Supplier engagement: Identifying high-priority suppliers

There are several ways to rank your suppliers, but the goal of each method is the same: to ensure that you focus your efforts where they’ll have the greatest impact.

To make a meaningful dent in their own emissions, most companies must work with their suppliers to reduce their emissions—after all, scope 3 accounts for an average of 75 percent of an organization’s greenhouse gas output. If your supply chain is extensive or complex, this is a major undertaking—and engaging directly with every single supplier might be impractical.

That means you must prioritize which suppliers you will engage with directly. There are several ways to rank your suppliers, but the goal of each method is the same: to ensure that you focus your efforts where they’ll have the greatest impact. We’ve broken down the various ranking strategies below so that you can strategize the most effective approach, maximizing your impact on supplier emissions and your own scope 3 emissions.

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Continuous improvement

The first thing to keep in mind is the continuous improvement model. The GHG Protocol’s recommended approach to supplier engagement is to begin by engaging directly with your top 80 percent of suppliers based on your preliminary emissions inventory or based on spend. Then, each year, request data from more and more suppliers. Over time, you’ll  increase data coverage across your supply chain without overextending yourself right off the bat.

Pairing this approach with one or more of the ranking strategies below to identify your top 80 percent of suppliers ensures that your supplier engagement strategy has an outsized impact.

Supplier prioritization strategies:

  • Strongest relationships
  • Highest emitters
  • Highest spend
  • Highest emissions intensity
  • Greatest influence

Prioritize relationships

Suppliers are fielding requests from all their customers—and not just from their customer’s sustainability teams, but also from each customer’s procurement team, data privacy team, compliance team, and potentially others. Amid all the noise, what will help your request stand out?

“The best metric to start with is understanding the relationship you have with your suppliers,” says Wan Lee, Sustainability Project Director at Optera. “They’re getting constant requests for surveys, so I would prioritize understanding the relationship so you can strategize how best to engage them.”

When you’re identifying suppliers to engage with directly, consider prioritizing those with whom you have already connected and established a relationship. It is more likely that they will reply to an email, survey, or request for information than a supplier who has never heard from you before. This is also a good metric to keep in mind when planning how you will educate and engage suppliers about emissions in the future—one-on-ones and  virtual training sessions give you an opportunity for face time with suppliers that you might not otherwise meet with regularly. That means that when you come back around next year to ask for updated data, they’ll have a face to put with the name and might be more willing to participate in future supplier engagement activities.

Identifying emissions hotspots

Of course, in order to identify the top 80 percent of your supply chain’s emitters, you will need some preliminary data. If you are designing a supplier engagement program for the first time, it’s unlikely that you’ll have that data compiled and ready to go. But that doesn’t mean that the data doesn’t exist, or that you don’t have options.

You may find that some of your suppliers have already reported to the CDP, which publishes emissions data online. Industry trade organizations also compile and publish emissions data from specific companies, some of which may fall within your supply chain. Customers of Optera who use our Supply Chain Manager software get access to a proprietary database with emissions data for over 10,000 companies. One of these options, or a combination of all of them, will likely turn up at least some of the supplier-specific data you need.

For suppliers whose data is not readily available, use industry or product averages to model likely outcomes. This will show you which suppliers are likely to be the biggest emitters.

Identify top suppliers by spend

If you have gone through your options and don’t have enough data to rank your suppliers’ expected contribution to emissions, rank them according to how much your company spends with each one. What makes this option more straightforward is that the data already exists within your organization, specifically within your procurement and accounting teams.

While it’s not a perfect predictor for contribution to emissions, suppliers who make up a large portion of your company’s supplier spend are likely to be critically important to company operations, and therefore might also be significant contributors to emissions.

Combining spend data with industry and product emissions averages can refine this methodology even further.

Identify the most emissions-intensive suppliers

The emissions intensity for each supplier and your allocated emissions with them are additional data points that you can use to rank suppliers.

  • Emissions intensity is a supplier’s total emissions from scope 1, scope 2, and scope 3 category 1 (purchased goods and services), divided by its revenue.

    • Emissions intensity = Total emissions (Scope 1+Scope 2+Scope 3, category 1) / Revenue

  • Allocated emissions are the amount of a supplier’s emissions that your company is responsible for. You calculate it by multiplying the supplier’s emissions intensity by the amount of money you spend with them.

    • Allocated emissions = emissions intensity x spend

For example, if a supplier with $1B in revenue emits 100,000 metric tons of CO2e, their emissions intensity is .1 mt CO2e per $1,000 in revenue. If you spend $10,000 with that supplier, your allocated emissions are 1 mt CO2e.

If your ultimate goal for supplier emissions is to commit to (and achieve) a science-based target (SBT), emissions intensity is one of the target-setting methodologies to choose from.

Note: once you’ve compiled some data on your supplier spend, emissions intensity, and more, you need a strategy to manage that data and keep it updated. Check out our blog on collecting and managing supplier emissions data for guidance.

Identify suppliers with whom you have the most influence

Finally, it may be helpful to consider how much sway your company has with each supplier. Does your company’s spend make up 75% of a supplier’s overall revenue? You likely have a lot of influence over their operations. That leverage can be crucial to implementing decarbonization initiatives. Another way to yield influence is to work with an industry trade organization, or partner with other companies in your industry, to make decarbonization a more widespread priority. “A lot of companies use the same suppliers,” Wan says. “When you team up, you have a good chance of using that influence to ensure that suppliers are actively engaging in reducing their emissions.”

Conclusion: A well-designed supplier engagement program requires you to rank suppliers—and adjust as needed

According to Wan, the most effective supplier engagement programs are flexible and adaptable. Ranking your suppliers, prioritizing them according to that ranking, and designing your engagement strategy according to that prioritization is not a one-and-done activity. Relationships fluctuate, supplier priorities change year-over-year, and industry regulations evolve. Being effective means adapting to current circumstances.

It also means knowing when to rely on numbers, and when to rely on more qualitative data. “Yes, you want to have the metrics, but you have to understand the context of those numbers,” Wan says. “Suppliers have a lot of demands on them, they’re in different countries with different cultural norms, they’re affected by different international policies.” Keeping that context in mind as you engage with your suppliers will go a long way toward maintaining a collaborative relationship—and that’s key to reducing your supply chain emissions.

Interested in learning more about Optera’s Supply Chain Manager? Request a demo and our team will show you how it works.

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