Traditional multinational value chain models have matured and increased in complexity over the past 20 years. We saw a rise in new development of management and governance with the advent of new trade agreements and the World Trade Organization (www.wto.org). As the need for companies to grow revenue and add new customers continues to increase, new markets emerge, creating demand for products and services. The result is an integrated network value chain shown in Figure 1 where each block represents a specific organization, facility, or plant that are tightly woven together.

Figure 1

An integrated network value chain, with the organization located in the center

Compliance impacts in the triple bottom-line areas of sustainability — economic, environmental, and social — may likewise be viewed by this integrated network value chain. The traditional relationships of suppliers and customers are blurred, not just by the role in the integrated network, but by public brand perception. When the overseas manufacturing operations of a large multinational sports apparel was found using child labor against International Labor Organization (ILO) guidelines in the 1990s, the event forced the company to redouble its efforts to become more socially aware and to manage its reputation. Today, this company stands out as a leader in these efforts and is viewed by many as a leader in corporate social responsibility (CSR) initiatives. (This topic is addressed in a variety of sources, including mallenbaker.net and publicly available corporate communications.)

Because of the interconnectivity of these value chain networks, manufacturers and their brands must demonstrate “flow down” of specific sustainability guidelines, standards, and regulations. These flow-down requirements — similar to ISO 9000 quality standards, regulatory requirements, or text found in contract performance language — can often lead industry participants in these integrated value chains to report in nonstandard forms (e.g., questionnaires and surveys) to multiple customers without additional coordination.

Some industries (e.g., the automotive industry) have addressed key regulatory issues on a per-issue basis. For example, the reporting against Restriction of Hazardous Substances (RoHS) was standardized, and a central database of substances — the International Material Data System —viewed as hazardous by the industry as a whole was established. Industry participants report into a centralized environment to achieve regulatory compliance accessible by all manufacturers who may require the use of the various components the participant developed. The manufacturer receives component substance information without divulging key intellectual property (IP), such as how the component is made and how the subcomponents structures are structured. Other industries, such as the computer equipment industry, have taken more tactical steps focused on a per-manufacturer basis.

In the social compliance area, standards such as SA 8000 for social accountability and the business improvement framework Social Fingerprint provide similar reporting requirements for members of value chain networks. Still, in many situations with a centralized reporting environment, suppliers, brands, and manufacturers often report in multiple nonstandardized approaches that can require manual data gathering and manipulation (Figure 2). This redundancy in reporting and management increases overall value chain costs throughout the entire business ecosystem, which then is ultimately passed on to the end consumer. Therefore, the impact to sustainability reporting isn’t just confined to the integrated value chain; instead, it represents an issue for the entire business network.

Figure 2

Manual handling across multiple information and data sources drives complexity and costs that are often passed on to the end consumer

With the advent of new technologies, business networks allow the manual, paper-driven processes that industries experienced in the early days of ISO 9000 quality compliance and year 2000 risk management to be enabled in an orderly managed environment using social business tools. SAP’s concept of a sustainable business network is a cloud-based environment that allows suppliers to share standardized information such as questionnaires and surveys with brand and manufacturer customers once (as opposed to fielding multiple, unique requests) while ensuring accuracy of reporting and ratings systems.

In the next section I’ll cover the four areas in which the SAP sustainability business network addresses these supplier management issues, creating a new opportunity for SAP customers to reduce costs, increase accuracy, and improve business practices.

Creating Efficient Processes and Accurate Data Using a Sustainable Business Network

A sustainable business network offers several advantages over compliance and reporting processes based on either manual handling of information or through a centralized database repository. These advantages are consistent with the idea of an integrated network management structure, as supply chains connect and interact with multiple participants in many different relationships in one or more communities.

There are four main advantages to SAP’s approach to sustainable business networks. Depending on the position of a supplier or manufacturer, the value of some of these advantages could be perceived as higher than others:

1. Connectivity. By connecting multiple supply chains virtually through communication links, SAP greatly reduces the redundancy of communications and streamlines it across the entire community.
2. Level evaluations. Through standardized sets of questionnaires, surveys, and other ranking or scoring criteria, manufacturers evaluate sustainable performance of suppliers on a consistent, level basis.
3. Ease of analysis. With common graphical displays, dashboards, and other analytic tools, companies easily analyze supplier status, even by inspection, rather than through the compilation of multiple spreadsheets, in real time.
4. Business improvement. Through the network of supplier communities, companies define, launch, track, and monitor business improvement programs and other initiatives in a manner similar to W. Edwards Deming’s “plan-do-check-act” improvement cycle.

SAP has developed some early discussion prototypes as a part of the Sustainability Executive Advisory Council (EAC), and member companies recently had the opportunity to review and comment on these prototypes. I’ll walk you through a few demonstration screens and discuss how suppliers and manufacturers could benefit from the use of a sustainable business network.

Using a Sustainable Business Network to Reduce Risk, Increase Compliance

Joining a sustainable business network has the same concept as other social business tools such as SAP StreamWork, Jive, or even Facebook. The concept behind membership to the network includes creating a profile with the relevant information needed to define the organization, the location of various facilities, and contact information of the organization. Depending on whether the organization has a value chain it wishes to monitor (e.g., a brand or manufacturer), or whether the organization is participating as a supplier, the business network allows for multiple levels of relationships. For example, if a manufacturer wishes to connect with multiple suppliers inside the network, those suppliers connect with their tier-2 suppliers through invitation to likewise participate in the network to address flow-down reporting requirements. Only through direct permissions can one organization accept a link to another in the network; therefore, the integrity of the information exchange is established and controlled.

Figure 3 shows how an organization, such as a fictitious supplier called Megacom, might view its stream of network information in a manner very similar to the home news feed of Facebook and other similar social business tools. This method supports the connectivity goal of the sustainable business network. In this case, Megacom has a number of touch points in its network that transcend multiple industry segments and regions, accurately depicting the nature of the global supply chain environment. Messages and notes are exchanged on this news feed so that member companies have quick, easy notifications regarding activities inside their views of the sustainable business network.

Figure 3

A working concept of a connect feed to a sustainable business network (courtesy of SAP)

Once Megacom establishes the profile and makes connections inside the network, it can then evaluate its questionnaires, surveys, and self-assessments that its customers assign to the organization. One of the key benefits of a sustainable business network that has been realized in other product compliance areas is the consistency and accuracy of evaluation tools and methods that exist across multiple value chains. These tools and processes reduce the redundancies, and unique requests allow for Megacom not to spend time focused on reporting status, but instead spend more time on improving its sustainability position within its corresponding supply chains.

This evaluation can represent whatever standards, guidelines, or frameworks that Megacom may find in its various supply chains based on the triple bottom-line reporting. Figure 4 shows what this might look like, both in terms of individual area evaluation and ratings and an overall rating that would be defined by the brand or manufacturing customers to which Megacom would report. It can also provide a status about Megacom’s completion of its own self-evaluation questionnaires that are likely to include the survey of its own key suppliers as part of addressing flow-down requirements.

Figure 4

Working concept of Sustainability Evaluation from the point of view of the participating organization (courtesy of SAP)

Note that a key objective to a sustainable business network is the consistency of the overall rating score. This rating requires agreement to a consistent portfolio of ratings and scores that are then used across multiple manufacturers and brands for reporting. As industry best practices and guidelines emerge over time, this scenario becomes more plausible. This rating process could be a roll-up of these various scores, as shown in Figure 5, as part of the Evaluate function within SAP’s model of a sustainable business network. Key areas of sustainability are the interest and intent to create business performance improvement inside of the organization. Based on key frameworks, guidelines, and best practices, the network could prepopulate a set of business improvements either from a drop-down list or through content providers that make information available to Megacom. Megacom could consider these various ideas as a part of its sustainability efforts to improve its overall sustainability rating. In the meantime, Megacom’s manufacturing customers who are members of the network can view and monitor Megacom’s progress in key areas of its sustainability program that they may consider important for Megacom to pursue.

Figure 5

A working concept of analyzing a scorecard for the sustainable business network (courtesy of SAP)

Depending on the content provided in the network, participants such as Megacom could consider a number of suggestions that could improve their overall scores. Because companies like Megacom would have one individual responsible for reporting into the network (e.g., a chief sustainability officer or director of compliance), they could pick and choose which suggestions from content methods, or any suggestions received directly from manufacturing customers, to incorporate in their sustainability programs. One area is for a company to complete an environmental impact assessment in one of its facilities. Figure 6 shows what an improvement assessment could represent as a result of auditing the assessment findings. This improvement activity then becomes a permanent record for Megacom, demonstrating its desire to increase its performance at the facility in question in the area of environmental impact.

Figure 6

A working concept of improvements inside the sustainable business network (courtesy of SAP)

William Newman

William Newman, MBA, CMC is managing principal of Newport Consulting Group, LLC, an SAP partner focused on EPM and GRC solutions. He has over 25 years of experience in the development and management of strategy, process, and technology solutions spanning Fortune 1000, public-sector, midsized and not-for-profit organizations. He is a Certified Management Consultant (CMC) since 1995, qualified trainer by the American Society of Quality (ASQ) since 2000, and a trained Social Fingerprint consultant in social accountability since 2012. William is a recognized ASUG BusinessObjects influencer and a member of SAP’s Influencer Relations program. He holds a BS degree in aerospace engineering from the Henry Samueli School of Engineering and Applied Science at UCLA and an MBA in management and international business from the Conrad L. Hilton School of Management at Loyola Marymount University. He is a member of the adjunct faculty at both Northwood University and the University of Oregon with a focus on management studies and sustainability, respectively.

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You may contact the author at wnewman@newportconsgroup.com.

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