Growing sustainability mandates and/or expectations for companies over the years have filtered down through their supply chains, putting new burdens on suppliers. While there is typically no small amount of effort and cost involved, I’ve written before about how supplier engagement/data request processes for conflict minerals should be viewed as a model for other sustainability information requests. A hidden efficiency first brought forward almost 15 years ago with the SEC’s conflict minerals rule has been confirmed – at least in my opinion.
In 2010, the SEC proposed its conflict minerals disclosure rule, generating a record number of public comments. Many focused on the cost of compliance. Tulane University Law School’s Payson Center undertook a detailed analysis of the major cost estimates (National Association of Manufacturers, aka NAM, the IPC – an electronics design/manufacturing industry association and the SEC’s own), submitting its own cost model to the SEC in October 2011. The research was led by Chris Bayer, PhD. I was also a major contributor to the research and cost estimate methodology although I couldn’t disclose that at the time. (Side note: One of the high points in my career is that the SEC Staff placed much credibility in this study/methodology, deferring to it many times in the final rule preamble/analysis and text.)
In our methodology, we pointed out that any single supplier typically has many customers. When a supplier solves an issue for one customer, that solution serves all other customers with the same requirement – there is no need to wholly replicate the same effort or redundantly incur the same costs for each customer. We used an “overlap” factor of 60% – meaning that 60% of a supplier’s customer demands can be met by a single solution, with suppliers needing to develop bespoke solutions/responses for only 40% of their customers.
I’ve wondered how well this 14-year old assumption aged. Last week, I asked friends at Partner Source Intelligence – one of the few remaining supplier due diligence services that were around back then – about what their years of data show about the actual overlap factor. Jennifer Kraus, PhD – SI’s Chief Science Officer – told me:
“From a holistic approach of all the data we collect, CMRTs [conflict minerals reporting templates] included, we think this estimate [of 60%] is low. We believe the split is probably closer to 80/20. Only 20% of work being done would be for one customer only.”
Beyond satisfying my own curiosity, it is meaningful information looking ahead. ESG Today wrote about a new study from Bain & Company:
“Among the key trends highlighted by the report is the importance placed by business to business (B2B) buyers on sustainability factors, with half of those surveyed reporting that they currently spend more with sustainable suppliers, and half also planning to drop suppliers that don’t meet sustainability criteria over the next three years.”
Suppliers: maybe sustainability ain’t easy but if you do it once, you’ve done it for 80% of your customers – and that looks increasingly important.
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