Concern for the environment triggered by global warming and rising incidents of extreme climate events have goaded nations into action to follow sustainability in every activity. As a major driver of the economy, manufacturing and ecommerce have also come under increasing pressure to incorporate sustainability in operations. The obvious place to begin is the supply chain – the sourcing and procurement of goods and services that invariably have a large carbon footprint. With rising awareness, there is also a corresponding increase in pressure from consumers, regulators and investors, forcing companies to have a closer look at the environmental impact caused by their business activities. From how materials are sourced, products manufactured and packaged and shipped, there are several steps enterprises can initiate towards a sustainable supply chain.
Overview of Sustainability in SCM
Forming a supply chain, given the many requirements and challenges, is inherently a complex activity. Forming an efficient supply chain is a never ending task calling for high professionalism and detailed domain knowledge. Add sustainability to that, and enterprises have their tasks cut out. A sustainable supply chain management (SCM) is one that successfully blends environmentally sound practices with financially prudent measures to find the right balance to form a complete supply chain lifecycle. This begins with product design and development, section of materials, manufacturing, and moves forward with packaging, transportation and warehousing, distribution to consumers and ends with return of end-of-life products for recycling or disposal. It involves safeguarding human rights, preventing exploitation of labor by following fair practices, eliminating activities and actions that harm the environment and following anti-corruption policies, throughout the lifecycle. The way forward is in framing the policies and processes about selection of materials and their origins – details like mining procedures in case of natural resources, working conditions for factory produce, etc., and extends to logistics and transportation. The idea is to make a positive impact on the environment as well as social and economic considerations.
A sustainable supply chain takes more time and effort to plan and implement, but once in operation, it not only reduces the organization’s carbon footprint, but also becomes optimally efficient, resulting in bigger savings and profits.
Importance of Supply Chain Sustainability
The importance of sustainable supply chains is in the simple fact that it benefits all the stakeholders in the value chain – the sourcing companies, suppliers, service providers, customers and most important, the environment. Here are a few points that illustrate the important of supply chain sustainability:
- Environmental benefits – First and foremost, the environmental benefits of sustainability are immense, as extreme climatic conditions impact not just the present but future generations as well. With the finite nature of the most commonly used natural resources for energy, the stress on renewable sourcing can never be overemphasized. Sustainable supply chains with their huge carbon footprint can help mitigate the circumstances to a great extent.
- Promotes innovation – When decision makers look for solutions, they are at their innovative best. In the process, new ways are found that are not only environment-friendly, but also cheaper in the long run. Better packaging, efficient transportation, use of recyclable materials and safer work environment are all contributing factors in this innovation.
- Minimizes waste– Sustainable practices lead to use of better alternatives and reduce wastage of materials and resources. Better packaging means less packaging material; optimized transport system means avoiding partial loading of vehicles; tracking of consignments in transit in conjunction with GPS and AI algorithms; and better R&D are among the measures that help minimize waste.
- Customer satisfaction and brand value– Growing awareness about environmental issues has given rise to better informed customers who actually look at sustainability in the products they use, and are willing to pay for the extra cost, if any. Companies, on the other hand, can inform and educate their customers about their own efforts in promoting sustainability and earn their goodwill, ensuring better brand value.
- Cost control– While the entire exercise of shifting to a sustainable supply chain will be expensive to begin with, it proves to be beneficial over a period of time thanks to the efficiency it brings to the process by optimizing every action and eliminating wastage. Sustainability also increases transparency as everything is open to scrutiny and nothing is hidden, which further promotes accountability.
Statistics Showcasing the Need for Sustainability in SCM
There reasons as well as the statistics for promoting sustainability in supply chains are compelling. Over 120 countries of the nearly 140 tracked in a survey, have pledged to become carbon neutral by 2050 – China by 2060 followed by India by 2070.
Estimates suggest supply chains account for more than 80% of greenhouse-gas (GHG) emissions for an average enterprise, and cause 90% impact on air, land, water and geological resources. Data from a 2019 study shows GHG emissions from consumer-packaged goods (CPG) companies are responsible for roughly 33 gigatons of CO2. Alarmed by such numbers, today about 70% of consumers are willing to pay a 5% premium for sustainable products. For close to 60% of employees, sustainability is a decisive factor in their employment decisions. But the best part of the sustainability equation is that it does not cost much – according to a study by Boston Consulting Group, even with a zero supply chain emissions goal, the impact on end price is relatively low, ranging from 1-4% in the medium term, lower over long term.
Together, aided by emerging technologies, all the sustainability measures have the potential to add over USD 5 trillion to the global economy by 2030, which is a gain of over 4% in comparison to no efforts made towards a sustainable supply chain.
Best Practices for Sustainable Supply Chains
The sustainability measures incorporated are traceable and consumers increasingly resort to checking these before making their buying decisions. As such, companies are now incorporating training to their sourcing and procurement staff in quest of better compliance. It would be interesting to see some of the best practices for sustainable supply chains in brief:
- List out the goals– A good beginning may be made by listing out the goals to be achieved in the process of creating a sustainable supply chain, with an in-built mechanism to track the progress. This should also be circulated to all the parties involved in the process – partners, customers, and other stakeholders – so that everyone is on the same page.
- Map the supply chain– Understanding how sustainability impacts the supply chain is important. This can be done by identifying the inefficiencies and areas that negatively impact the environment and working on them by establishing the corrective measures in cooperation with the respective partners. Changes may have to be made in case of noncompliance.
- List out the expectations – Effective communication with suppliers and customers is necessary to involve them in the efforts for sustainability. Without their involvement, it is not possible to succeed in this endeavor. A code of conduct with Dos and Don’ts clearly listed will go a long way to avoid any ambiguities on this front.
- Data analysis and review – Data collection and analysis is essential in order to gain insights and make everything visible. Inefficiencies are hidden behind walls of opacity, so transparency is important in matters like tracking inventory and consignments in transit. Excess inventory or short supply and delays in shipping are issues that add to the costs.
- Training and development– To successfully implement improvement measures needs a behavioral change and innovative approach. It is essential to train the personnel handling the supply chain processes to sensitize them to the sustainability measures initiated and how and why they are important. Documenting use cases and practical benefits in regular training sessions may be considered.
- Performance audit – Creating an audit program to measure and monitor performance across the supply chain will go a long way in effective implementation of sustainability measures. This will help understand the bottlenecks as well as identify the laggards that delay the whole chain. Having conducted an audit, acting immediately on the findings will send the right message.
Sustainability is no longer an option; it has become an imperative, an integral part of the supply chain. From selecting the right vendors and suppliers that use sustainable raw materials to manufacture them efficiently with environment friendly resources and optimizing the delivery process, sustainability can be achieved in numerous ways. Better inventory management and use of eco-friendly packaging material, are other means that could help. A sustainable supply chain is not only efficient; it is also economical in the long term and creates brand value. As the regulatory pressure increases, organizations could do well to seek expert help about bringing sustainability to their supply chains.
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