Businesses are increasingly shifting to shed their focus on achieving sustainability in supply chain operations. On the one hand, today’s customers are very conscious of the sustainability and environmental concerns of the products and services they consume.
Moreover, governments and legal authorities have put forth strict norms and guidelines to ensure that social and environmental impacts are addressed appropriately.
Building a sustainable supply chain has become imperative for businesses to function smoothly without any penalties and legal issues and to draw more loyal customers to their brand. The blog describes the benefits, best practices, and trends in building a sustainable supply chain.
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What Is A Sustainable Supply Chain?
A sustainable supply chain looks beyond revenues and profits and implements environmentally and socially sustainable practices at every point of operation, right from raw material sourcing and manufacturing to storage, transportation, and delivery.
There are established environmental standards to monitor and handle emissions, pollution, soil degradation, deforestation, water usage, waste disposal, etc. Some common ethical and social sustainability standards deal with problems like ensuring fair compensation, a salubrious working environment, handling forced labor, etc.
Organizations uphold their commitment to building a sustainable supply chain by adhering to the environmental and social norms of the region in which they operate. They prioritize the implementation of proper waste disposal and recycling mechanisms, using renewable energy sources, conscious use of water, etc., to achieve a more sustainable supply chain.
Why Is It Important To Have A Sustainable Supply Chain?
Research demonstrates that supply chain operations are accountable for the majority of the emissions and environmental problems. The very nature of the supply chain involves several resource and emission-intensive processes like transportation, manufacturing, etc. So, it becomes a mandate for businesses to audit their supply chain and adopt the best practices for sustainable supply chain management.
Beyond focusing on sales and profits, organizations can use an ERP system in supply chain management to align their operations with sustainability goals and contribute to the creation of a more sustainable and socially responsible supply chain.
It is vital for businesses to follow sustainable supply chain initiatives that will have a long-term positive impact on the global environment. The following section presents the importance of sustainability in supply chains.
1. Environmental Benefits
The large-scale production that followed the industrial revolution has driven a rise in energy consumption. When globalization gained mainstream prominence, offshoring strategies evolved, and businesses shifted their operations overseas to reduce costs. As supply chains stretched beyond geographical boundaries, the demand for transportation increased, leading to pollution, emission, climate change, and other adverse impacts.
Climate change has dire consequences for the planet and people. Building a sustainable supply chain help mitigate logistics-related emissions and the adversities of climate change in ways better than individuals.
2. Enhances the Visibility of the Supply Chain
As supply chains became more complex and extended worldwide, it became hard for businesses to trace social conditions and labor practices followed by a supplier. Adopting sustainable practices across the supply chain enhances the traceability and visibility of the supply chain operations.
3. Supply Chain Resilience
Sustainable supply chain management practices enhance resilience and reduce the vulnerability of supply chains to natural disasters, geopolitical instabilities, pandemics, etc. This helps companies manage the disruptions from externalities and ensure the continuity of supply and business operations. This helps avoid downtimes, shortages, and costs and increases operational efficiency.
What Are The Benefits Of Supply Chain Sustainability?
There are many benefits of supply chain sustainability that serve as motivation for businesses to further their sustainability efforts. The following are some of the key benefits of supply chain sustainability for businesses.
Enhances Brand Reputation
Today, consumers are increasingly aware of environmental impact and social mishandling in organizations. As they become conscious of the issues, they tend to shun away from buying the products and services of the business brand. Investing efforts into improving the supply chain sustainability of businesses enhances their reputation, and as more customers gravitate to buy their offerings, they gain a competitive advantage.
Drives More Investment
Akin to consumers; investors also aspire to make investments in more environmentally sustainable and socially responsible businesses. Adopting sustainable practices helps businesses mitigate the market, reputational, social, and financial risks they otherwise endure. Building a sustainable supply chain enhances the investment readiness of the business.
As investors naturally carefully evaluate business risks before they drive their funds, businesses with sustainable supply chain operations tend to garner more investments.
Improves Supply Chain Efficiency
Implementing sustainable practices into the supply chain operations helps reduce energy consumption, enhance resource efficiency, and improve productivity, eventually leading to cost savings. An EY study shows that cost savings remain the key motivation for businesses to enhance their supply chain sustainability.
Enhances Work Culture
Like customers and investors, employees are also conscious of the workspace culture and the sustainable commitments of the firm. Sustainability factors play a key role in hiring talented minds and retaining them to drive the business vision.
Ensures Compliance with Legal Norms
Governments worldwide are investing concerted efforts into achieving the Sustainable Development Goals (SDGs) by 2030. Many countries have erected standards that require organizations to report the sustainable practices followed in the supply chain operations.
Following are some legal norms governments pursue to ensure supply chain sustainability and adherence to promoting overall social and environmental well-being.
- Transparency in Supply Chains Act 2010 requires businesses in California with annual gross receipts over 100 million USD to publish annual reports elaborating on their efforts and policies toward eradicating human trafficking in their supply chains.
- Supply Chain Due Diligence Act requires that businesses based in Germany or German-registered branches of foreign entities with more than 1,000 employees publish annual reports describing the steps they have taken to address issues such as forced labor, pollution, and emissions.
- Modern Slavery Act 2018, enacted by the Australian government, requires that businesses with revenue of more than 100 million AUD operating in Australia must report the possibilities of modern slavery in their supply chain operations and steps taken to address the same.
The cost of violating sustainability standards is very high, leading to hefty fines, penalties, etc. Businesses can save such costs by enhancing the sustainability of their supply chain operations.
Wins More Business Opportunities
When businesses build sustainable supply chains, they can seek ISO accreditations, such as ISO 14001, which has a framework for an effective Environmental Management System.
Having such accreditations demonstrate your commitment to environmental efforts. The environmental credentials add to your competitive advantage and help you gain more business opportunities than your counterparts. You are also more likely to win partnerships with other businesses that align with your values, commitment to environmental standards, and social responsibilities.
Best Practices To Improve Sustainable Supply Chain Management
Sustainability is at the forefront of business strategies, and to amp up their outcomes, businesses are putting forth environmentally responsible practices. Following are some of the best practices businesses adopt to enhance the efficiency of supply chain operations.
Supply Chain Mapping
The very first step in enhancing supply chain sustainability is to develop a holistic view of the supply chain, from raw materials sourcing all the way through transportation and delivery. As supply chains have become complex to extend worldwide, many organizations do not have a complete view of the supply chain.
Though most organizations understand the Tier-1 suppliers and processes, they need to be made aware of the Tier-2 and 3 processes.
Mapping the processes in the supply chain helps identify the wastes and inefficiencies in each step and assess the associated risks. This helps identify the areas for improvement.
Embrace Circular Economy Principles
The traditional supply chain models focus on a linear approach, starting with raw material sourcing and production and ending with consumers disregarding the products as waste. On the other hand, the circular economy follows a reduce-reuse-recycle mantra and emphasizes sustainability in the sourcing, production, and consumption stages.
The former focuses more on profits and revenues, while the latter aims to achieve sustainability. Adopting circular economy principles helps reduce the problem of waste materials and drives sustainability.
Analyze Supply Chain Data
The importance of efficient supply chain management becomes apparent when we consider how it enables businesses to collect crucial supply chain data. Having efficient supply chain management software helps collect supply chain data, which helps plan the processes, track inventories, and enhance shipping efficiency, showing importance of inventory management in supply chain management. When you plan transportation based on historical data, you can identify your customer’s location and store inventory close to your customers. This helps identify cost-effective routes to reduce fuel consumption and emissions eventually.
Deploying efficient software solutions helps build solutions to achieve a sustainable supply chain.
Design Sustainable Policies
Having the right policies and standards helps businesses achieve sustainability goals. A sustainable policy ensures supply chain transparency in business operations, attracting suppliers, partners, and customers who value sustainability above all else.
Set Supplier Standards
To achieve sustainability in the supply chain, your suppliers should meet standards and prioritize sustainability over profits and revenue. Building standards for each and every point in the supply chain, including sourcing, production, and delivery, help achieve supply chain sustainability in the long run.
When you choose a supplier, make it a point to communicate the expectations and sustainability requirements regarding energy consumption, fair wages, labor conditions, emissions, recycling, waste treatment, etc.
Create Metrics and Key Performance Indicators (KPIs)
You can’t achieve what you can’t measure. So, it is always important to establish sustainability goals and build metrics and KPIs to evaluate the progress. You can always refer to government norms and standards as KPIs for measuring and tracking the progress of supply chain sustainability policies.
While evaluating suppliers, integrating environmental and sustainability points into procurement policies and adding environment-related KPIs alongside cost and quality metrics help evaluate suppliers’ support for the cause.
Examples Of Sustainable Supply Chains
Several organizations have achieved success in their endeavor to build sustainable supply chains. We have listed some of the sustainability programs pursued by supply chain leaders for your reference.
Textiles rank the second largest industry in the world, right after the food industry. Textile manufacturers and retailers have found innovative ways to collect used garments and recycle them appropriately.
Patagonia, the American outdoor clothing retailer, has launched the ‘Sustainable Apparel Coalition’ with leading players in the apparel industry. Patagonia is a fine example of sustainable supply chain management example. The collaboration initiative follows an index to measure businesses’ social and environmental performance and navigate them through a roadmap to overcome the supply chain sustainability issues and challenges.
Beyond that, Patagonia’s Common Threads initiative motivates customers to reuse clothes and apparel instead of disposing of them in landfills right away. The company offers repair services to fix worn-out clothes, which eventually prolongs the garment’s life. Through its sustainability initiatives, Patagonia has collected 45 tons of used clothes for recycling processes and around 35 tons for converting into new clothes.
Consumer-led businesses have pursued innovative strategies to influence customer behavior to achieve supply chain sustainability goals. For example, Starbucks offers a 10-cent discount on the beverage cost when they bring their own clean cup, and it aims to reduce single-use cup waste by 50%.
Loreal, a popular business involved in manufacturing cosmetic and personal care products, adopts a sustainable purchasing policy where it selects 80% of its suppliers based on their social and environmental performance.
Unilever, the global consumer goods company, takes a holistic approach to sustainability, and its procurement policy sheds a focus on sustainable and regenerative sourcing, waste reduction, and fair labor practices. Unilever suppliers must follow sustainable farming practices, low-emission transportation methods, renewable energy usage, etc. It also prohibits them from employing forced labor and child labor.
5. Cliff Bar & Company
Cliff Bar & Company, a US-based organic food and drink company, hires energy experts at the expense of the company to consult suppliers and help them enhance energy efficiency. They assess the electricity consumption of the suppliers and help them build on-site renewable supplies.
Given above are some of the sustainability leaders that have put forth notable sustainability efforts at the global level. Several apparel companies are investing in the manufacturing of recyclable clothes. Fast-food and logistic businesses use innovative packaging to avoid non-degradable waste. Supply chain sustainability stays at the forefront of business strategies and processes. If businesses do not invest in sustainable business practices, there are greater chances of losing out on the market and investments and enduring financial risks.
Supply Chain Sustainability Trends and Statistics
Below are some of the important statistics highlighting the importance of sustainability in supply chains.
- An EY study shows that 33% of businesses lack reliable metrics to measure sustainability performance and return from such sustainable practices. The study also shows that cost savings and compliance with regulatory requirements are the top motivators for businesses to adopt sustainable practices.
- A 2020 Mckinsey US consumer sentiment survey shows that more than 60% of respondents agree to pay more to buy products with sustainable packaging.
- An Accenture report highlights that 64% of people prioritize sustainability and environmental concerns when they make a purchase.
- About 10-12% of carbon emissions from transportation and logistics can be reduced by 2025. Digitalization will be the key driver of this transformation.
- A KPMG study shows that of all the Sustainable Development Goals including decent work and economic growth, responsible consumption and production, and climate action remains the most popular among businesses.
When we assess the evolving sustainable supply chain management trends, innovation remains the key driver of sustainability. Following are some of the rapidly evolving trends.
1. Circular Economy
The principles of the circular economy help reduce pollution and minimize waste by using the materials to the fullest possible extent. The circular economy calls for a closed loop of resource consumption and designing products that can be reused and recycled.
2. Forging Collaborative Partnerships
Whether it is carbon emissions, deforestation, or labor rights, collaborating with suppliers, NGOs, and consumers helps address the challenges in the process and achieve the goals of sustainable supply chain management.
3. Blockchain Technologies
Consumers are conscious of the need for environmental responsibility and social sustainability, and as a result, they demand supply chain transparency. They show a keen interest in understanding the origin of the products they purchase and the kind of impact they might have on the community and environment. Businesses are using blockchain technologies to trace the entire supply chain information.
4. Data-Driven Supply Chain
Businesses use cloud-based supply chain systems to derive data and analytics from IoT devices and sensors. By doing so, businesses can gain visibility of the entire operations. So they can identify, implement, and track the adoption of sustainable supply chain strategies by suppliers in the lower tiers.
"Businesses with a sustainable supply chain achieve more benefits, cost savings, reputation, and a loyal customer base. There are several ways to promote sustainability in the supply chain. Businesses should explore what works well for them from a long-term perspective and create a sustainable supply chain policy covering all the stakeholders involved."
Although achieving sustainability in the supply chain is a strenuous task, failing to do so is a much bigger challenge and risky affair. As customers have started evaluating businesses based on their commitment to environmental sustainability and social responsibilities, building a sustainable supply chain enhances the odds of the success of a business.
Customers and investors tend to gravitate toward sustainable businesses. As governments spearhead their efforts toward achieving the United Nations Sustainable Development Goals by 2030, it is appropriate for businesses to put forth sustainable supply chain policies.
Frequently Asked Questions
As consumers are aware of the environmental and social problems, they look for businesses that pay attention to achieving sustainability. By adopting sustainable supply chain practices, businesses can build a loyal customer base. Also, sustainability enhances the reputation of the brand and the efficiency of business operations while also helping save costs in the supply chain.
Small companies and startups find it difficult to afford the upfront investment needed to make the supply chain more sustainable. Also, with globalization, supply chains have widened to spread across the globe. Businesses find it difficult to trace the supply chain operations. So, it becomes hard for businesses to set goals and evaluate the commitment of such suppliers.
Mapping the supply chain processes and understanding each step of the operations help understand the gaps and set goals accordingly. Designing and adopting sustainable supply chain policies and ensuring that all the stakeholders in the supply chain adhere to the set standards help enhance the sustainability of the supply chain.
Some of the important sustainability issues in supply chain operations include the following.
- Rise in emissions
- Climate change
- Water scarcity
- Energy inefficiency
- Improper waste disposal
- Forced labor
- Child labor
- Human trafficking
- Unfair compensation.
Sindhu Bharathi is an inquisitive learner and prolific B2B/SaaS writer with experience of working in diverse industries. She has a demonstrated history of delivering well-researched, original content. From generating long-form articles, blogs, and white papers to social media copies, she pivots her skills to resonate with the medium and deliver compelling content that has the power to captivate the audience.