The sustainability industry, in recent years, has evolved to include almost all areas of business processes. Due to the dramatic strides sustainability has made and its holistic nature, it is understandable that the two most apparent areas, the environment and society, would receive much of our attention. There has been a lack of concern for the area of the economy and alignment with business needs. Moreover, it has not been used enough as a mechanism to enhance the supply chain or product value.
Lately, business leaders are learning to see substantial benefits and profitability beyond “green initiatives” by giving back time and money to the community and eliminating waste. Interestingly enough, there has been a renowned renewal in using sustainability methodology to improve their supply chain.
A common man might understandably think of a supply chain as the supplier of goods and services to a company. It is essential to understand that a supply chain is, in effect, tied closely to the product life cycle and has elements beginning with energy production, continuing through the entire procurement of raw materials and communication leading to advancement of knowledge and ending with the consumer.
Part of the boom in sustainability and green technology is due to consumers’ access to information and their ability to visually see problems in a matter of seconds. However, research shows that organizations can enhance their performance by improving the sustainability of their supply chains.
Through building closer relations with suppliers, developing supplier capacity, and identifying and investing in opportunities for social, environmental and economical improvement throughout the supply chain, companies can begin to gain benefits from a more sustainable supply chain and achieve productivity and efficiency gains.
The business case for sustainability in the supply chain for a particular company depends on a variety of issues including field of operation, geographic location, stakeholder expectations, business priorities and organizational culture. There are best practices and key value drivers for sustainable procurement and economic indicators that apply across a number of elements as explained in the following five ensuing areas:
- Risk Management.
- Cost saving and realizing efficiencies.
- Producing Sustainable Products.
- Vehicle for Cleansing Suppliers and Transparency.
- Ethical Business Conduct.
By mitigating and responding to social, environmental and economical risks in the supply chain, companies can protect their market share and reduce risk premiums. Being able to identify where a risk is probable and develop mitigation approaches fits well within the field of Sustainability.
Ultimately, the goal is to develop flexible supply chains networks that can profitably respond to dynamic changes. Moreover, strong management of social, environmental and economical issues can help companies address reputational risks that could impact their customers’ loyalties and affect their market share.
Cost Saving & Realizing Efficiencies
The connection between supply chain and sustainability are erroneously considered as a sunken cost for many companies, because in reality just the opposite occurs. Those who started proactively incorporating sustainability concepts into their supply chain found financial savings, cost cutting and added value to their operations.
Sustainable management of operational inputs, such as energy, water and raw materials proved significantly to reduce companies’ procurement costs while simultaneously lessening the carbon footprint and impact on workers’ health of supply chains.
On the other hand, investing in local purchasing and building capacity with local suppliers greatly helped companies to reduce cost of importing goods and materials, therefore, supporting the local economy to grow and prosper.
Producing Sustainable Products
Sustainable products are becoming more popular to a growing sector of the population that started giving primary consideration to sustainability and the planet. Customers and consumers are increasingly making difficult buying decisions based on social and environmental impacts.
So making your products more sustainable can reach a growing market sector and making smart sustainable decisions today can position a company to be more competitive and more averse to risk.
In simplistic terms, it often appears cheaper to produce a product with no regard to negative externalities such as those related to sustainability. When similar situations are gauged for the long run including a financial risk analysis they can prove vastly profitable.
Many companies practically focus on designing a linear process of supplying materials rather than production that reduce waste and pollution through innovative product and process design, including the use of non-toxic or less toxic raw materials and delivery to end of life and disposal, integrating sustainability throughout the whole product cycle.
Vehicle for Cleansing Suppliers and Transparency
Creating a sustainable supply chain means leveraging the supply chain to ensure fair treatment of people as well as taking a broad view that everyone along the supply chain is a stakeholder. The ultimate goal of engaging with suppliers is to develop a shared mindset about sustainability issues and work more closely with them with shared priorities.
These relationships can in turn provide companies with crucial information about potential trends, market changes, and other external influencers that could impact business. They also enhance companies’ abilities to secure business friendly outcomes from stakeholder decisions.
Ethical Business Conduct
Sustainable supply chain is also about the encouragement of good ethical and responsible governance practices throughout the lifecycles of goods and services. These practices contribute to build a healthier economy by fighting procurement fraud, bribery and non-ethical business relationships.
The direct costs of these corruptions are considerable and affect the quality of the product and indirect costs related to management time and resources spent dealing with issues such as legal liability and damage to a company’s reputation.
Engaging with suppliers in these issues helps to improve the quality of the product, reduce fraud and related costs, enhance business’s reputation and contribute in building a sustainable business environment.
Claiming that sustainable supply chain is just a voluntary exercise that can just improve business’ reputation does not make sense in today’s world. As sustainability consultants, we see more and more best practices in the successful implementation of a sustainable supply chain. These practices are not just applied by the large manufactures or industrial businesses. Companies of all sizes are today seeking to make additional steps toward a sustainable supply chain.
Some companies and industries have invested strongly in a sustainable supply chain, finding that sub-tier suppliers have the most significant challenges in addressing sustainability issues, and these companies started incorporating changes to advance practices that create value for their businesses as well as for economy at large.