What is Supply Chain Sustainability?

Supply chain sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective is to create, protect, and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. By mitigating and responding to sustainability risks in the supply chain, companies can control costs, protect their market share, and reduce risk premiums. Through many supply chain sustainability activities, companies can create efficiencies in their supply chains and reduce sourcing costs.

Supply chain sustainability is an umbrella term and a very wide topic. It includes all the stakeholders and various processes associated with Manufacturing (Manufacturers), Procurement, purchasing suppliers, transportation & logistics, warehousing, wholesalers, retailers and customers.

Why do we need Supply Chain Sustainability?

^{About 76% of Americans who shop for eco-friendly products some of the time. [5]}.  As the customers are beginning to want to know the supply chain process and ensure that it is also following sustainability, it becomes very important for organizations to ensure that in every stage from production to distribution, sustainable practices are involved. Around 80 percent of a typical consumer company’s greenhouse gas emission value is from their supply chain process. ^[4] A lack of supply chain sustainability incurs a loss of close to $500M every year. ^[4]

At the heart of our theme – “Supply Chain Sustainability”, there are 5 key tenets -

a)      Green Manufacturing

b)      Sustainable Supplier Ecosystem

c)       Transportation (Sustainable Mobility)

d)      Green Warehouse

e)      Sustainable Retail

A) Green Manufacturing

Green manufacturing is primarily about changing business and manufacturing practices, as well as the mindset of stakeholders, to mitigate the industrial impact on climate change and other environmental concerns. When the materials are manufactured in the first place, we can ensure from a sustainability perspective that the right materials are used. For example, we can use eco-friendly materials like organic and recycled cotton and polyester, which minimizes off-cuts in parts of its manufacturing process and has a waste and water reduction strategy in place in most of its supply chain. It can reduce the carbon emissions by over 50% by 2025 ^[6]. There is significant potential to substitute carbon-intensive materials for less carbon-intensive ones. In the buildings sector at large, for example, it is possible to use timber or pozzolan-based concrete instead of Portland cement to mitigate pollution. The huge payoff of a green manufacturing approach is energy savings.

B) Sustainable Supplier Ecosystem

Collaboration with suppliers on sustainability issues can also foster product innovation to meet (or create) market demand. Consumers want to know origins, factory conditions and transport modes before purchasing a product. Central Procurement officers have no idea whether the sources are sustainable.

They need to ensure that the suppliers have a sustainable supply chain strategy in place, follow processes and checklists and adhere to environmental compliances. In response, companies are collaborating with suppliers to add new features and performance characteristics to existing products and even to generate new products. For example, sustainable products may be produced using fewer natural resource inputs, such as using dyes that require less water use for washing in fabric mills; with inputs that are more environmentally and socially sustainable, such as using metals that are mined in conflict-free regions; or through processes that are less harmful for workers, such as growing agricultural products with organic pesticides. Sustainable products can also be designed to result in fewer reduced environmental impacts through their use than traditional products or to have improved end-of-life collection and disposal options. Similarly, many companies are beginning to respond to customer demand for more “local” products by shifting their supply chains to buy from suppliers who are located closer to the point of sale. This shift can reduce the environmental impact of transporting products while meeting customer demands for agricultural products that are fresher and consumer products that support their local economies. By partnering with suppliers to improve the sustainability of the inputs and processes used to create goods, companies are maintaining market share— including existing customer loyalty and pricing power—and gaining access to new markets. Creating sustainable products through supply chain sustainability can help to gain access to new markets.

C) Transportation (Sustainable Mobility)

Sustainable Mobility for All is a global partnership acting collectively to transform transport and meet the mobility expectations of tomorrow in a sustainable way. The cost of de-carbonization can also be reduced significantly by constraining demand growth for carbon-intensive transport. Use less packaging, avoid mixed materials, use of paper-based packaging materials, avoid air freight and avoid over-packaging throughout the supply chain. Air quality monitoring IoT platform can plug into the transport vehicles and generate dashboard report of carbon presence. By measuring, benchmarking, and assessing freight transportation activities and strategically making better choices that reduce emission, companies can make a significant impact on the contribution of freight to cleaner air. Energy efficient transport systems are an integral part of a sustainable transport plan integrating several systems.

D)  Green Warehouse

The environmental performance of warehouse facility can be enhanced by minimizing the use of plastic materials. Ecofriendly alternatives to plastics can boost the recycling rates and result in effective waste management. Green warehouse can lower operating costs, decrease environmental impact & increase operational efficiency. The warehouse must be properly insulated. Else, it would increase the heating and cooling costs. Using LED Lighting instead of incandescent light bulbs and Solar panels are more environmental friendly & energy efficient.

E) Sustainable Retail

Switching to sustainable packaging alternatives, energy efficient stores, making bags & receipts optional and buying energy efficient equipment and going paperless can create efficiencies  help automate more of business processes, and offer customers better security. The Products must be well labeled and certified by a third party. Sustainability information on labels increases the brand value. Must look for ways to substitute recyclable or reusable products into the manufacturing process, clean energy options and recycle old goods

What are the benefits?

By using a sustainable supply chain process, there are 5 benefits a company can achieve:

1. Reduce impact on environment

Diversification of supply from different parts actually helps in sustainability and ensures that even distribution of activities happens across the globe. There is no relying on one area to produce all the items. This improves the sustainability of supply chain where some manufacturers have been able to distribute their supply and gain continuity improvement by 10-15%. ^[5]

3. Preventing reputation damage

There is no denying that supply chain affects brand reputation. It even affects the giants when the right items are not available at the right time. This includes better working conditions to the usage of better products to manufacture the right items to reduce the impact on the environment. A large tech brand, for example, lost 27 places and dropped from 2^nd to 29^th in the reputational quotient poll because of not adapting the right methodologies.

4. New partnerships potential

Using the right supply chain means you are always on the market doing the right things, which increases your potential to be noticed for better partnership and new opportunity potential. It also increases the chances of visibility across the board, as you have the right things at the right places always.

5. Add more business

A sustainable supply chain has the advantage of getting green potential and getting noticed in markets. It also gets you accreditations such as ISO certifications. With this potential, there is a high chance that we can identify the gaps in the business and address them right away. This in-turn helps in adding more business with better productivity and margin

Conclusion

With several products available in the market, helping to drive a sustainable supply chain, it becomes very critical for every organization to adapt the right ones that provide the maximum benefits for them. There is indeed also a multitude of financial benefits. Organizations have been able to save 20-30% of cost moving to a sustainable supply chain and being eco-friendly and environmentally aware^[6].

References:

1. https://en.wikipedia.org/wiki/Supply_chain_sustainability
2. https://www.unglobalcompact.org/what-is-gc/our-work/supply-chain
3. https://searcherp.techtarget.com/definition/supply-chain-sustainability
4. https://www.cips.org/supply-management/opinion/2019/july/five-benefits-of-a-sustainable-supply-chain/
5. https://www.globaltrademag.com/think-green-5-ways-to-improve-your-supply-chain-sustainability/
6.  https://www.cii.in/webcms/Upload/BCG-CII%20Green%20Mfg%20Report.pdf

Muralikrishnan

Principal Consultant and Client Solution of Consumer Business

Murali is a principal consultant and client solution SPOC - Consumer Business for the Industrial Engineering Team in the EMEA region. He has rich experience in Retail, Supply Chain, Omni Channel B2B & e-commerce. With close to 20 years of experience, he has played a pivotal role in the success of large transformation programs and customer wins.

Venkat Jayaraman

Distinguished Member of Technical Staff and Client Solutions Head

Venkat is a Distinguished Member of Technical Staff and Head of Client Solutions for the Industrial Engineering Team. He is a technologist with over 40 patents filed/granted to his credit. He is an SME for Supply Chain and Logistics and has worked in multiple Supply chain transformation programs for more than 10 years, across the globe. With over 20 years of industry experience, his expertise has enabled the success of multiple programs and customer wins.