How can rail businesses build stronger, more responsible supply chains? Pendragon Stuart, a Consultant at international sustainability consultancy Sancroft, explores the key challenges and opportunities for industry leaders
Business is facing a time of great disruption to supply chains. The range of shocks is growing – resource shortages, rising prices, extreme weather events, new legislation, labour disruption, trade wars, and of course, coronavirus.
While coronavirus may seem to put every other issue into the shade, it is in fact an example of these new disruptions showing the widespread, systemic shock both to supply and demand that issues like climate change will also create. But as initial analysis from HSBC and Schroders has also suggested, it is those companies that are more focused on managing sustainability issues and the shocks they create that have seen better stock market performance at the beginnings of this crisis.
The airline industry has already been hit hard by coronavirus limitations, where rail faces challenges, but has seen more Government support as it is recognised as a more fundamental and critical part of global infrastructure. The opportunity now is to map how to address the next set of issues so that the rail industry sustains and expands its critical role as an effective, resilient and responsible piece of the infrastructure puzzle; offering greener transport, good jobs, and accessible affordable travel.
The ‘old’ response was treating each shock and issue as an isolated question of efficiency or compliance. Now leading businesses – including those in rail – want to better understand the opportunity to look at these as a connected set of questions around building more responsible, sustainable supply chains that deliver better business results and fix multiple issues together. Stronger focus on responsible supply chains not only avoids fines and improves reputation but is critical in the next wave of cost reduction, productivity improvement and guaranteeing security of supply in a faster-paced fragile world.
Stakeholders are already demanding this change. Investors recognise the substantial risks of Environmental, Social and Governance (ESG) issues and firms are tightening specifications and beginning to step up and pay a premium to suppliers they know are using sustainable methods of production and distribution. Consumers are increasingly questioning the impact of their travel and how their products are transported.
By taking a joined-up approach to risk-mapping and opportunity identification, industry can find new solutions to its most pressing challenges. This raises implications both for supply chain colleagues and for the broader businesses who will benefit – from marketing to R&D and investor relations. In our insight report, New Shocks: Better Solutions: Beating disruption with stronger, more responsible supply chains, we have identified the critical sources of disruption, the impact they are having on businesses, and the ways that these disruptions are being better managed and turned into opportunities.
So, what are these ‘sources of disruption’? Essentially there are top-down disruptors, so how consumer, investor and competitor pressures are setting expectations for what the supply chain must deliver. These range across consumer demand and challenger brand growth, along with activism from consumers, NGOs and investors. Then there are bottom-up disruptors, the pressures and opportunities that are increasingly seen and felt directly in the supply chain. These cover new resource pressures, circular economy shifts, tech-enabled transparency, and new and hidden labour challenges.
Mapping these shifts is important in helping businesses move from previous reactive and siloed responses to a more strategic whole-business view that helps to understand how issues interact and how to solve them together. For instance, complete rail electrification is critical to meeting climate targets, but can create challenges to short-term affordability and accessibility. Meanwhile, automation can reduce costs to improve affordability but create job losses at a time when unemployment looks set to rise and transport providers like Uber are coming under fire for poor treatment of their contractors, offering the opportunity to show the higher ground.
Our advice to businesses is to progress through four key steps to navigate these growing expectations and new opportunities:
1. Future-proofing supply chains
Given disruption like growing resource pressures, businesses are future-proofing supply chains more. They do not just map compliance risks today, they use sustainability to guard against material risks tomorrow and open new opportunities for improvement e.g. sourcing railway sleepers that do not contribute to deforestation, securing long-term access to affordable renewable electricity before demand skyrockets, reducing plastics in catering and operations before new taxes come into place.
2. Integrating sustainability metrics
Companies are recognising that sustainability metrics and policies are an integral part of driving performance – not a tick-box compliance. This often means designing better, actionable key performance indicators e.g. targets around labour standards that go beyond a line in a policy where people are held accountable.
3. An automated and collaborative approach
The digital revolution offers new tools like blockchain to help monitor not just flows in the supply chain, but capture better information on worker wellbeing and environmental performance. As these systems have capacity to cross industries, they are often developed as a collaboration between multiple major actors.
4. Raising the bar on reporting
Stakeholders have rapidly growing expectations, forcing reporting to become more extensive and transparent. This ranges from ESG demands from investors who see these as a metric to judge how well a business is run, to tighter regulations on human rights and environmental impact and more powerful campaigning organisation in an era when reputations are made and lost more quickly. Employees are also looking for more proof of the purpose behind their company, and expect to see this demonstrated.
In summary, here are five practical steps that rail businesses should specifically take to turn this potential disruption into an opportunity:
Lead from the top – substantial change beyond compliance that spans across supply chains and departments requires visible leadership from senior figures at Board level.
Plan short and long – have quick achievable wins that you can celebrate and report rapidly to keep stakeholders and teams engaged, plus a longer vision that is inspirational, aligns everyone on direction and helps people think differently.
Pick smart measures – what gets measured gets managed – since many stakeholders want to hear about this performance, make sure these measures are meaningful and transferable e.g. into corporate reports, benchmarking demands etc.
Look outward – ensure that teams have regular ways to feed in external best practice, future market needs, rather than only optimising the system they currently know.
Channel team expertise – when engaging multiple functions, do not just preach problems: help them see this as an innovation challenge their expertise makes them uniquely well-placed to solve.
Pendragon Stuart is a Consultant at Sancroft
Tel: 020 7960 1696