Sustainable Supply Chains: Why Acting On It Matters Now

In the dynamic and ever-evolving world of business, where innovation and efficiency have long been the cornerstones of success, a new paradigm is emerging - one that places sustainability at the forefront of supply chain strategies and transformations. Sustainability is no longer an abstract concept; it’s a strategic imperative. And companies will need to embark on the sustainability journey now, aiming at supply chain resilience and future proofing their supply chains.?

The last few years in business have taught me one thing: We need to develop solutions that are always coming from a company’s individual situation. Simple partner-client-relationships are unlikely to lead to sustainable transformation success. This requires consultancies to co-develop client agendas, offer tangible solutions and have a customer-centric mindset that also puts human emotions at the heart of transformations.

In this introductory exploration, we delve into the world of sustainable supply chains, unraveling the multifaceted reasons why acting on it matters now.?

Navigating the Green Transition

The Evolution of Supply Chain Priorities

Traditionally, supply chains were designed to optimise efficiency, minimise costs, and maximise speed. However, a transformative shift is underway, redefining the very essence of supply chain management. Sustainability is no longer a secondary consideration; it has become a fundamental aspect of strategic decision-making. Sustainable supply chains prioritise environmental, social, and ethical considerations alongside economic factors. Businesses are recognising the imperative to embrace sustainability - this journey begins with understanding the pivotal role it plays in reshaping supply chain dynamics.?

What we as subject matter experts currently experience is that companies are recognising this development and are shifting their priorities towards sustainability. In one out of five companies, sustainability is set as the top emerging priority. Technology and the evolving regulatory landscape thereby act as catalysts, propelling the integration of sustainability into supply chain strategies. However, a third of companies do not yet have a business case for sustainable supply chains. Now is the right time to lay the cornerstones for navigating the green transition.

From Linear to Circular: A Holistic Approach

Sustainability in supply chains transcends the linear models of production and consumption. A circular economy approach is gaining prominence, emphasising the importance of reducing waste, recycling materials, and designing products with a lifecycle mindset. Sustainable supply chains embrace this holistic approach, ensuring that every link in the chain contributes to environmental, social, and economic well-being.?

Circularity requires rethinking and redesigning business models - sometimes from scratch. From my experience, keeping an open mind, searching for dialogue, and developing best practices are of the utmost importance in order to enable companies and lead transformations to success. The mutual development of agendas and roadmaps in this regard becomes crucial, ensuring that sustainability objectives are not just met but exceeded, fostering long-term partnerships and creating industry-pioneering business cases.?

Supply Chain Resilience: The North Star

At the core of sustainable supply chains is the goal of resilience. Creating a resilient supply chain involves anticipating and mitigating risks. Sustainability is not just an ethical choice; it’s a strategic move to fortify the supply chain against disruptions, ensuring operational continuity even in the face of unforeseen challenges. Companies experience a disruption of one or two months on average every 3.7 years. This number is likely to increase further given the dynamics of the business world.?

Working on demystifying the buzzword “resilience” has become a priority for me. In fact, supply chain resilience will sort the wheat from the chaff in the future. And it does not stop there: Companies with robust sustainability practices also become more attractive to investors. Investors are increasingly influenced by ESG factors in their decision-making. Private equity firms, for instance, are recognising the long-term risks associated with environmental negligence and are incorporating environmental considerations into their due diligence processes.

Beyond Profitability: Benefits of a Sustainable Supply Chain

Multifaceted Impact: Fostering Inclusion and Well-being

Although 70% of companies expect increasing revenues through sustainable supply chains, they extend their impact beyond boardrooms and balance sheets. They reach into the communities where businesses operate. Fair labor practices, safe working conditions, and community engagement become integral components. This commitment to social impact is not just a moral obligation; it strengthens the fabric of society, fostering inclusivity and well-being. In the same breath, they allow for a strong brand reputation and increased customer loyalty. 44% of companies expect an increase in customer loyalty through a sustainable supply chain. Customer loyalty is no longer solely driven by product features; it is influenced by company values, and sustainable practices to resonate with socially conscious consumers.

Proactiveness will always be rewarded, and companies should actively seek support and expertise to find and exploit potential levers to be better positioned. Companies investing in exploring predictive analytics, IoT, and blockchain, for instance, look at measures that may effectively streamline processes, optimise resource utilisation and reduce costs. The same is true for navigating regulatory complexities, where a proactive approach reduces the risk of legal repercussions and ensures a favourable business environment.

Economic Resilience Through Sustainable and Resilient Supply Chains

While the environmental benefits of sustainability are widely acknowledged, its impact on overall economic resilience is equally significant. Sustainable supply chains contribute to economic resilience by mitigating risks associated with climate change, resource scarcity, and geopolitical instability. Diversifying sourcing strategies, adopting eco-friendly practices, and embracing circular economy principles are strategies that not only contribute to economic resilience but also enhance overall operational efficiency. Resilient supply chains ensure business continuity, safeguarding economic interests in the face of disruptions.?

I am always stressing the fact that this big picture needs to be shared with clients and partners. Embarking on this journey together with a clear vision in mind will unleash great potential.

Fostering Green Practices

Mitigating the Ecological Footprint

Up to 90% of a company’s emissions are related to the supply chain - an overall 70% of emissions are Scope 3 emissions. The environmental impact of traditional supply chains is thus undeniable and spans from resource extraction to transportation emissions. Prioritising eco-friendly practices includes reducing carbon footprints through the use of renewable energy, optimising transportation routes, and minimising waste throughout the supply chain lifecycle, and making conscious decisions in every phase of the supply chain.

So acting on it matters - the leverage is high, and looking at currently highlighted ESG initiatives, most of them are positioned in the supply chain or have a direct relation to it. It will need to be ensured that environmental considerations are not just a corporate initiative but become a shared commitment.

Technological Solutions for Environmental Stewardship

The technological aspect can be a valuable driver in this regard. Technological innovations play a pivotal role in minimising the environmental impact of supply chains. From advanced analytics optimising resource utilisation to IoT monitoring environmental conditions, technology empowers businesses to make informed decisions that align with sustainability goals. Integrating these solutions is not just a technological upgrade - it is a commitment to environmental stewardship.?

From a business perspective, it is necessary to encourage those responsible to recognise that any decarbonisation strategy or net-zero road map is also closely interwoven with their technology landscape and roadmap. The business world is even looking at a Green Technology and Sustainability Market today, as a separation of the two has become impossible.

Environmental Regulations as Drivers of Change

Oftentimes, fostering green practices starts with the need to comply with environmental regulations. The regulatory landscape, exemplified by initiatives like the CSRD or the German Supply Chain Due Diligence Act, underscores the significance of environmental sustainability. Adhering to these regulations is not just a legal requirement. It can be considered a strategic move to align with global environmental goals and can become a competitive advantage.?

I experience that the regulatory requirements are already posing a big challenge for many companies across industries, and with the complexity increasing, it becomes more and more difficult to keep up and for executives to quickly make decisions and get their management on board.?

Ethics and Responsibility: A Moral Compass for Businesses

Ensuring Fair Labor Practices

The ethical dimension of sustainable supply chains is a moral compass that guides businesses toward fair labor practices. Ensuring fair wages, safe working conditions, and respecting workers’ rights are not just compliance measures but a demonstration of ethical responsibility. Businesses that prioritise ethical practices build trust among stakeholders and contribute to a culture of responsibility within the industry. A workforce that is treated ethically is more likely to be engaged, motivated, and loyal, enhancing overall operational resilience.?

Looking at complex global supply chains, ensuring fair labor practices along the end-to-end supply chain may be a challenge and a potential risk for companies. From my experience, it will be important for companies to be accountable, stay scandal-free and lead by example. Within the last couple of years, a set of helpful tools and strategies such as supplier engagement programs, have been developed that help prep companies for their process towards ethical business.

Transparency and Accountability

Ethical responsibility is closely tied to transparency and accountability. Companies need to build an accountability ecosystem. Sustainable supply chains embrace openness about sourcing, production processes, and supply chain practices. This not only safeguards a company’s reputation but also fosters a culture of trust among all stakeholders. Transparency is not merely a trend - it is a fundamental aspect of responsible business practices.

Technology, in this respect, acts again as a driver and as a guardian of ethical practices. Communication platforms connect stakeholders across the world, and tracking systems ensure transparency on a global scale. Blockchain, for instance, ensures transparency in supply chains, allowing consumers and stakeholders to trace the journey of products and verify fair labor practices.

Forging a Path to Sustainable Success

Sustainability in the supply chain goes beyond national borders. The interconnectedness of the global economy means that actions taken in one part of the world can have far-reaching implications elsewhere. Businesses that embrace sustainability as a global initiative actively contribute to shared goals, fostering a collaborative approach to address challenges like climate change, social inequality, and resource depletion.

The importance of sustainability in the supply chain is not just a buzzword or a fleeting trend. It is a transformative force that is reshaping the way businesses operate, and the way consumers make choices. As businesses navigate the complexities of the modern marketplace, embracing sustainable supply chain practices should become a top priority.

On this journey into the world of sustainable supply chains, businesses have the opportunity to be pioneers, setting the standard for responsible and future-proof operations. The integration of sustainability is not without its challenges, but the rewards extend beyond profit margins. Economic resilience, social impact, environmental stewardship, ethical responsibility, and global collaboration form the pillars of sustainable success.

As subject matter experts and industry leaders, it is our collective responsibility to guide businesses along this transformative path. Together, let us embark on this journey toward a world where economic success and environmental stewardship go hand in hand and we look at a thriving and resilient future of supply chains. Acting on it matters now!

The subsequent articles in my series will delve deeper into specific strategies, case studies, and practical insights to help businesses integrate sustainability seamlessly into their supply chain strategies.

Mani Motiee Tehrani, November 2023