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Why Sustainable Supply Chains?

by | May 17, 2021 | Blog, Industry Trends, Supply Chain Management

In light of an increasingly strained global ecosystem, corporations, governments, and environmental scientists have revamped the drive for sustainability, honing in on the benefits of eco-friendly manufacturing, product design, and logistics.

The supply chain has been a growing area of focus for the sustainability conversation. According to McKinsey, supply chain impacts account for more than 80% of greenhouse gas emissions and more than 90% of the impact on air, biodiversity, land, water, and geographical resources. As a result, an increasing number of companies have opened their eyes to the importance of incorporating sustainability standards into their supply chain to secure their own brand value, as well as manage legal, regulatory, and reputation risk.

By turning their attention to supply chains, and by using the correct tools and implementation of environmental, social, and governance (ESG) measurement, companies can make a significant impact in the promotion of human rights, fair labor practices, environmental protection, ethical business practices, and anti-corruption policies throughout their entire value chain.

However, to make a difference, executives need to change their view on the global supply chain network. They need to imagine that the supply chain—both internal and external to their direct management—is an extension of their workforce and company community.

What is Supply Chain Sustainability?

At its core, supply chain sustainability aims to generate long-term environmental, social, and economic value for all company stakeholders.

“To achieve a sustainable supply chain, a business needs to look beyond its own four walls, ensuring their suppliers at every tier are gradually employing more sustainable practices.”

What types of issues fall under the “sustainability” umbrella? In years past, the term carried environmental implications – greenhouse gas emissions, water pollution, deforestation, biodiversity loss. Now, the term applies to a broad spectrum of environmental, social, and governance (ESG) issues in supply chains.

So, when we say supply chain sustainability, what we mean is a holistic strategy that elevates fair labor, environmental stewardship, and good governance as pillars and enablers of business continuity.

The Importance of Supply Chain Sustainability

In today’s global economy, supply chains connect businesses and the individuals who work for them across cultural, industrial, geographic, and regulatory boundaries. But to survive and continue to produce future social value, businesses must recognize that sustainability is a key strategic component for their supply chains.

Regulatory measures like the UK Modern Slavery Act, the California Transparency in Supply Chains Act, and even President Biden’s recent executive order on climate change put pressure on businesses to measure the sustainability impacts of their extended operations. By taking a proactive approach to supply chain sustainability, you position your business to comply more easily with these types of regulations as they are announced.

Sustainable supply chains are also more resilient. An article in Harvard Business Review cites that companies that enroll sub-tier suppliers in sustainability programs reduce their risk of supply disruption and other negative consequences of poor supply chain performance. Because responsible sourcing initiatives place increased focus on sub-tier supplier management, they tend to have better communication and ability to respond to disruptive events, from political turmoil and severe weather to pandemics.

Lastly, businesses with a sustainability focus (including in the supply chain) tend to perform better financially. Good ESG stories attract more lucrative exit prices for companies being acquired or going public. And famously, Unilever’s Sustainable Living brand portfolio outperformed the rest of the business by a staggering 69% in 2018.

In short, sustainability is not just the “right thing to do” when it comes to the supply chain – it makes good business sense. It prepares companies for regulatory compliances, reduces disruption, and in many cases has tangible financial benefit.

Establishing Sustainable Norms

In order to establish best practices and business expectations, companies should build sustainability into key areas such as supplier auditing, selection, training, incentivization, and remediation.

Supply chains are only as strong as their weakest links. Companies that take the time to identify sustainability gaps with their suppliers and assist them in remedying those gaps will reap the dividends. While this process may seem overwhelming at first, the market for tools that help identify these opportunities is expanding fast. In fact, Gartner recently released a Market Guide for Supplier Sustainability Applications exploring this software category, which you can download here.

Any business looking to establish sustainability norms with suppliers will benefit from a clear, well-defined process. Not sure where to start? Check out these best practices from our customers for assessing supplier sustainability performance.

Four Steps of Implementing a Sustainable Supply Chain

There are four key steps to keep in mind as you work to increase supply chain sustainability in your business:

  1. Identify your top sustainability objectives and create a clear plan to achieve them. Since your supply chain commands a large role in your company’s environmental, social, and economic impact, take care to integrate it into each milestone along your journey.
  2. Draft a supplier and customer-facing sustainability policy. The wording should reflect your own unique brand, but the policy should require all stakeholders to abide by certain requirements for waste disposal, energy use, and shipping.
  3. Evaluate your supply chain from top to bottom. Ask yourself: does its current state match your sustainability goals, or do you need to adjust your status quo?
  4. Take appropriate action. This may mean switching suppliers or shipping routes. However, you may be pleasantly surprised: open and honest conversations often push current partners to adopt more sustainable practices—a win for both parties.

To Conclude

As pressure from consumers, regulators, employees, and investors increases, companies that align their supply chains with international sustainability standards will excel. We recognize that this is a monumental task, especially in light of the strains of the past year, but it’s an effort that will pay off tenfold in the long run.

Through it all, we remain committed to helping you transform your supply chain standards. Our resources include Standard, and Custom Assessments to help you and your suppliers surpass your sustainability goals—and as always, we welcome you to contact us with any questions.

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