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Survey Shows Most Firms Currently Lack Formal Strategies and Processes to Fulfill Sustainability Commitments

FOR RELEASE: March 27, 2007

MEDIA CONTACTS:

Jim Brown for A.T. Kearney
1-312-223-6220
Jim.brown@atkearney.com

A.T. Kearney
Jean McHale for ISM
1-480-752-6276 Ext. 3143
jmchale@ism.ws
ISM

Supply Management is a "Litmus Test" of "Sustainability" Initiatives


(Tempe, AZ) March 27, 2007 — While a majority of North American firms in the survey (almost 60 percent) have a documented corporate-level sustainability strategy, just over one-third (36 percent) have adopted a formal sustainability strategy for the supply management organization — a crucial step in ultimately being able to deliver on their sustainability promises.

Those are among the findings of a study by global management consulting firm A.T. Kearney, in conjunction with the Institute for Supply Management™ (ISM). The study surveyed firms across a variety of industries to assess corporate sustainability practices and understand how sustainability is impacting businesses. Corporate sustainability is defined as the promotion of economic development (e.g., profits and job creation), environmental stewardship (e.g., energy conservation and pollution reduction), and social well-being (labor standards and community impact).

The research revealed that most firms have recognized the value of adopting sustainable practices, whether to strengthen their brand or to differentiate products. Companies understand that sustainability management is a top-line growth opportunity, rather than just a compliance issue. Embracing sustainability provides companies with an opportunity to improve their corporate image and differentiate their products.

Since most firms have not adopted a supply management sustainability strategy, it is not surprising that many do not have sophisticated internal organizational processes to promote sustainability management. Just over half of the companies in the survey provide written guidelines to help supply management staff address sustainability questions, and just over 40 percent provide training on sustainability management.

"Supply management organizations have to support the corporate sustainability strategy by ensuring their company's suppliers extract their materials from sustainable sources and employ fair labor practices," said Daniel Mahler, A.T. Kearney vice president and leader of the Sustainability Study. "They are the 'litmus test' of the sustainability commitment."

Dramatic Effects in the Supply Chain
The study showed that today 50 percent of companies will deselect suppliers for not meeting sustainability criteria. Five years ago it was rare that a company deselected a supplier because the partner failed to meet formal criteria of being "green and ethical." More than half the companies in the survey include sustainability metrics in the evaluation criteria of supply management executives. Examples of sustainability metrics include eco-efficiency of materials and packaging, fair labor practices throughout the supply chain, a quantification of the carbon footprint, and accounting for full lifecycle costing.

Although a majority of companies still do not have robust supplier relationship management practices for sustainability, this will change significantly over the next year as the number of companies rewarding supplier sustainability practices will increase by 50 percent and almost two-thirds of firms will either engage in joint process improvement with their suppliers or track a robust set of sustainability metrics for their major suppliers.

The Financial Benefits of Sustainability
Some of the companies in the survey indicated that they are already beginning to see the financial benefits of focusing on sustainability including increased customer demand for sustainable products, improved employee morale, greater brand strength and enhanced marketing opportunities for environmentally friendly products.

"Supply management organizations should not only focus on being compliant with new green standards. They can also pro-actively engage the supply base to drive sustainability-related innovations that can lead to pricing premiums and access to new markets," said Mahler.

Sustainability and Supply Management Moving Forward
The study indicated that over the next 12 months there will be a dramatic shift as corporate supply management departments play catch-up across all aspects of sustainability.

"Supply management executives should ask whether their company has adopted a comprehensive sustainability strategy, supported by the appropriate policies, processes, organization, incentives and suppliers, or whether it has simply adopted a set of related practices that are unlikely to unlock complete value," said Mahler.

The report, "True and Profitable Sustainability Management," which details findings from the A.T. Kearney and Institute for Supply Management Survey of 25 North American Fortune 100 companies can be found at www.atkearney.com (click on "Services" then "Operations Consulting").

The report can also be downloaded from ISM's Social Responsibility Web site: www.ism.ws/sr. Select the Research link under the heading "In This Section." ISM is committed to becoming the central repository of information in support of matters related to social responsibility and encouraging the supply management community to stay on the forefront to support social responsibility.

A.T. Kearney
A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO's agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney's offices are located in major business centers in 32 countries.

Institute for Supply Management™ (ISM)
As the oldest and largest supply management institute in the world, the mission of Institute for Supply Management™ is to lead supply management. By executing and extending its mission through education, research, standards of excellence, influence building and information dissemination — including the renowned monthly ISM Report On Business® — ISM continues to extend the global impact of supply management. ISM's membership base includes more than 40,000 supply management professionals in 75 countries. Supply management professionals are responsible for trillions of dollars in the purchases of products and services annually. ISM is a member of the International Federation of Purchasing and Supply Management (IFPSM).


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