Supply Chain Sustainability is Becoming a Hot Topic

Stephen DeAngelis

October 19, 2020

The U.S., already reeling from the coronavirus pandemic, didn’t need exacerbating crises. Unfortunately, the west coast burned and the gulf coast flooded — with the severity of those crises attributed to climate change. While politicians dawdle, consumers expect companies to play an important role in addressing climate change. Christopher Marquis (@CMarquisCornell), a Professor in Sustainable Global Enterprise at Cornell University, explains, “Supply chains are critically important facilitators of our global economy, providing crucial resources and materials to companies to produce their products and services. And as we’ve seen recently, disruptions to supply chains can have major impacts. In addition, People are increasingly expecting and calling on businesses to uphold higher social and environmental standards.”[1] This is especially true when it comes to younger consumers. As Marquis notes, “Those companies that demonstrate a care for workers, the environment and the communities they serve are becoming top choices for young Americans especially. Clearly, companies need to begin to more fully consider their supply chains, working to make them more resilient, sustainable and ethical.”

Becoming sustainable isn’t easy, but it is necessary

A lot of lip service has been given to sustainability; however, most advocates believe more action is required. Martijn Lofvers (@lofvers), CEO & Chief Trendwatcher of Supply Chain Magazine and Movement, notes, “The path to sustainable supply chains is proving to be a long, hard slog with numerous obstacles along the way.”[2] He explains, ” Firstly, there is a gaping hole between the rhetoric and the reality. According to a global study by UN Global Compact and Accenture in early 2019, 92% of CEOs believe that integrating sustainability is a critical factor for business success, but less than half of them are actually integrating it into their operational processes. Secondly, there is a gap in value potential, since CEOs largely see sustainability as adding value in five years’ time rather than right now. Then there’s the circularity gap: just 9% of the economy is currently circular and the trend is negative rather than positive. And these statistics all date from before the coronavirus pandemic…!”

Although some business leaders believe sustainability efforts are source of increased costs with little ROI to show for them, the Sustainability Consortium (TSC) and HSBC suggest becoming more sustainable is in a company’s best interests. They insist, “Companies [need] to prepare supply chains for the risk of climate change disruptions that threaten to raise costs and jeopardize their ability to meet customer needs.”[3] They add, “Companies that address resiliency can be more attractive to employees, customers, and investors.” Lofvers reports, “According to consultancy firm McKinsey, the end-to-end supply chain is responsible for 90% of the environmental impact.” If true, it means businesses can have a tremendous impact on the future of the planet. Lofvers believes companies will eventually be compelled to be sustainable. He calls it an “unavoidable sustainability journey.”

In the end, consumers may drive the movement towards greater sustainability. Boston Consulting Group (BCG) analysts report, “A recent BCG survey examined how the pandemic has shifted global consumer attitudes toward environmental issues. Ninety percent of consumer respondents said they were equally or more concerned about these issues after the COVID-19 outbreak, and nearly 95% said they believed their personal actions could help reduce unsustainable waste, tackle climate change, and protect wildlife and biodiversity, with 27% to 30% noting that this belief had strengthened as a result of the crisis.”[4] They believe companies that act now to become more sustainable are “savvy.” They explain, “Savvy consumer companies have been responding. Our analysis shows that, on the basis of their actions, they fall into three broad categories.” Those categories are:

1. Minimalists. “At a minimum, companies have been implementing programs focused on employee welfare, introducing social distancing and hygiene practices, and support for suppliers.”

2. Agenda setters. “Some companies are doing more by adapting sustainability agendas to the shifts in consumer demand prompted by the pandemic, such as localizing supply chains, introducing technologies such as blockchain to enhance transparency on product sourcing and manufacturing, adapting pack types and sizes for online sales, and prioritizing products suitable for consumption at home.”

3. Pioneers. “Really savvy consumer companies are doing things differently. These companies are seeking new opportunities by integrating sustainability across core business operations and making it part of the organization’s strategic fabric, whether through minimizing packaging, cutting waste in supply chains, or optimizing delivery routes.”

The BCG analysts conclude, “Given that companies are already making such fundamental shifts in their strategies, product lines, and operational models, it makes sense to build in sustainability along the way — rather than trying to retrofit at a later stage. There is another compelling reason for maintaining a focus on sustainability efforts: Competitors are moving forward aggressively on their agendas.”

Becoming more sustainable

Nick Pike (@PikeNpike), Chief Revenue Officer at Vizibl, agrees with Lofvers that “promoting sustainability throughout a complex supply chain is incredibly challenging.”[5] Nevertheless, he writes, “Ensuring internal operations are sustainable is no longer enough. Businesses must implement strategies to ensure sustainability ambitions are being supported throughout all tiers of the supply chain.” The best place to start sustainability efforts, Pike writes, is “with understanding.” He explains, “This is all about understanding the risks, opportunities, challenges, and capabilities within the supply chain.” Once you have a good understanding, he says you need to plan, then you need to implement your plan, and then you need to evolve your strategy as conditions change. He concludes, “The supply chain is one area with plenty of room for improvement when it comes to sustainability. A successful approach will involve the use of supplier collaboration technologies and platforms to reduce impact, mitigate risks and capitalize on opportunities for innovating new products and processes. Employing best-in-class technology to do this will help not only to improve sustainability but also profit margins.”

World Economic Forum analyst, Francisco Betti (@panchobetti), and Bain & Company analysts, Hernan Saenz and Juliane Stephan, argue that, in order to be sustainable, companies need both visibility and traceability. They explain, “Visibility describes the degree to which a company can see exactly what’s happening within its supply chain, which may include real-time insights and analysis and predictive problem solving. Traceability refers to the ability to follow the exact path and process of every input, including provenance and origin information, as well as insights into the conversion process and certifications.”[6] They suggest four steps companies can take to become more sustainable:

1. Create an environment for sharing data, experiences and best practices. “To achieve sector-wide adoption, these efforts will likely require the involvement of trusted neutral entities, such as industry associations.”

2. Bring the digital platform to life for multi-stakeholder collaboration. “A technology company will likely need to shoulder the ongoing hosting and development of the platform, then commercialize the solution.”

3. Create trust in certification. “Certification providers can verify the inputs and processes of each platform participant, the digital platform itself, or the analytical results it produces in a trusted way.”

4. Develop a toolkit to effectively mobilize and create value. “Every company involved will need a playbook for how to build the required talent, systems, and processes; guidance around how to benchmark performance, progress, and development against the sector; and clear roles and responsibilities for deriving business value, resilience and sustainability from the newly available insights.”

They conclude, “We expect industry leaders will be prescient enough to avoid the potential paralysis that comes with too broad a scope and instead focus pilots on solving one big issue before moving on to the next. As additional participants, even competitors, join the effort, sectors can work together to ensure efficient, reliable, resilient and sustainable supply chains.” It should be obvious that the road ahead is littered with challenges; however, overcoming those challenges is essential.

Concluding thoughts

Marquis writes, “I’ve always been an optimist, and I remain incredibly optimistic that there’s a great business case to be made for doing business the right way. The more people reward businesses doing the right thing, the more we will see big businesses doing the right thing.” BCG analysts go further and assert sustainable companies will eventually gain a differentiating competitive edge. “For companies,” they write, “all this flows back into long-term success. As we look into the future, one thing is clear: While some will cede ground on sustainability and social impact, consumer companies that choose to reset and reengage will make rapid progress on their goals — and that will not only enable them to reap greater benefit from their recovery investments but also give them a distinct competitive advantage.”

Footnotes
[1] Christopher Marquis, “Customers Care About How Your Supply Chain Functions—Time To Bring Its Impact Up To Higher Standards,” Forbes, 18 August 2020.
[2] Martijn Lofvers, “The sustainability slog,” Supply Chain Movement, 18 September 2020.
[3] Michelle Russell, “Supply chains need fortifying from climate change disruption,” Just-Style, 23 June 2020.
[4] Shalini Unnikrishnan, Chris Biggs, and Nidhi Singh, “Sustainability Matters Now More Than Ever for Consumer Companies,” Boston Consulting Group, 10 August 2020.
[5] Nick Pike, “Creating a Simple Framework to Achieve Supply Chain Sustainability,” Enterprise Times, 27 August 2020.
[6] Francisco Betti, Hernan Saenz, and Juliane Stephan, “4 ways industry can make supply chains more sustainable,” World Economic Forum, 18 September 2020.