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The Sustainable Supply Chain, Part 2: Plotting the Way Forward

More companies are “walking the walk” on supply chain sustainability, making sure their procurement departments factor in social, economic, and environmental sustainability to their supply and product selection processes.

An increasingly important aspect of corporate responsibility, supply chain sustainability centers around the management of social, environmental, and economic impacts of supply chains, among other key considerations. Increasingly, procurement professionals are playing a role in ensuring that their organizations follow the guidelines of running sustainable supply chains.

Pointing to a recent report in The Guardian highlighting the poor working conditions and low pay scale in a Bangladesh factory, SAP’s Richard Howells says this is just one roadblock that companies are grappling with in their quest to run more sustainable supply chains.

“This is just another example of a challenge of today’s global supply chain,” Howells writes in Forbes, “where the need for end to end visibility and collaboration across all levels from the procurement of raw materials to the delivery of goods to the end customer’s door are critical.”

Howells adds that social, economic, and environmental sustainability should all be at the heart of every supply chain right now, and points out that data from Nielsen finds that 66% of global customers are willing to pay more for sustainable goods.

From their suppliers, for example, these customers want biodegradable and enviromentally-sustainable products; a commitment to following social and humanitarian practices; and the manufacture of products with minimal environmental waste and impact (among other things).

“While these may be daunting challenges, companies have an incentive to move forward beyond the moral imperative,” Howells writes. “Sustainable supply chain processes, after all, are good not only for the environment but also for worker safety, customer satisfaction, and—in many cases—for cost reduction as well.”

Procurement’s Role in Making it Happen

Tasked with selecting vendors, establishing payment terms, managing strategic supplier vetting, negotiating contracts, and buying goods, procurement stands right at the crossroads of operational excellence and supply chain sustainability. In other words, it’s the perfect organizational department to take on at least some of the responsibility for making sure their companies operate in the most sustainable, eco-friendly manner possible.

“Gone are the days when a brand’s success was reliant on a business model void of concerns over waste, the environment, or the humans who do the dirty work for cheap,” Chad Prevost writes in FreightWaves. “Consumers are expecting brands to reduce unnecessary waste, source products responsibly, and use environmentally friendly transportation and logistics practices.”

Improved Revenues and Financial Performance

When it comes to supply chain sustainability, companies are making changes that procurement can be a part of, and even play a fairly significant role in. In fact, 31% of global companies plan to make sustainability-related changes to their supply chains over the next three years, according to HSBC.

Of those companies that are making ethical or environmentally sustainable changes to their supply chains, cost efficiencies (84%) and improved revenues and financial performance (also 84%) are the main motivations.

HSBC also says that:  

  • Almost one in five (17%) companies globally plan to increase their emphasis on their ethical and environmental standards.
  • This is higher for companies in emerging market countries (21%) than those in developed markets (15%).
  • One in five companies globally (20%) say they’ve had greater control of their supply chain over the last two years. “This presents a timely opportunity for businesses to assess their networks and take action to become more sustainable,” HSBC points out in its report, “which can help [firms] remain competitive in an increasingly demanding trading environment.”
  • Almost a third (31%) of businesses globally will be looking to make changes to their supply chains related to sustainability.
  • Improving sustainability outcomes is the highest objective (27%) for making supply chain changes after reducing cost (38%) and increasing profits/revenue (36%).
  • 85% of businesses want to achieve a sustainability standard recognized by their sector or market and 84% say it’s important to be perceived as ethically or environmentally sustainable.

Expect these numbers to continue rising as more companies incorporate sustainability into their supply chains and procurement processes. “This trend comes as companies face increasing pressure from customers to be more sustainable and transparent about their sourcing,” Patrick Burnson writes in SCMR. “With around 80% of a company’s environmental impact found in its supply chain, the ‘green’ credentials of strategic suppliers and partners are critical factors in a firm’s reputation and performance.”

For Part 1 of our series on supply chain sustainability, click here

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