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Supply chains are more than your team's coordinated network of companies, warehouses and activities that result in the production and delivery of your business’ products and services. Taking into account changing world conditions, the modern definition also focuses on improvements to this process, a direct result of the volume of resources and funding used (and often wasted) because of poor allocation and inadequate risk management strategies.
Consider how this contrasts to the traditional role of supply chain management teams, who were told to focus on speed, cost and overall reliability of operations. In comparison, modern supply chains recognize that optimization runs deeper. Successful organizations have proven to be the ones concentrating on sustainability and measuring their environmental and societal impact, including human rights, fair labour practices and climate change, to set a new global standard and maximize efficiency both now and long into the future.
What Makes a Supply Chain Sustainable?
In practice, sustainable procurement operations look at improving operations through activities including lowering their carbon emissions, cutting back on wasted materials and ensuring labour conditions are maintained at a certain standard. Teams will then use a set of key performance indicators (KPIs) that relate to their sustainability goals to assess their suppliers and ensure they too meet a certain standard before entering into long-term agreements.
Additionally, larger corporations are taking this concept one step further by using automated inventory management systems, sometimes combined with artificial intelligence (AI), to ensure product shipments occur in optimal amounts and unused resources are not sitting idle in warehouses. Teams with many warehouses have also considered ways to optimize their distribution paths to ensure that manufactured goods are being sent from the closest warehouse to ensure transportation emissions are kept to a minimum.
Benefits of Considering Sustainability
Among other reasons, sustainability is the cost of doing business. Governments are imposing more robust mandates for sustainable practices such as the UK Modern Slavery Act, the California Transparency in Supply Chains Act and the EU Directive on Conflict Minerals, each of which must be abided by. These mandates, in combination with internal organization’s missions have resulted in the use of sustainability KPIs as a basis to assess which companies they want to enter strategic partnerships and business agreements with. This trend is further being reflected in consumer behavior, with more attention being paid to the business practices of the brands individuals engage with and purchase from.
But trends alone should not be the sole motivator for a business to make an investment into the sustainable supply chain. Rather, like any other investment businesses are encouraged to look at the numerical value, which is said to be as high as 70% of EBITDA, according to an article shared by Harvard Business Review. In addition to the direct business benefits, sustainability has also been a known reason millennials and generation Z choose their place of employment. For reference, the Governance & Accountability Institute reported 70% of millennials stating they would stay with their place of employment if it had a strong sustainability plan. With these generations seeking companies that have values that align with their own, businesses will do well to tailor their practices to highlight what they are doing to contribute to their communities beyond making profits. By doing so, they can attract and retain top talent, a key resource in the foundations for business growth.
Finally, addressing global problems around sustainability can provide a competitive advantage. According to an HSBC report, 83% of companies were already positioning themselves as ethical or environmentally sustainable. Therefore, while these businesses are making final tweaks to a working system and further improving processes, their competitors will be spending extra time and resources catching up, further giving these leading organizations the chance to become pioneers of their industry.
Barriers for Sustainable Supply Chain
The most significant barrier for businesses to adopt a more sustainable model for their supply chain is the cost to do so. Added costs can be attributed to several factors including the extra cost to select a proven sustainable vendor who tracks their own processes, to select from more sustainable materials, the adjustment of inventory management strategies, the closing, relocating or opening of new facilities to accommodate better shipping and transportation, and the higher wages paid in alignment with better labour practices. Of course, to top it all off, there is also the extra costs that come with deploying a solution that can track ongoing sustainability offerings.
At present, there are many enterprise-level solutions available for consumers, each of which offers significant value, but at an enterprise-level price. For small and medium-sized businesses, this means it can be significantly more challenging to make these investments upfront and build the business case for doing so.
Furthermore, businesses face a secondary barrier in the lack of knowledge the business has about the financial benefits attributed to sustainability. It is common for employees to underestimate the value of sustainable practices in the supply chain, especially if their competitive advantage isn’t “being green.” The lack of knowledge about these benefits ultimately results in major business decisions and investments being made under a different set of priorities, such as with a profit-first mentality and other concerns hurting the environmental part of the triple bottom line (people, profit and planet) not being escalated. The resulting lack of literacy has since become a major barrier to implementing greener supply chains. Since this is not an avenue that can be overlooked, businesses are often relying on consultants and other sustainability-focused team members to build business cases that educate the company about the impending business need to shift focus.
Fortunately, teams like ConvergentIS have quickly made it their mission to create solutions for tracking sustainability more affordable and accessible to businesses than ever before.
Creating the Foundation for a Sustainable Supply Chain
Before implementing any new solution for sustainability, users must first start with their objectives. These objectives should determine what your team hopes to achieve, whether this is ensuring fair labour standards or reducing greenhouse gas emissions. Goals will then act as a baseline for determining if the implemented solution is achieving what it sets out to do. With a predetermined set of goals, businesses (whether a small or medium-sized business or large enterprise) can take advantage of tools that will call out the most relevant KPIs and ensure supplies aren't going to waste.
Many teams are turning to the ConvergentIS Procurement Gateway to achieve a unified view of vendor performance. In addition to sourcing, forecasting, and returns management activities, relevant sustainability KPI's can also be highlighted on the primary dashboard for business leaders to access.