In recent years, customers, employees, investors and governments have put increasing pressure on companies to demonstrate greater environmental stewardship and social responsibility. This comes at a time when the business case for sustainable operations grows stronger every year.
For many businesses, supply chains have come into focus because they use a lot of resources and money and are frequently a source of unnecessary waste. Thus, supply chain sustainability has emerged as a key corporate goal. Companies have started to measure the environmental and societal impact of their goods and services, from the beginning to the end of their life cycles.
What Is Supply Chain Sustainability?
Supply chain sustainability refers to companies’ efforts to consider the environmental and human impact of their products’ journey through the supply chain, from raw materials sourcing to production, storage, delivery and every transportation link in between. The goal is to minimize environmental harm from factors like energy usage, water consumption and waste production while having a positive impact on the people and communities in and around their operations. These concerns are in addition to traditional corporate supply chain concerns around revenue and profit.
To set the stage for a more comprehensive understanding of supply chain sustainability, here are some foundational definitions and answers to common questions.
What Is a Supply Chain?
A supply chain is a coordinated network of all the companies, facilities and activities involved in developing, manufacturing and delivering a business’s products.
What Is Supply Chain Management?
Supply chain management is the practice of coordinating sourcing, production, inventory management and transportation among all the participants in a supply chain to maximize efficiency and customer satisfaction. Many businesses realize major time and cost savings by evaluating and improving supply chain management.
What Is Sustainable Supply Chain Management?
While conventional supply chain management focuses on the speed, cost and reliability of operations, sustainable supply chain management adds the goals of upholding environmental and societal values. This means addressing global issues such as climate change, water security, deforestation, human rights, fair labor practices and corruption.
How Can a Supply Chain Be Sustainable?
Companies around the world have taken steps to lower their carbon emissions, cut back on waste and improve labor conditions. By tracking sustainability metrics in supply chain management (SCM) systems, they monitor multifaceted programs that, for example, prioritize renewable energy, recycle products and materials or encourage greater social responsibility among suppliers. Subaru’s Indiana car-making plant—the U.S.’s first zero-waste factory—is a compelling example of a sustainable supply chain, as documented by Scientific American.
Additionally, companies can use intelligence and pre-defined rules to ensure that products aren’t being shipped unnecessarily—for example, making sure products are sent from the closest distribution center as opposed to one on the other side of the country.
Why Is Sustainability Important in the Supply Chain?
Research has shown that, for most companies, the supply chain is responsible for the bulk of their environmental impact. By their very nature, supply chains often involve energy-intensive production and transportation as goods are made and moved around the globe. Therefore, organizations can often make the biggest difference by making changes to their supply chain rather than other business operations.
The complexity of myriad supplier relationships and border crossings also makes supply chain sustainability challenging. This complexity can hinder visibility into important operational considerations such as labor conditions at a supplier’s factory that is thousands of miles away.
Supply Chain Sustainability Statistics
As businesses have put more focus on supply chain sustainability, many have studied trends in this area across industries, countries and areas of impact. Here are several notable statistics:
- Demand: Nearly half of U.S. consumers say they would change purchasing habits to reduce their impact on the environment, according to Nielsen.
- Environmental impact: The supply chain accounts for more than 90% of most consumer goods companies’ environmental impact, according to McKinsey & Company.
- Societal risk: The U.S. Department of Labor listed 148 types of goods from 76 countries produced by child labor or forced labor in 2018, when it released the Comply Chain app to help American businesses eliminate child labor from their supply chains.
- Data systems: A 2019 survey by the Carbon Disclosure Project (CDP) found that 65% of its corporate members used environmental metrics to inform supplier management and hold their business partners accountable to supply chain sustainability goals.
- Progress: CDP has reported promising progress in cutting greenhouse gases: In its 2019 survey, 29% of 7,000 suppliers to some of the world’s largest corporations reported a decrease in emissions.
Supply Chain Sustainability Examples
Outdoor apparel and gear retailers provide particularly helpful models for supply chain sustainability. Some brands make clothes from recycled plastic bottles or collect used garments, repair them and resell them as “upcycled” goods. Patagonia operates an award-winning green distribution center and built a “zero waste” program by reducing the weight of packaging and using sustainable packaging materials. As an industry collaborative, the Sustainable Apparel Coalition’s aim is “an apparel industry that produces no unnecessary environmental harm and has a positive impact on the people and communities associated with its activities.”
Examples of sustainability cut across industries, per stories from publisher SustainCase. For example, one road builder that previously bought asphalt based on price alone cut shipping distance and related carbon emissions by 40% and achieved a lower total landed cost by buying local supplies. A fast food company redesigned its packaging to avoid repacking in the supply chain, eliminating literal tons of waste. An electronics company requires suppliers to sign a “code of conduct compliance declaration” that highlights integrity and governance.
Three Tiers of Sustainability
Lack of visibility into the supply network is one of the biggest challenges to supply chain sustainability, particularly because businesses usually work with suppliers in multiple tiers.Many buyers have direct relationships with their Tier 1 suppliers and contract manufacturers. Those Tier 1 companies’ suppliers and subcontractors, in turn, are Tier 2 suppliers. And those subcontractors may be working with mines, farms and other providers of raw materials that fall into Tier 3.
Companies recently surveyed by Ernst & Young expressed a lack of transparency into the operations of any partners beyond Tier 1 . Some buyers lean on their Tier 1 suppliers to cascade sustainable practices onto the Tier 2 companies, the Tier 2 suppliers to monitor the practices of Tier 3, and so forth.
Benefits of Supply Chain Sustainability
Supply chain sustainability benefits not only companies’ own interests and those of their stakeholders but also society and the planet at large. Companies have realized that climate change, for example, can put their business continuity at risk with extreme weather disruptions and growing resource scarcities.
Here are five frequently cited business activities that benefit from sustainability:
Supply chain operations: Recent examples show that energy costs decrease, for example, as companies set emission targets with suppliers and help them identify potential areas for improvement.
Branding: Consumers are more concerned than ever about where products come from and how they’re produced. Researchers at MIT’s Sloan School of Management found that consumers may pay 2-10% more for products that provide supply chain transparency.
Investor relations: Institutional investors are keenly aware of the reputational risk of unsustainable supply chain operations. In recent years, the media has reported many irresponsible supply chain practices, and in some cases, it’s hurt a given company’s stock prices. These accounts have revealed businesses sourcing electronics from overseas, maintaining hazardous working conditions, using suppliers that routinely polluted local rivers, and procuring defective components or toxic materials. It’s also worth noting that nearly half of investors in a recent Gallup poll expressed interest in sustainable investment funds.
Corporate culture: Millennials, in particular, seek greater purpose in their work, according to demographers. Successfully hiring and retaining employees often depends on a company’s corporate culture and values, and sustainability plays a key role in that.
Compliance: Governments around the world are mandating greater supply chain sustainability, in part to meet the United Nations’ 2030 deadline for achieving Sustainable Development Goals, like clean water for all. Government regulations cover many areas, including the traceability of pharmaceuticals, disposal of electronics and avoidance of conflict minerals.
Challenges of Supply Chain Sustainability
Cost is the primary impediment to sustainable supply chains, with smaller companies finding it particularly difficult to afford the upfront costs of making a supply chain more sustainable. However, an investment in something like compact packaging, for example, can lead to a reduction in the size and number of shipments, a lower environmental footprint and cost savings over time.
Other companies find that there simply aren’t sustainable options for components, or that they’ve inherited supply chains from acquisitions that are difficult to shift towards sustainable practices because of complexity or organizational structure. These challenges can be overcome, but 20% of respondents in a survey reported that customers simply weren’t interested. This makes it difficult for some companies to justify the added expense or effort.
Supply Chain Sustainability Best Practices
For many companies, sustainability is no longer just something to monitor, but integral to the foundation of their supply chain. CDP reports its members integrate environmental data into procurement tools and processes, using environmental metrics alongside cost and quality stats as they evaluate suppliers.
Other CDP members include specific environmental performance language in contracts and tender documents. Some businesses provide sustainability training to their own procurement managers and suppliers to help the cause.
Four Steps to a More Sustainable Supply Chain
Forrester Research has developed a framework for integrating sustainability into your supply chain, with a focus on four areas:
- Procurement: Most companies start sustainability programs by looking at energy and water procurement, and by procuring sustainable materials to use in their products.
- Operations: Look for operational processes or steps across the supply chain that could be more efficient and reduce resource usage.
- Retirement: Avoid excess waste and obsolete items by designing products for upcycling and reuse.
- Data and communication: Measure the effectiveness of initiatives in the first three areas, and strengthen any related efforts, by communicating them to customers, supply chain partners and other stakeholders.
Supply Chain Sustainability Trends
Innovation has and will drive supply chain sustainability in the years to come. Two trends that will keep momentum going in this area are the circular economy and data-driven supply chains.
The goal of a circular economy is to design pollution and waste out of products and systems like supply chains. In this system, products are built to have a light environmental footprint, last longer and be easily disassembled and remade or transformed for reuse.
In data-driven supply chains, companies leverage cloud-based supply chain execution systems that provide detailed analytics and may even pull data from equipment sensors and other Internet of Things (IoT) devices. This gives businesses deeper visibility into their operations, and they can then find, implement and monitor strategies to become more sustainable.