What is supply chain sustainability? | #techUKDigitalTrade
This insight was originally published via IBM, see it here.
When your sourcing team chooses what to buy and who to buy from, are you selecting vendors who share the same social values as your brand? When your manufacturing plants produce goods, are you minimizing waste and effectively using finite resources? When fulfilling orders for customers, do you know how your packaging and shipping decisions impact the environment?
If you haven’t been thinking about these questions, the time to start is now. Your customers, employees and shareholders want to know you have a plan to address supply chain sustainability.
Supply chain sustainability is defined as embedding environmental, social or corporate governance considerations as raw materials are sourced, converted to products and delivered to market. But the supply chain doesn’t end when the product hits the market, and neither does supply chain sustainability. We have to plan and execute on reuse/recycle/retire strategies. An important aspect of supply chain sustainability is that it supports a circular economy.
In this blog, let’s explore the best practices that drive sustainable supply chains. This includes reducing waste and creating efficiencies that lower resource consumption and can also lower costs, with the ultimate objective of preserving conditions to support future generations.
Why is supply chain sustainability important?
Planning with supply chain sustainability in mind delivers on the triple bottom line: people, profits and the planet:
Key stakeholders increasingly expect the brands they buy and support to address sustainability issues.
- Consumer research: A recent study by IBM found that nearly 80% of consumers indicate sustainability is important to them, and 60% are willing to change their shopping habits to reduce environmental impact. Also, 93% of global consumers say COVID-19 influenced their views on sustainability.
- Employee recruitment and retention: In a recent IBM Institute for Business Value study, 69% of respondents say they are more likely to accept a job with an organization they consider environmentally sustainable. Yet only 20% of CEOs say their sustainability efforts help them recruit talent.
- Investors: As of 2022, the value of sustainable investment in major financial markets has grown by 1% in the last two years. As the uptake of sustainable investing grows exponentially, there is a need for a common language to identify green investment opportunities. Alongside a common language, data and solutions are essential to a net-zero future.
Not surprisingly, 57% of CEOs identify unclear ROI and economic benefits as a leading challenge. In a recent interview with IBM, Guy Cormier, CEO of Desjardins Group, says, “It starts with the CEO. I’m totally convinced it starts at the top on climate change and on ESG. You can’t fake it, especially with your younger employees.” Here are some reasons why sustainability is a differentiator that can increase revenue and profits:
- Differentiate your brand: Over the last 12 months, certain brand values have become more important when deciding to shop sustainably or ethically in some categories. Sustainable packaging scores highly when grocery shopping, while consumers value reducing waste and a product’s carbon footprint when buying major household appliances.
- Align your leadership to ESG goals to reduce waste and embrace lean principles that reduce costs: In a 2022 study, the World Economic Forum found that companies are setting more aggressive targets for supply chain sustainability than before, recognizing the effects on competitiveness and linking sustainability targets to senior executive pay performance. Many are working with suppliers in strategic ways, including on issues such as emissions reduction and socioeconomic inclusion. Industry alliances have long been important; some firms are now also looking to bring in entrepreneurship through incubator programs that deliver place-based supply chain sustainability solutions.
Given the world’s limited environmental resources, “circularity” is closely associated with sustainability. The UN Environment Programme’s Sustainable Trade In Resources report discusses a circular economy: “The concept is grounded in the characterization of the world as a web of fundamentally interconnected and interdependent networks—one where greater efficiency is achieved by closing, extending and narrowing material loops. This sits in contrast to the traditional linear produce-consume-discard model. In a circular model, resources maintain at their highest value possible.” A sustainable supply chain supports a circular economy when it aligns with these values:
- Reduce by design: Reducing the amount of material used (particularly raw material) should be an overall guiding principle from the earliest stages of design of products and services.
- Repair, refurbish and remanufacture from a user-to-business intermediary perspective.
- Repurpose and recycle from a business-to-business perspective.
How to get started with supply chain sustainability
Supply chain leaders can drive near-term results by narrowing their scope of supply chain sustainability efforts to an environmental focus. Here are just four areas to explore for a greener supply chain:
- Shipping: Since we know consumers value brands that prioritize sustainability, it is important to empower customers to make eco-friendly decisions. Do they really need that order next-day, or is three to five days sufficient? Can they wait until all items in an order are available to receive everything in one shipment, or do they need each item as soon as possible? Show them the tradeoffs with a “green” shipping option at check-out. Transportation and third-party logistics providers can provide similar analysis and options to their B2B customers as well.
- Inventory positioning: Visibility across your entire network allows you to optimize the fulfillment of each order. Additionally, you can purposefully position inventory closer to the consumer to provide the best of both worlds: faster availability and lower emissions.
- Packaging: Shift your mix of product packaging to reflect shifting buying patterns. Less foot traffic in stores means less need for expensive packaging. You may have an opportunity to cut down on elaborate displays and in-store safeguards for tampering. As online orders and pickup or ship-from-store become more prevalent, include multiple items in one package to reduce waste and costs.
- Returns: Reduce waste and protect the bottom line by swiftly re-marketing returned products. This cuts down on the large amount of returned goods that go to landfills each year in the U.S. alone, and a loss of $309 billion in value of returned goods to retailers.
Longer-term opportunities for supply chain sustainability
In supply chain, we talk about the concept around “plan, make and deliver.” As supply chain leaders set longer-term goals, it is essential to focus on product planning and the elements you can change over time for a more sustainable supply chain.
- Materials: Look for opportunities to use recycled materials in the manufacturing of products, like Patagonia does, or follow Parker Hannifin’s lead and avoid using materials that are harmful to the environment. Innovations such as Newlight Technologies’ biodegradable plastic alternative unlock new, sustainable options.
- Suppliers: Build out your own viable and sustainable ecosystem of partners. Design business and governance models that reflect shared values, like The North Face with its Futurelight material and Farmer Connect for the coffee industry.
- Packaging: Rethink packaging with an emphasis on minimizing the amount and type of waste and the ease with which it can be recycled. Nespresso is a great example, including a recycling bag with coffee pod shipments.
- Circular models: Minimize the environmental impact of products and maximize the recirculation of materials back into use by reselling returns like the Eileen Fisher Renew take-back program. You can also reuse components and recycle the entire product or elements like Plastic Bank, and repair or service products as part of a lifetime warranty like Coach.
- New revenue models: Explore leasing or “product-as-a-service” models for everything from recreation equipment as REI offers, to office furniture, lighting and special-occasion fashion.
Supply chain sustainability best practices
Business are facing pressure to increase supply chain sustainability, and the bottom-line benefits are real. Following best practices will help you develop a plan that identifies key participants, sets short- and long-term goals, establishes a timeline, allocates funding, implements intelligent workflows and digital solutions to transform processes, and measures progress.
- Baseline: Understand your own operations and supply chain and its impact on the environment.
- Educate: Discover peer standards and industry shifts. Know the relevant sustainable development goals, legislation, regulations and information sources for your industry.
- Benchmark: Since this is a collaborative process, find relevant peers, exchange learnings and goals, and work together to develop practices.
- Set BHAGs: Set big, hairy, audacious goals (BHAGs). Declare them and drive towards them without fear of failure. Aim for learning and progress.
- Measure: Use software and checklists to audit and measure results against goals. Publish results at regular intervals.
- Communicate: Stakeholders highly value supply chain sustainability, so the C-suite should take ownership for communicating the mission, championing the programs, engaging employees and sharing progress and learnings.
- Revisit: Sustainability is a journey. Achieve goals and make new ones that continue to stretch the value chain to reach new heights.
Solutions for supply chain sustainability
It’s never been more important to start your journey to supply chain sustainability. IBM knows what it takes to create more sustainable, transparent and socially conscious supply chains.
Consider the following solutions to help you on your way:
- An intelligent fulfillment platform capable of performing reverse logistics to accelerate the process of return sorting, product re-merchandising and repair lifecycle tracking, reducing waste and environmental impact of returned goods.
- Offer more eco-friendly shipping options with an AI-empowered analytic engine that enhances and extends existing order management systems, balancing fulfillment costs against service.
- A control tower that provides end-to-end visibility of inventory to make more informed decisions, harnessing third-party data to quickly detect events that could impact inventory, so you can reduce waste and optimize outcomes.
- A multi-enterprise business network that allows you to quickly engage with 800,000 pre-connected trading partners. Enabled with blockchain, it empowers transparency and trust across the supply chain ecosystem.
- A blockchain platform so you can build your own ecosystem with trusted supply chain partners and authenticate the origin, sustainability and integrity of products as they travel through the value chain.
- To evolve supply chain planning and processes to address sustainability goals and expectations, integrate intelligent workflows that strategically apply technologies like AI and blockchain into the supply chain.