How can Organisations Implement Sustainable Supply Chains?

Introduction

Can a business solely focus on its bottom line in a world where resources are depleting every day?

The answer is an unequivocal no!

According to the United Nations: "If the global population reaches 9.8 billion by 2050, the equivalent of almost three planets will be required to provide the natural resources needed to sustain current lifestyles."

Clearly, working towards sustainability is no longer simply a moral imperative. It is essential for the survival and well-being of our species. The stakes, therefore, couldn’t be higher!

While we all have our individual roles to play, businesses around the world can contribute towards sustainability by overhauling their supply chains in a way that their economic objectives align with the Sustainable Development Goals.

Sustainable Supply Chain Management: Principles and Challenges

A sustainable supply chain involves a network of organisations working together to deliver products or services from supplier to consumer in a way that minimises environmental degradation and promotes social welfare, human rights, fair labour practises, and effective governance. Indeed, inculcating these principles requires a concerted approach to supply chain management, so that the economic objectives of an organisation can align with the Sustainable Development Goals. Needless to say, this is easier said than done.

An article published in the Harvard Business Review discussed a study conducted on three Multinational Corporations (MNCs) that are considered "sustainability leaders" across different industries. The study also included examining nine top-tier and 22 lower-tier suppliers based in different countries. These MNCs expected their suppliers to follow environmental and social standards, and in turn, they should have expected the same from their respective supply chains. However, it instead found that 10 of the lower-tier suppliers that they visited had "marginal environmental practises, dangerous working conditions, and chronic overtime issues," while five “lacked environmental management systems,” and another four “lacked procedures for handling red-flag social problems.”

This was particularly concerning because all the MNCs involved in the study were sustainability leaders in their respective domains, yet their suppliers, especially the lower-tier ones, did not conform to sustainability standards. Clearly, implementing a sustainable supply chain isn’t an easy task. However, given its absolute importance, companies need to set clear objectives, establish rigorous policies, and create a collaborative framework to move towards the goal of implementing a sustainable supply chain. Also, having a skilled and efficient compliance team is absolutely essential in ensuring systematic monitoring and enforcement of sustainability practises throughout the supply chain.

Implementing a Sustainable Supply Chain

Source: Sustainability in Supply Chain Management by Edward Hartanto Enrico Abadi, Binus University,? School of Information Systems

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Setting Sustainable Objectives: Responsible Sourcing is at the heart of creating a Sustainable Supply Chain. It entails procuring goods and services in an ethical way that aims to reduce the environmental and social impacts of running a business. Using resources more effectively should also be an important part of a company’s sustainability objectives. By developing strategies to cut down on waste from their operations through recycling programmes, designing products that last longer, and ensuring safe disposal at the end of a product’s life, businesses can move towards a zero-waste future. Innovation in logistics and packaging can also help reduce Greenhouse Gas emissions, as exemplified by IKEA flatpacks. IKEA designers strive to pack product components as densely and flatly as possible, which allows more products per transport, leading to fewer trucks on the road and a substantial reduction in greenhouse gas emissions. This strategy is integral to IKEA's commitment to "achieve the goal of reducing emissions for all transport along the entire IKEA supply chain by at least 70% by 2030."

Policy Design: The process of implementing the objectives of a sustainable supply chain starts with crafting a well-thought-out policy. This stage involves setting sustainability goals that align with both the laws and regulations of the country as well as with those of international standards. Part of creating this policy should include a risk assessment to identify any potential ethical, environmental, or legal challenges that might arise within the supply chain. Moreover, it is essential to back these policies with clear procedures and implementation guidelines to ensure they are effectively put into practise.

Due Diligence and Supplier Engagement: After establishing policies and procedures, the next step involves communicating their objectives and expectations throughout the supply chain as effectively as possible. Sustainability requirements then should be written into legal contracts. Rigorous due diligence through on-site visits and securing supply chain management certifications could be followed. Moreover, it is essential for organisations to actively engage with their suppliers. This engagement may involve providing necessary support, including creating incentive structures that encourage even lower-tier suppliers to adhere to sustainability standards. Also, conducting regular training programmes and capacity-building exercises is essential to ensure that all suppliers understand and effectively apply the required sustainability practises. It's equally important to establish a robust grievance mechanism. This will provide stakeholders with a trusted channel to voice their concerns as well as report any violations that may occur in the supply chain.

Using technology to minimise waste:? By using technologies such as blockchain and artificial intelligence, companies can enhance the traceability of their supplies and products as well as improve demand forecasting. This helps prevent overproduction and reduce waste, making the supply chain more efficient and environmentally friendly.

Performance Evaluation: Regular monitoring and evaluation of all participants in the supply chain, both internal and external, are essential. This ensures that sustainable objectives are met, highlighting areas that require more attention. The process includes evaluating supplier performance for contract renewal as well as fine-tuning policies to enhance sustainability efforts more effectively in the future. It is also becoming increasingly important for companies to communicate transparently about their supply chains to all stakeholders. Effectively communicating a company's environmental, social, and governance (ESG) goals, as well as the efforts they make to achieve them, can enhance the company's overall reputation. In an article by Alexis Bateman and Leonardo Bonanni published in Harvard Business Review, they reiterate that “transparent supply chains also reduce reputational risk and enhance the company’s standing as a trustworthy enterprise.”

Conclusion

Governments across the world have been pushing for stricter regulations to achieve UN Sustainable Development Goals. Increasingly, consumers are also moving towards sustainably developed products, especially the younger generation. As reported in the Forbes magazine, the 2022 Business of Sustainability Index report finds, that “66% of consumers in the United States and 80% of young U.S. adults (ages 18-34) are willing to pay more for sustainable products versus less sustainable competitors.” There has been a growing trend among investors to make their investment decisions based on the ESG criteria of a company. Having a sustainable supply chain can be financially rewarding for companies in multiple other ways as well.

Nevertheless, one of the challenges that businesses face in implementing strict sustainable supply chain management comes from the pressure of high demand. If a supplier's demand exceeds what it can supply, then the broader economic interests of the supplier (and its employees) in meeting the target might supersede other considerations. Additionally, differences in work culture, economic conditions, and labour laws among different countries may also influence how well the sustainable supply chain goals of a company are met. Therefore, in addition to using legal contracts and formal processes, helping suppliers comply with the company’s goals by offering empathetic collaboration and timely support and resources can significantly help an organisation in implementing a sustainable supply chain.

Find out how AKW Consultants can assist your enterprise with supply chain compliance and help you contribute towards a sustainable future. Contact us today: [email protected]