Explore why creating a sustainable supply chain is good for the environment and good for business.
May 18, 2021
What is a sustainable supply chain, and why is it important? To find the answer to this question, we must understand the context upon which supply chains matter.
According to a 2020 research study of 18,900 consumers in 28 countries by the IBM Institute for Business Value (IBV), in association with the National Retail Federation, 71% indicated that traceability is very important and are willing to pay a premium for brands that provide supply chain transparency. In addition, 57% of the consumers surveyed are willing to change their purchasing habits to help reduce negative environmental impacts.
Thanks to mobile technology and social media, consumers have been rewired as it pertains to shopping and ushered in one of the industry's most significant shifts in consumer behavior. Today's consumers come highly informed with specific demands relating to price, ingredients, delivery options, production methods, environmental impact, fair labor practices, and much more.
To answer the consumer demand for transparency, major consumer brands have developed sustainability programs and promote their efforts directly through consumers through products and websites. They inform customers about what is in the products they are consuming and how the ingredients are sourced. Many multinational corporations have pledged to work only with suppliers that adhere to rigid social and environmental standards. In turn, they ask their first-tier suppliers to ask for compliance from their suppliers — who ideally ask the same from their suppliers. As the Harvard Business Review puts it, “The aim is to create a cascade of sustainable practices that flows smoothly throughout the supply chain.”
While this goal of sustainable purchasing is admirable, it is not easy to put into practice and document. While large first and second-tier manufacturing suppliers can be monitored to assure they adhere to fair labor practices and environmental conditions, smaller-tier suppliers who provide the raw materials are more difficult to control. They are frequently located in countries where labor and environmental regulations are nonexistent.
While each industry faces different sustainability obstacles, there are universally recognized criteria for protecting watersheds, reducing greenhouse gases, sourcing sustainable raw materials, and maintaining fair labor practices. These goals should be clearly stated, reasonably attainable and easily documented for each supply chain tier.
Most large companies now employ a sustainability officer responsible for overseeing the sustainable supply chain goals that acts as a liaison between the company and its suppliers. This person works with suppliers to establish sustainability baselines and develop programs to meet the overall objectives. The sustainability officer also implements standardized self-assessment tools and performs sustainability audits to ensure that established goals are met at each level of the supply chain.
As mentioned, many countries do not have labor and environmental regulations, but that does not mean that sustainability practices cannot be implemented. For instance, importers of coffee and chocolate have established cooperatives to train farmers on best practice methods for cultivating, growing, and harvesting their crops to achieve the most desirable flavors and the highest yields without destroying the surrounding environments. In addition to improving the quality and quantity of crop production, this education and training have also resulted in better and safer labor practices and higher pay within a process that can be documented for supply chain purposes.
Implementing a sustainable supply chain can be costly, especially for lower-tier suppliers. Incentives can go a long way toward instilling cooperation and adherence to the program's goals, including contract bonuses for meeting current sustainability goals and additional bonuses for a percentage of improvement. A supplier that consistently meets supply demands while maintaining sustainability goals could be rewarded with a preferred supplier status and priority contracts over other competing suppliers.
Logistics can account for a significant portion of a company’s carbon footprint, and is an essential element in supply chain management. Green logistics is the set of sustainability practices that attempt to find a balance between ecology and economy in a company’s logistics strategies, according to Interlake Mecalux.
Transportation is one of the biggest sources of greenhouse gases, and there are a few ways of cutting down the resulting emissions. These include purchasing cleaner running vehicles, improved delivery route planning, using cleaner fuels and creating more efficient last-minute deliveries.
New construction methods for warehouses lead to a reduced carbon footprint. One of the best known of these in the U.S. is the LEED (Leadership in Energy and Environmental Design) program, which “use 25% less energy, have 34% lower CO2 emissions and consume 11% less water,” according to Supply Chain Dive.
Buying eco-friendly packaging, limiting the use of plastic in packaging, minimizing individual product packaging, reusing shipping containers and recycling packaging will reduce costs and the carbon footprint.