Sustainable supply chain management is important to understand in light of growing concerns surrounding climate change. Consumers and investors want to see that you are producing products in the least wasteful way possible. That is why supply chain sustainability should be a goal for every business.
Table of contents
1. What is supply chain sustainability?
2. What are the 3 elements of supply chain sustainability?
3. Why is supply chain sustainability important?
4. Supply chain sustainability and investors
5. What are the challenges of supply chain sustainability?
What is supply chain sustainability?
Supply chain sustainability is the practice of managing your supply chain in such a way that it produces the least environmental impact possible. A supply chain is the term for every company, facility, and action involved in delivering your product.
Building a sustainable supply chain means looking at all stages of supply chain management, from where you are sourcing materials to how you store them to how much energy is used transforming them into finished products.
Your goal is to make sourcing, transportation, and production as energy efficient as possible. Reliance on nonrenewables, water consumption, and excess waste are all things that reduce energy efficiency.
Sustainable supply chain management is one of the best ways for businesses to save money and increase customer satisfaction, in addition to easing their burden on the environment. This is because, when you waste fewer resources, you are able to get more out of all your materials and produce faster.
In addition to the goals of speed and cost reduction that sustainable supply chains share with regular supply chains, sustainable supply chains focus on upholding environmental and social values. They do this by focusing on three major elements.
What are the 3 elements of supply chain sustainability?
The three elements of a sustainable supply chain, also sometimes called the 3 ps of sustainability or the triple bottom line method of accounting, are people, planet, and profit. Truly green supply chains consider their impact on society around them as well as the environment, while making sure to stay profitable.
Planet
This is perhaps the most obvious component of building a sustainable supply chain, since the environment is the first thing most people think of when they hear the word sustainability. To make sure that your supply chain is as environmentally friendly as possible, ask key questions such as:
- How much waste do your suppliers and delivery methods generate?
- Is vendor manufacturing contributing to pollution or reducing it?
- How much water and energy does your overall supply chain use?
- What is your carbon footprint?
- Do your suppliers use recycled materials where possible?
A crucial way to make your supply chain managementas sustainable as possible is to require all your vendors and suppliers to set similar environmental goals as you have. Everyone needs to have the same vision and the same targets to hit.
People
”People” refers to the social impact your supply chain is having. When evaluating how you affect society, it isn’t just about your own workers. You also need to consider how people working at your partner organizations are treated, how your business affects your customer base, and how you interact with the community you are a part of.
Fulfilling the social aspect of supply chain sustainability means ensuring all workers are fairly treated and compensated for their labor, no matter which stage of your production cycle they are involved in. Ensure that every business you work with meets applicable health and safety standards so that workers are protected.
Assessing supply chain impact on the wider community is a little more difficult. One way to do this is by making sure neither you or any other company you work with is polluting their surrounding area by keeping an eye on their energy use and waste management processes.Another way to ensure positive social impact is looking at the diversity of your supply chain. A truly sustainable supply chain will represent employees of all backgrounds.
Profit
Finally, you need to make sure to remain economically viable. Fortunately, reducing waste in line with your environmental commitments has the side effect of saving you money, because you are more efficient with the resources you do use. A second way of increasing profit is to automate as many routine processes as possible. Digitizing your workflows helps your operation go paperless, which is another way economic and environmental goals intersect.
Profit is the most delicate aspect of green supply chain planning, since it is easy to slip into unsustainable practices to cut costs. That’s why regularly inspecting and auditing all your processes is crucial. Make sure that when you’re saving money, you aren’t doing it at anyone’s expense.
Why is supply chain sustainability important?
A business’s supply chain typically accounts for 80% of its carbon emissions; which makes sense, as your supply chain encompasses a lot of moving parts that are difficult to track all at once. That means that supply chain sustainability is critical to positioning your business as good for the planet.
Now more than ever, being good for the planet is a huge plus for businesses. Consumers are more intentional about where they shop, preferring products that don’t harm the environment or the workers who make them.
Around 66% of U.S. consumers say they would pay more to shop with sustainable brands. That figure increases to 80% among young consumers.
At the same time, there is confusion around how to identify these sustainable brands. Companies claiming that their products are environmentally friendly often usethird-party certifications to demonstrate this. Even so, many consumers have a difficult time trusting such claims. So your job is to not only become sustainable, but to prove it, such as by publishing sustainability reports.
Supply chain sustainability and investors
In addition to consumers, investors are growing mindful of sustainability in the businesses they support. Coinciding with a shift in consumer attitudes informed by the climate crisis, 85% of U.S. investors now believe that businesses not paying attention to supply chain sustainability will see share prices and profits fall in the next decade. Thus, they are less willing to invest in said companies.
Growing concerns over green supply chains and green manufacturing have led to a rise in ESG investing. ESG stands for Environmental, Social, and Governance, three factors that potential financiers evaluate before funding a venture.
ESG factors are similar to the 3 ps of supply chain sustainability, but profit is replaced by governance. Governance refers to how honestly and transparently a business deals with its stakeholders, for example by providing accurate accounting or refraining from illegal conduct. Within those three factors, there is variation, as different investors set different means of evaluating each factor.
For example, the investment firm Trillium Asset Management, with close to $6 billion in assets under management, precludes any company which has been involved in a human rights scandal, coal or hard rock mining, or private prisons (among other restrictions) from receiving funding.
Instead, when making funding decisions, they look at whether companies:
- Publish sustainability reports
- Limit their use of harmful chemicals and pollutants
- Use renewable energy sources and reduce waste
- Pay workers fair wages
- Ensure worker safety
- Practice corporate transparency
Other investors may prioritize policies such as mindful water usage, philanthropic efforts, or ethical political conduct when making investment decisions. But the indisputable fact is that ESG investing is impossible to ignore. Sustainable investment funds around the world currently hold $30.7 trillion in capital, and ESG funds actually experience higher returns, since they are resistant to traditional market disruptions.
How can you build a sustainable supply chain?
Building a sustainable supply chain is a matter of making sure you are meeting the 3 ps of supply chain sustainability. Now that it is clear what each element stands for, here are some steps towards achieving sustainable supply chain management.
Identify pain points
Knowing what you have to fix is the first step towards fixing it. Establish a baseline for improvements by calculating your business’s carbon footprint and breaking down which areas of your business contribute most to it.
Even for companies in the same industry, every carbon footprint is different. Yours depends not only on your practices, but the practices of the other manufacturers, distributors, and vendors along your supply chain. However, scope 3 greenhouse gas (GHG) emissions account for 80% of most supply chains’ emissions. Scope 3 GHG emissions are those caused by:
- Business travel
- Waste disposal
- Transportation and distribution
- Purchased goods and services
- Leased assets
- Use of sold products
- Investments
- Employee commuting
Optimize transportation
Transportation is a consistently major source of carbon emissions for any business. Multiple points in a supply chain rely on drivers to retrieve and deliver sourced materials, and again to ship finished products. You can reduce the impact these vehicles have by:
- Shipping products from distribution centers closer to the destination
- Loading vehicles with product until they are entirely full
- Using smart technology to track your drivers’ rpm
- Minimizing travel distances with route optimization software
Hold partner businesses accountable
Your own sustainable practices are important, but equally important is what the other businesses you collaborate with are doing. To make sure every link of your supply chain is doing its part, you need to make sure your business partners behave sustainably.
An excellent way of doing this is to require any partner organizations obtain certification of their practices. There are several internationally recognized standards that signify a company strives towards responsible environmental and social goals. The most commonly sought is ISO 14001.
Holding partners accountable does not only mean environmentally. Investigate the way they treat their workers, who and how they hire, and how they are perceived by their communities.
Reduce your inventory
Storing large amounts of inventory takes up a lot of energy. Maintaining warehouse after warehouse full of products means a lot of investment in utilities, from electricity to water usage to heating and cooling.
Maintaining a large inventory either means that your warehouses are also distribution centers, or that you have inaccurately estimated demand. If the latter, you can obtain more accurate demand forecasts by using software like Materials Requirement Planning, which takes data about your sales, production times, and costs to ensure you stock only what you need.
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Waste fewer resources
Waste management is a critical part of keeping your supply chain sustainable. The by-products of your manufacturing can be useful to other companies or to other areas of your business. If you must throw things away, follow the guidelines for sustainable waste disposal.
A great way to manage or reduce waste is by using environmentally-friendly packaging. Only 1% of plastics are biodegradable, so any sustainable supply chain should avoid reliance on plastics. Instead, move towards biodegradable or recycled packaging.
All of these steps, though they explicitly target carbon emissions, will also end up saving you money by cutting down on unused stock or the spending which led to waste in the first place. Environmentally sustainable practices also tend to improve both brand image and worker satisfaction.
What are the challenges of supply chain sustainability?
For all the benefits of sustainable supply chain management, it can be difficult to implement at first. In the long term, you will attract more investment and save money through streamlined operations. But the short term costs can include:
- The cost of consultants or sustainability specialists who help you implement changes.
- The costs of evaluating suppliers or finding new ones
- The cost of introducing new processes into a workflow
The more organizations contained within your supply chain, the more things there will be to keep track of. So another barrier to supply chain sustainability is making sure every component operates according to standards you’ve set.
Another challenge of sustainable supply chain management is clear goal-setting. In order to assess whether operations are sustainable, you need to define what sustainability looks like in your organization. Do you want to reduce emissions by a certain percentage? Transition to all-recycled packaging in the next year? Ensure all your workers can earn a living wage? Questions like these are necessary to clarify what sustainability means to you.
Using emerging technologies to your advantage is critical when building a sustainable supply chain. As an entirely paperless, digital inspection platform, Lumiform can help you. Conducting regular audits to assess everything fromhow effectively worksites are using energy to how well worker safety standards are followed only takes a few minutes and helps you improve where needed.
