and expertise in the big-and-tall sector.

“Where our suppliers can see through the day-to-day and look at the future, they're making a bet on us.” Kanter said.

The onset of the COVID-19 crisis in early 2020 showed just how vulnerable overseas suppliers were to the actions of deep-pocketed brands and retailers.

A tsunami of cancellations, payment delays and order changes by buyers wreaked havoc on suppliers. They were also disastrous for many factory workers abroad who lost income, often took on debt and struggled to buy food.

In apparel, many of the most exploitative practices have continued since that time and “in some cases have grown more extreme,” according to a new study out from researchers with the NYU Stern Center for Business and Human Rights.

The paper, based on interviews with 28 manufacturers and 20 workers in Bangladesh, examines a set of buyer practices that could strain supplier finances and in turn can hurt worker pay and treatment. Those include:

• Pressure for “unreasonable price reductions,” including orders where prices had previously been agreed to and production had begun. 
• Withholding payment and delaying deliveries. Suppliers told researchers that extended payment terms, which buyers pushed at the outset of the pandemic, have become “normalized.”
• Canceling bookings and projections. Suppliers set aside capacity based on these bookings before a formal, binding contract has been signed. Canceling them leaves manufacturers with unused capacity and materials.
• Reliance on third-party sourcing agents. Often, these intermediaries are the players negotiating prices down and can play manufacturers against each other in competitive processes. They also take a cut of the available margin for themselves, according to the suppliers who spoke to the researchers.

The above practices can harm factories financially. Even so, many companies accept buyers' terms so as not to lose important customers and orders, the report found.

The paper’s authors — Natasja Sheriff Wells, senior program manager for the NYU Stern Center, and Chana Rosenthal, principal and founder of reDesign Consulting and adviser to the Stern Center — traveled to Bangladesh earlier for the study. 

“Hearing that 2022 was for some suppliers harder than the pandemic was a surprise,” Wells said in an interview.

Difficulties for suppliers in 2022 were the result in part of economic conditions related to Russia's invasion of Ukraine and the ensuing spikes in energy and commodity prices.

Apparel buyers also used economic events as a pretext for negotiating prices down, according to the paper. Purchasers, for example, have asked suppliers for discounts because of unfavorable currency exchange rates. “We heard that a lot” from suppliers, Wells said. 

All of this has happened nearly 10 years since the collapse of the Rana Plaza factory in Dhaka, which killed more than 1,000 workers. While that disaster has led many businesses to rethink their responsibility for safety at supplier factories, and some measurable safety improvements, the Stern authors argue that “the purchasing practices of global buyers have remained onerous.”

Wells and Rosenthal conclude with a set of recommendations for buyers, including ending “unreasonable” price cuts on orders, committing to payment timelines and treating bookings on factory capacity as binding contracts. 

The authors also urge buyers to reconcile commitments to workers in supply chains with their commercial agreements with manufacturers.

“We want them to internalize their commitments to human rights,” Wells said of retailers and brands. “And to do that they need to better understand their business processes, and their potential impact on workers in their supply chains. It may come at a cost, it might require investment, but the cost of not making those changes is just too high.”

In the story of Bed Bath & Beyond’s bankruptcy, which hit the court docket April 23 after months of speculation, the retailer’s suppliers and supply chain play leading roles. 

The company ended up in Chapter 11 partly because it could no longer afford to pay vendors and fully stock its shelves without protection from creditors.

As Bed Bath & Beyond’s recently appointed interim CFO and chief restructuring officer Holly Etlin put it in court papers, the retailer “is simply unable to service its funded debt obligations while simultaneously supplying sufficient inventory to its store locations.”

However, the troubles with suppliers started long before the filing. Etlin, a managing partner with AlixPartners who is frequently tasked with taking on interim executive roles at struggling companies, said that by early 2019 the retailer’s supply chain, along with its product development, was outdated and supported by old systems. 

When the retailer brought in Target veteran Mark Tritton as CEO later that year, the chief went all-in on omnichannel and private label brands.

Those strategies were successful for Target. But Etlin said Tritton’s new initiatives “proved too much for Bed Bath & Beyond’s supply chain to handle.”

The private label products had longer production and shipping lead times compared to the national brands with which the retailer, as Etlin put it, “built its reputation and customer base.” And customers weren’t as enthusiastic about the new assortment as hoped. 

Moreover, the pivot to private label led to “changes to previous long-standing vendor relationships,” Etlin said.

Buying shares, losing cash, spooking suppliers

In November 2021, Bed Bath & Beyond announced that it was significantly speeding up a stock buyback program, spending $400 million in cash in the second two quarters of that year to repurchase its own shares.

The buyback blitz, a move to return capital to investors, came just over a month after retailer reported a net loss and 1% decline in comparable sales, a disappointing quarter after a surge in sales and profits earlier in the pandemic as consumers invested in their home spaces. 

Etlin said that the buybacks “caused some concerns amongst its merchandise suppliers, with vendors fearing the Company would not have enough cash on hand to pay them in full, resulting in some vendors scaling back their business with Bed Bath & Beyond.”

Suppliers had every reason to worry about the cash the retailer was spending on its shares. At the end of September 2021 — just prior to the buyback acceleration — the retailer had cash and equivalents amounting $1.1 billion, and liquidity of $2 billion, according to its earnings for that period. By the next June, when Tritton stepped down, both cash and liquidity had each fallen by around $1 billion. 

A vicious cycle took hold. As Bed Bath & Beyond’s finances became ever tighter, the company began slowing payments and trimming orders with suppliers, sending some of them to competitors, according to Etlin.

Wary suppliers pulled back and tightened terms, demanding payment sooner or cash up front, as the company’s new CEO, Sue Gove, said later. Tighter terms crimped the company’s liquidity ever more. Meanwhile, the scaled-back shipments meant fewer products on shelves and significantly lower sales for the company, and thus less and less cash coming in the door. 

By January of 2023, Bed Bath & Beyond consistently trailed competitors Wayfair, Home Depot, Kohl’s and Lowes in inventory availability across major categories, according to an emailed analysis from Dataweave. 

After Bed Bath & Beyond’s inventory levels began a steep decline last summer and bottomed out in February, inventory began ticking back up in February, according to Dataweave. The company made securing cash and inventory a priority, including through a new consignment program, announced a couple weeks before it filed. 

But the last-ditch efforts weren’t enough to save Bed Bath & Beyond. By the time the retailer filed, it decided to wind down its business by closing all its stores and selling off the remaining assets, including its brand property. 

Even with liquidation pending in the coming months, the company still needs the support of its suppliers to do so in an orderly and effective way, and has sought court permission to pay key vendor bills. 

As the company put it in court papers, Bed Bath & Beyond “can ill-afford severe disruption to their flow of Merchandise at this critical juncture.”

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.”

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.”

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.

As conversations surrounding nearshoring accelerate, readiness remains one of the biggest risks to global supply chains, Balika Sonthalia, senior partner at Kearney, said during Supply Chain Dive’s July 11 virtual event “Supply Chain Outlook: Trends and Risks To Watch in 2023.”

With ongoing complexities in Asia as a major driver, more companies are diverting their manufacturing operations away from China in favor of Mexico and other countries, Sonthalia noted. Despite these efforts to adjust production networks, she said the question of if companies are “truly ready to change their end-to-end supply chain” remains. 

Shifting to a new supply base typically sparks discussion about how companies’ inbound lanes would change, but the conversation is missing the piece on how their supply chain partners are going to change, Sonthalia said.

“Are they ready to respond to this new supply chain that’s going to be set up?” Sonthalia asked.

While Sonthalia noted that progress is being made on the labor, technology and establishing manufacturing infrastructure side of reshoring, she said, “When you connect the dots, there are so many players which play a role to string things together.” 

“Sometimes your weakest link happens to be the one that hurts you the most, and I feel like that’s not being talked about a lot right now,” Sonthalia added. This includes everything from modal changes to customer service.

Although companies are implementing nearshoring and other strategies to navigate supply chain risks, the second half of the year remains volatile and companies will need to know the cost of failure and solutions, Erik Mattson, director at Alix Partners, said during the panel.

“Knowing the cost of failure is critical because, well, as you anticipate how much am I willing to invest in a solution to understand your viable likely alternatives,” Mattson said. “And out of those alternatives, the best could be doing nothing at all. But that allows you to ensure that you are prepared to have options on the table in case disaster does strike.”

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. 

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:

• 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.