Sustainable sourcing topics in China

Introduction to sustainable sourcing in China

Understanding sustainable sourcing in China is critical for any company looking to responsibly source goods on the world’s largest manufacturing market. This article will provide practical guidance on how to identify sustainable sourcing priorities and focus areas in China in order to maximize your positive social and environmental impacts.

We will explore in this blog:

The key sustainability topics most pertinent to Chinese supply chains
How to prioritize where you can create the most meaningful change.

Identifying sustainable sourcing priorities for your company

You are now detirmined to reach your sustainable sourcing ambition. Then many questions may arise: What do you want to do and achieve? How does sustainability align with company goals and values? What values and goals does your company want to accomplish in terms of social responsibility and environmental impact?

The following steps can make you start working towards the company’s sustainable goals:

1. Develop an action plan with specific tactics and measurable KPIs. Identify areas where sustainable sourcing can reduce costs, mitigate risks, improve brand positioning, and find product development opportunities.
2. Connect your priorities directly to your company’s values and link them to industry regulations, international standards, and norms. This can position you as a leader in sustainability in your niche market.
3. Compare your performance against sector-specific sourcing initiatives to understand your progress and unique opportunities, and to learn from industry’s best practices.
4. Integrate sustainability into your usual procurement processes. Set measurable targets for long-term impact, align your initiatives with company goals, and choose high-priority projects to start with.

By following this approach, you can make sustainability an integral part of your sourcing and procurement for positive change and achieving your company’s objectives.

Identifying Focus Areas

What are the focus areas where you can make improvements and have impact? Do market research to understand sustainable sourcing opportunities. Do research on supplier capacity, norms, and materials and product risks. Evaluate what certified goods are available locally.

You will need to understand how things are in China. You can analyse labour practices, emissions levels and materials used for your source goods. How can you gain sustainability wins while maintaining affordability, quality and lead times?

Then you need to consider the focus goods. You can use a tool called the Kraljic portfolio model[1] to decide which products are most important to focus on. It looks at how much harm the goods cause, how much control you have, how much effort it takes to follow the rules, and how they can affect society. Look closely at the ones where you have more control and can make a more significant difference.

Also, consider purchasing power and negotiation abilities. This will help you focus on things you can manage. People in your company also need to be involved in the customised standards.

Start by looking at quick wins, the things that have the most significant impact and are easiest to change. These are the sourcing processes of products that can harm the environment or society if we don’t take action. It’s important to work with suppliers who are willing to work closely with us to improve things. If we have success in one category, it can inspire stakeholders for other changes in other areas.
Keep learning about the people we want to sell to and what they value. It will make your investments in sustainability worthwhile. We should involve people inside and outside the company to help us with these efforts.

Evaluate Risks Associated with sustainable sourcing

When evaluating the risks of sustainable sourcing, think in different scenarios that things could go wrong. This includes problems with depending too much on one supplier, difficulties controlling where things come from, and the specific challenges of different regions and industries. To deal with the risks, careful understanding is needed.

One potential risk is relying too much on very few suppliers. If you rely too much on a few suppliers, you have to think about what might happen if something goes wrong and we can’t get what we need. We should look for enough options and have backup plans to avoid over-dependency. It will impact your negotiation position and, ultimately, what impact you can make. We must also be cautious when suppliers don’t give us enough transparency about their processes. Address this by having independent audits and getting certifications from third-party organisations to check if suppliers comply with your requirements.

Handling the risks

When you work with or source from China, there are specific things you need to pay attention to. Understand how things work here. Consider issues like how materials are sourced, workers are treated, and resources are managed. To manage risks well, we should break them down by looking at each product or part, considering the economic, environmental, social, and policy-related problems they might cause.

It’s not only the direct suppliers we need to consider but also other companies they work with. We should know all the stakeholders involved, like distributors or subsidiaries, to understand any extra risks. Making sure everyone is transparent can help avoid problems.

By looking at all these issues, we can set goals for ethical sourcing, considering all the risks. Keep checking on China’s processes regularly to ensure everything is going well and fix any problems early on.
By understanding and evaluating the opportunities and threats in China, we can make informed decisions about how we can source more sustainably.

Key sustainable sourcing topics in China

Now that your sustainable sourcing strategy is established, the key question becomes: What should you focus on when implementing your plan?

Successful execution offers the opportunity to make a real difference. By addressing priority areas, you will be able to translate your work into enhanced brand value that resonates with increasingly conscious customers worldwide. Below are some of the key topics most relevant in the China context, where focusing your company’s efforts can create meaningful impact.

Human rights and labour practices:

When it comes to sourcing in China, it’s essential to address labour issues while considering cultural differences. Although you should never overlook severe abuses, it’s crucial to approach the issue without imposing one culture’s norms on another.

To uphold social and environmental standards, prioritise addressing objectively inhumane practices. It’s not advisable to judge everything from a Western lens, but instead, find areas for improvement and impact.

In China, several common challenges are related to different workplace practices, welfare, occupational health and safety protocols among suppliers. When assessing the social conditions, you could look at several aspects.

Assessing social conditions for workers

1. Abusive management styles: Use audits to evaluate the respectful treatment of workers on the work floor. The way staff is treated in Chinese factories differs a lot, from part of the family to almost slaves.
2. Occupational health hazards: Monitor noise levels, handling of harmful materials, and the level of sanitation standards.
3. Workplace safety: Are there protocols for security and emergencies and sufficient equipment available for emergencies such as injuries or fire? Even though the laws demand strict rules for these matters, the truth is that these rules are often ignored or not properly followed in reality.
4. Social representation: How well is the management involved and aware of the well-being of workers? This is often better arranged in smaller factories than in bigger ones.
5. Living conditions: Many workers stay in dorms near the factory in China and liveability levels differ a lot. Evaluate the living conditions of the workers.
6. Career development: Although rare, some Chinese factories provide additional training and schooling for their workers for better future opportunities.

When working with your suppliers, you can have an impact when focusing on gradually improving conditions. Suppliers that are unwilling or unable to reform can be re-evaluated. Instead, you should build a sustainable partnership with suppliers willing to improve.

Environmental considerations

When thinking of sustainable sourcing, many people first think of the environment. Environmental aspects in sourcing cover topics like resource usage and emissions, hazardous materials, and local pollution.
When it comes to environmental sourcing practices, there are several significant factors to consider:

Energy and Climate

Assess the energy sources used in factories. Many factories in China use coal energy, but renewable sources such as solar, wind, and nuclear power are rising. You could consider working with factories using renewable sources of energy. You could also assess and choose based on factory energy-saving protocols. Critical selection helps reduce greenhouse gas emissions and supports sustainable energy practices.

Material Impacts

Assess the choice of raw materials and production processes based on their environmental impact. How do the materials of choice impact local pollution or the environment in some part of the production or consumption cycle? Prioritise materials that have a lower impact on the environment. This is often much in your control, as you can define the materials and specification requirements.

Circular Economy

Promote the use of recyclable and reusable materials. This extends the lifespan of resources. You can, for example, minimise the usage of single-use plastics in products and choose sustainable packaging alternatives to reduce packaging waste.

Local Environment

Evaluate the suppliers’ impact on local air, water and land quality. Find suppliers implementing best practices in controlling polluting emissions and wastewater and disposing of hazardous waste. Local pollution is a problem that has been significant in the past and has been reduced in the last 15 years. But in many local industrial and mining areas, pollution is still a considerable problem. Therefore, select and check manufacturers to avoid your sourcing initiatives having a bad influence on local pollution.

Collaboration for impact

Get involved in joint efforts with the suppliers to eliminate harmful materials or processes. Design products that are easy to take apart cooperate to find sustainable materials and are technically suitable for your design and manufacturing practices.

Ensuring Ethical Business Practices

Ethical sourcing also includes ensuring that everyone in your supply chain follows ethical business practices. To make this happen, you could focus on the following areas:

Stop Corruption

Companies that give each other deals and don’t allow other companies to step in is common practice in China. This is not only unbeneficial for those other suppliers but also unbeneficial for you. The materials and components are often not sourced for the best product and quality. You could try to prevent and uncover these unfair influences and make the supply chain more transparent.

Give smaller suppliers a chance

Work closely with smaller factories who may have trouble meeting regulations and requirements initially. Supporting smaller companies to innovate and produce according to sustainable standards encourages ethical business practices and helps their growth. This will lead to innovating procurement instead of innovation procurement and you provide incentives to innovate and improve. This will eventually increase the impact of your policies.

You may benefit from their adaptability and innovative ideas when collaborating with these smaller factories. Encourage working together to create sustainable solutions, promoting learning, growth, and innovation in procurement.

Selecting suppliers that make an impact

When choosing suppliers, you could prioritise those that create jobs for vulnerable groups. In China, many factory workers’ work uplifts their families from poverty and enables good education for the next generation. When choosing suppliers that provide jobs for these people, your procurement efforts make an impact for these communities.

Embrace Environmentally Friendly Practices

You can select suppliers focusing specifically on designing products and processes that are good for the environment. This reduces harm to nature and supports sustainability.

Ensure Transparency and Good Management

Make sure to pick suppliers who can transparently manage their business. This helps guarantee that they are honest and responsible in their actions, mitigating risks of non-compliance.

Promote Ethical Standards and continuous improvement

Encourage ethical standards that empower business owners and benefit workers and the environment. Support fair treatment of employees, environmental responsibility, and social sustainability. Encourage innovative ways of doing business that lead to continuous improvement.

Respect Different Cultures

Understand that it takes time and effort to overcome cultural differences. Make progress through respectful communication and collaboration. Build diverse relationships based on shared goals, leading to positive changes in ethical business practices.

Consumer-Focused Initiatives

Consumer-focused initiatives are plans and actions that focus on consumers and help them to make sustainable and safe choices. They involve making products safe, giving clear information, checking if sustainability claims are true, designing products that can be used again, encouraging responsible choices, teaching people, and gradually becoming more sustainable while showing the impact of products.To effectively engage consumers and promote sustainability, you could consider several initiatives.

Consumer-focused initiatives

1. Keep Products Safe and Compliant: Ensure that products adhere to the rules and regulations of the markets where they are sold. This includes prioritizing consumer safety and meeting product safety standards.
2. Be Honest in Marketing and Labels: Provide truthful and accurate information about sustainability features, manufacturing processes, product lifespan, and end-of-life options. Enable consumers to make informed choices by offering transparent information.
3. Verify Environmental Impact: Seek independent certification or conduct audits to validate the sustainability claims made about products. This adds credibility and assures consumers about the environmental and social impact of their purchases.
4. Design for Reuse and Recycling: Collaborate with stakeholders to create products that can be easily reused, repaired, or recycled. Embrace the principles of the circular economy, where products have longer lifespans, and consumers are encouraged to choose sustainable options.
5. Encourage Responsible Use and Disposal: Motivate consumers to act responsibly by participating in programs that facilitate the return or repair of products. This promotes waste reduction, resource conservation, and the preservation of valuable materials. Simplify recycling and product return processes to make responsible disposal easier for consumers.

Over time, move towards using more sustainable models and be transparent about the environmental and social effects of products. This helps consumers become more knowledgeable about sustainability and make better choices in the long

Positive community impact

To maximize positive community impact, companies can focus on strategic sourcing and long-term partnerships centered on sustainability. Although as a small company, it is difficult to really make much change for the communities you work with, you may want to understand the impact that your procurement choices have and communicate this with the consumer. These are some possible impact that your sustainable sourcing choices have on communities:

1. Employment & skills: Innovative product development can help create jobs and provide on-the-job learning opportunities, enhancing employment prospects and skills development within communities.
2. Income generation: Your supplier operations for your products can provide steady incomes that lifts the local standards of living, contributing to economic growth and poverty reduction for the workers and their families.
3. Education improvements: By prioritising procurement practices that drive innovation and compliance, companies can motivate higher education attainment and support educational initiatives within the community.
4. Technology transfer & Capacity building: Sustainable sourcing practices can facilitate the transfer of skills and know-how, strengthening domestic industries and enlarge local capacity building for the production of sustainably produced goods.
5. Community well-being: Prioritising social criteria such as occupational health and safety, or reducing pollution in supplier operations not only benefits the workforce but also leads to public health gains, improving overall community well-being.

By cooperating with suppliers on sustainability issues as strategic partners, your sourcing activities can positively impact community development. Through collaborative initiatives and joint ventures, diverse interventions can lead to mutual growth and positive social impact.

Ensuring profitability

When addressing sustainability challenges, it is crucial to look at all 3 p’s related to sustainability and durability in sourcing, so in addition to caring about planet and people, ensuring profitability is essential. By implementing the following strategies, companies can achieve sustainable sourcing while maintaining profitable or even become more profitable.

Short-term profit drivers

Investments in energy and material efficiency improvements can result in cost-savings that quickly pay back as it results in lower cost price for energy and materials used. Implementing waste reduction and recycling can also cut costs for waste elimination and therewith production costs. When assisting in the adoption of profitable circular solutions with your suppliers, you enable them to reduce the cost price, potentially leading to a lower purchasing price for your company.

Long-term gains

Compliant and sustainable supply chains are more resilient against changes in regulations, mitigating potential risks to business continuity. Commitment to responsible sourcing also provides access to premium markets and enhance brand value. As conscious consumer demand for sustainable products grows, companies with strong sustainability practices can capture market share and gain a competitive edge.

Addressing the challenges of sustainable sourcing in China

While sustainable sourcing initiatives provide many benefits, there are also many challenges to expect when sourcing from China. Although sustainability is getting more traction there in the recent years, the standards and habits are not the same as in the west. Suppliers may be reluctant to invest or they are not transparent about the progress. However, by adopting the right strategies, you can address these major issues well.

Dealing with supplier reluctance

Communicate clearly how the sustainability investments are long-term competitive advantages rather than short-term costs. Emphasise the potential benefits and market opportunities that sustainable practices can bring for suppliers, highlighting the positive impact on their business growth and profitability.

Provide financial incentives and technical resources to suppliers. Collaborate with suppliers to develop affordable and culturally-relevant solutions that align with their capabilities and circumstances. Use a collaborative approach towards suppliers to let them actively participate in sustainability initiatives. Encourage open dialogue and co-creation of solutions that are mutually beneficial and address shared challenges. Your attempts towards improvements can only succeed if the supplier has the incentives and common beliefs. Finding the right suppliers and using the right incentives are the ways to deal with supplier reluctance in China.

Promoting transparency

Conduct engagement programs that demystify the perceived benefits of sustainability within the operating context, particularly in regions like China. Educate stakeholders about the positive impacts and opportunities associated with sustainable sourcing practices. Provide transparent reporting on the return on investment (ROI) of sustainability initiatives to shareholders. Demonstrate the long-term sustainment of reforms over time, showcasing the value generated through sustainable practices.

With patience and partnership, initial efforts and investments in sustainable sourcing can evolve into durable profit streams and resilient supply networks. By prioritizing profitability alongside sustainability, companies can serve the interests of stakeholders while making a positive impact on the environment and society for years to come.

Conclusion

Implementing strategic priorities, managing risks, building supplier partnerships, and driving collaborative change can help companies advance sustainable sourcing in China. Addressing key issues improves responsibility while achieving benefits. With patience, sustainable practices can evolve networks and partnerships that profit all. Continue learning about the strategies and tactics to use for ethical and sustainable sourcing in China, in the next blog post.