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Your Complete Guide to Sustainable Supply Chain Management

A supply chain is a network formed by a company and its suppliers for sourcing material inputs to manufacture products that are delivered to the final buyer, the consumer. This network involves various activities, entities and resources. Supply chain management, on the other hand, is the art of managing this flow of goods and services, streamlining them in a smooth process that helps run the business activities from the supply side.

What is Sustainable Supply Chain Management?

Every company endeavors to build its supply chain that delivers optimal results in terms of speed, cost, and reliability, and now with rapidly changing consumer demands, flexibility as well. But in doing so, enterprises will also have to factor in sustainability. Is the speed of delivery coming at the cost of a transport system that is highly polluting? Is the lower cost a result of unfair labor practices and human rights abuse? Is the reliability factor leading to degradation of the environment? Is the flexibility a result of materials that are not recyclable? These are the ethical and environmental issues that companies will have to consider when firming up their supply chains. Sustainable supply chain management addresses these questions to ensure that these processes, while maintaining the efficiency, are also upholding environmental and moral and ethical norms, as envisaged by the sustainable development goals.

The Need for Sustainability in SCM

A sustainable supply chain does not stop at merely being environmentally responsible and ethically right. There are other positive factors and collateral benefits that come with sustainability. One of the most important elements of a sustainable supply chain is that it adds a sense of responsibility to the company or those in charge of its sourcing and procurement. It makes them dig deeper into the issues and nuances that ultimately benefit the organization. Traditionally, supply chains are riddled with inefficiencies mainly because not enough efforts have gone into the process of forming them. A more involved process leads to more informed decisions that get rid of such inefficiencies. For example, it leads to deliveries by appropriate transport and not through half filled trucks. Similarly, it helps organizations to follow all the rules framed by the government and not face any penalties that add to the cost. Sustainability leads to increased profitability by improving the efficiency of everything – shipping, storage and the actual manufacturing process.

How Can a Supply Chain Be Sustainable?

This is a good question to begin with. The human mind is predisposed to follow the shortest route to anything and supply chains are no different. For the supply chain to be sustainable, a company will have to work in many ways and examine all the aspects at length. It will have to go beyond the Tier one and also check the practices followed by the companies supplying to them. Experience shows that even examining Tier 1 for sustainability is quite a task and lower down, it is invariably a matter of no accountability. To adopt sustainability in their supply chains, companies will have to follow complete transparency and insist on the same from the entire chain – from materials to products, recyclability, use of energy and other resources, and logistics – down to the lowest end, to determine how natural and human resources are used at every step.

 

Components of a Sustainable Supply Chain

There are three key elements or responsibilities that are essential to a sustainable supply chain – Environmental, Social and Financial.

Environmental responsibility is about safeguarding the environment from harm resulting from business actions – own and also those of partners. These include deforestation and degradation caused by mining or agriculture, pollution from production process and transport, generation of effluents and waste, water contamination, etc.

Social responsibility concerns the human element in the entire supply chain is treated with dignity and ethically, without exploitation, companies practice corporate social responsibility for communities in its vicinity, and in general, respect human rights.

Financial responsibility is perhaps the most significant and goes beyond the owner-employee relations. It also includes the investors or shareholders, the customers, suppliers and other business partners as well as banks and other lenders.

How does Sustainable Supply Chain Work?

A sustainable supply chain does not work in isolation. It works only when the entire organization is united in following the practices that sustainability envisages. Mere awareness is not enough if these practices are not followed and implemented in the company; nor is it possible for regulatory agencies to police an organization at each and every step. In short, a sustainable supply chain works only as and when the enterprise decides to adopt and implement it.

Implementing a Sustainable Supply Chain

The implementation begins with the development of a sustainability plan by the organization with clearly stated goals and objectives. The next step is to actually compare these with the current practices in vogue and determine the shortcomings in terms of the elements of the supply chain – environmental, social and financial. Once this exercise is complete, it is time to evolve policy measures – for the organization, the suppliers and the customers – for sustainable operations. These measures should cover various perspectives – environmental, waste disposal, recyclability, energy usage, and any other issue that has impacted the operations. A set of questions based on these observations should help evaluate the sustainability of the supply chain. As has often been highlighted, cost alone should not be the criteria as the lowest bid may prove quite costly at the end. An honest assessment of sustainability practices and identifying the shortcomings should be the way to implement a sustainable supply chain.

Benefits of Sustainable Supply Chain Management

Supply chain sustainability benefits not only companies’ own interests and those of their stakeholders but also society and the planet at large. Companies have realized that climate change, for example, can put their business continuity at risk with extreme weather disruptions and growing resource scarcities.

One of the top benefits of the sustainable supply chain in the long run is the cost benefit. This is achieved by all round improvement in efficiency and decrease in energy consumption as well as further optimization of resources.

Transparency in operations is another major benefit of following sustainable practices as that creates awareness and customers, thus educated, are willing to pay a premium for products thus manufactured. The company gains in terms of brand value.

Negative publicity in terms of environmental degradation resulting from its actions is something no company can afford today. Companies that are seen contributing to pollution or water contamination, indulge in unfair labor practices are unethical conduct in dealing with unscrupulous elements suffer reputational risks. Investors would simply shy away from such companies.

Besides these, other benefits include employee loyalties and better retention rate as a responsible corporate. Most importantly, the issue of compliance with regulations also earns the goodwill of the government and the society at large.

Tips for Supply Chain Sustainability

Finally, a few tips for a sustainable supply chain:

  • As far as possible, use recyclable materials: avoid plastics and other materials that are not biodegradable. Look for alternatives like plant-based materials.
  • Minimize production and process costs by digitalization and eliminating the use of paper documents.
  • Keep the packaging and labeling simple so as to reduce cost – whether simple or attractive, packaging materials always end up in the waste bin.  Wherever possible, reuse the packaging material.
  • Also ship items in bulk to use economies of scale, if necessary, buy pooling.
  • Where it is unavoidable to use products and resources that are not environment friendly, compensate by initiating offsetting measures like promoting the use of renewable energy or planting of trees.

 

Conclusion

In a world increasingly facing the threat of global warming and environmental degradation, sustainability is emerging as a critical requirement to stem further damage. In 2015, the member states of the United Nations shared a blueprint for sustainability – The 2030 Agenda for Sustainable Development – that calls for action by all countries. Businesses are often accused – not without justification – of putting profits above environmental concerns, when sourcing their supplies. With growing awareness and emerging regulations, companies are now expected to take into consideration the environmental, social and governance (ESG) performance of their suppliers, or face reputational risks. It is time every organization incorporates sustainability at the heart of its supply chain.

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