Within a business context, sustainability typically refers to minimizing negative impact on the environment and society as a whole. Taking a sustainable approach to your business’ supply chain requires forming a holistic view of all the organizations, processes, logistics, technologies and components necessary to deliver your product and/or service to the market to ensure that your business will be able to continue operating successfully into the future.
Each and every element of your supply chain creates some kind of environmental, social and economic impact. The supply chain can account for half of a business’ environmental and social impact, in my company’s experience.
The disruption of the global supply chain over the past year has highlighted the fact that, during volatile times, sustainability is more critical than ever. In order for businesses to continue operating responsibly, they need to become more sustainable.
Doing the right thing no longer has to be a sacrifice.
In the past few years, sustainability has started to capture the attention of major investors such as Larry Fink, CEO of BlackRock, who recently stated in his 2021 Letter to CEOs, “The commitments we are making today reflect our conviction that all investors must seriously consider sustainability in their investments.” All signs indicate that access to capital will become more closely tied to environmental and social impact targets going forward.
All types of business stakeholders — shareholders, employees, customers, suppliers, investors and consumers — are starting to take Corporate Social Responsibility (CSR) goals into account with the realization that short-term profits are no longer sufficient as a measure of a company’s success.
Business leaders used to view sustainability as a trade-off, even in organizations that cared deeply about these issues. The traditional perception was that doing the right thing would come with a heavy loss of cost efficiency and eat into profits. But product and technology innovation has now progressed to the point where it’s very possible for organizations to control their environmental and/or social impact and recognize business benefits, even to the point of competitive advantage, in a variety of ways:
• Improving performance. Corporations that commit to making a positive impact can increase their appeal to existing and potential customers and attract new market opportunities. In contrast, a 2019 survey led by Hotwire found that 47% of internet users have ditched products or services that violated their personal values. As an example, FedEx recently took action to drop its sponsorship of the Washington NFL team if it continued to refuse to change its name, which had drawn objections for over twenty years for being offensive to indigenous Americans. Within hours, additional sponsors including Nike, PepsiCo and Bank of America took similar actions. Finally, the owner finally agreed to change the name to the Washington Football Team.
• Complying with regulatory requirements. Just as we’ve had an ever-increasing level of safety standards for cars over the last 50 years to reduce emissions, regulations will be applied to businesses with regard to social and community responsibility. This is already being driven right now at a regulatory level with major governmental organizations worldwide implementing sustainability regulations across a range of industries. It’s absolutely essential for businesses to get ahead of the curve by fulfilling and proactively anticipating legal requirements.
• Mitigating risks. The Covid-19 pandemic has demonstrated just how vulnerable our global supply chains are to discontinuities from environmental disasters, health and safety issues, regulatory changes and more. Consequently, many businesses are looking to streamline their supply chains in an effort to become more robust and sustainable, minimizing the risk of operational failure due to regulatory, environmental or societal disruption. Taking a sustainable approach to managing externalities can reduce legal risks today and minimize losses tomorrow.
Three Tips For Moving In The Right Direction
As CSR goals continue to become more of a priority for business stakeholders, now is the perfect time for organizations to rethink their approach to sustainability. Here are three tips for business leaders that want to move toward a more sustainable supply chain:
1. Learn more about all of your suppliers. Most companies have visibility into direct suppliers that contribute to the cost of goods sold. But there are many other indirect suppliers providing consumable goods, IT and other services to the business. In order to truly understand the impact of your spend, you need to know more about the business practices of all of your suppliers and make sure that they reflect your values. For example, if you’re trying to decrease your economic impact, you should make sure that the companies you’re purchasing from are engaged in the same practices, and that they’re applying the same degree of care. By capturing data through vendor questionnaires and certifications, you can obtain information about vendor diversity, ethical supply chain and supply chain footprint.
2. Find a way to quantify the impact of your supply chain. In the same way that business leaders weigh the cost of benefits in terms of total cost of ownership/total cost of payment, they should evaluate the elements of their supply chain and determine the trade-off. It’s essential to take a quantitative approach to assessment, measuring the impact of your supply chain in meaningful terms that can be compared to one another and assigned a financial value. Procurement data can be a great source for quantifiable information.
3. Establish KPIs. Go beyond merely reporting on impact — focus on actually improving the environmental and social impact of the business. Determine what actions you need to take to make your supply chain more sustainable in the short, medium and long term. Prioritize where to invest your resources in order to drive the most meaningful results.
Prioritizing supply chain sustainability is an effective way to evoke positive change by improving vendor diversity and inclusion and minimizing environmental impact. As a business practice, it can reduce unnecessary business costs and complexity while supporting higher brand value.