Curious Case of Supply Chain Sustainability: How and Why?

11 June, 2019

In today’s world, organisations cannot thrive solely based on product offerings and bottom lines. We’ve moved into a space where a holistic approach towards the community and environment plays a very important role in building and maintaining a brand’s reputation. Sustainability is catching up within individual communities and is quickly shaping up to be an important target sector for businesses and government as well. While organisations continue to focus on major social and environmental causes as a part of their brand culture, the focus needs to be streamlined even further.

According to McKinsey, more than 1.8 billion people are expected to join the global consuming class by 2024, a 75% rise compared to 2010 reports. Contributing to this growth is rising disposable incomes and increasing budgets towards consumer goods. With growing concerns over environmental issues, consumers are demanding more from organisations to act with more sustainable practices, adding pressure on their supply chain. Supply chain sustainability is becoming increasingly important for the future of an organisation.

A supply chain is responsible for far more social and environmental costs than just what the end retailer reports. If not taken care of, greenhouse gas emissions may rise by 80%, directly impacting the natural and geological resources as well. Organisations focussing on a sustainable supply chain reduce total emissions while also building a stronger brand reputation. Focusing on more than just emission reductions, supply chains focus on other factors like water conservation, deforestation, and social rights. Compared to 2018, Forbes reports 69% more suppliers are now continuing their efforts of water conservation in Cape Town. To show the value of reforestation, According to the Carbon Disclosure Project (CDP), many global companies have reported on their use of timber, palm oil, and soy to emphasize the value of reforestation.

And it’s not just us saying this.

A report titled Cascading Commitments: Driving Upstream Action Through Supply Chain Engagement by CDP revealed that a company’s supply chain contains almost 5.5 times as many greenhouse gasses (GHG) emissions as its operations. In 2018, 115 of the world’s largest corporations requested environmental information from more than 5,500 suppliers, reporting emission reductions of 633 million metric tonnes of CO2, which is more than the emissions of the entire country of South Korea. The reduction of emissions resulted in a cost savings of 19 billion USD.

The Hershey Company has taken up a sustainable supply chain strategy, investing half a billion US dollars by 2030 to foster a sustainable cocoa supply chain. This plan includes planting more than 900,000 trees and satellite mapping 50,000 farms across West Africa by the end of 2019. The company is supporting more than 1,000 farmers in the supply chain through acquired land documentation, as opposed to sourcing from natural parks. Their initiatives are exceeding those of other MNCs (Multi-National Corporations), showing these efforts as an example for others.

How to get where the champs are?

Understand the social impact of the pre-existing supply chain:

Many companies do not have a comprehensive understanding of the environmental and social impact of their pre-existing supply chain. Identifying these impacts and challenges through inventory suppliers is the first step towards sustainability. The more you know, the more you will understand what needs attention. It is important that businesses are aware of every critical issue in the supply chain, whether it is local or global.

For example, consumer electronic goods depend heavily on mineral mining, often involving illegal trade, slavery and child labour. In 2017, Hewlett-Packard (HP) set an example by reporting that 97% of their smelting operations ensure ethical sourcing of materials. All their suppliers use sustainability as the basis of mineral mining, encouraging recycling from scrap. This, in turn, enhances the overall operational efficiency of the supply chain and ensures minerals are mined from outside conflict zones.

Supplier code of conduct:

Communicating with your suppliers is key, and the value this simple communication promises is unparalleled, leading to a long-term end impact. The United Nations Global Compact Publication’s Supply Chain Sustainability-A Practical Guide for Continuous Improvement describes the guidelines and steps for writing and adopting suppliers code of conduct.

Performance evaluation and benchmark-setting:

Keeping track of local and global competition and benchmarks may make or break your supply chain strategy. Most companies now align their assessments with the Global Reporting Initiative (GRI) or CDP guidelines and questionnaires. These assessments focus on factors like emissions, environmental performance, workplace equality, energy and water usage, waste generation, carbon footprint generation, and employee welfare. Once all parameters are mapped, identifying opportunities in terms of partnering with suppliers and advancing business practices becomes simpler while allowing for more transparency in sustainability reporting, like in the GRI and other reporting initiatives.

Training and capacity building:

Sustainability is a behavioural-led change, and the only way long-lasting impact can be created is through knowledge transfer, making more people aware of the current scenario. Online modules and annual conferences for suppliers are two relatively simple ways of sharing this. Propagating success stories through the practical benefits of sustainability initiatives is a good way of showcasing real impact. A prime example is HP's Supply and Peer Educator Run Program that has provided training to 155 second-tier suppliers with the help of their first-tier supplier. It has tackled real-world problems like anti-discrimination, energy efficiency, and labour rights, increasing positive consumer brand reputation.

Performance audits:

Regular audits over time help companies assess hits and misses. Corporate groups such as Human Resources, Corporate Social Responsibility (CSR), Environmental, Health and Safety (EHS), Marketing and Procurement departments can help with these self-assessments. Once the audit is implemented and findings are clear, corrective action plans can be developed for the suppliers. This also helps companies identify successful supplier relationships.

Industry-wide collaboration:

All battles are not won alone. An industry-wide collaboration and integration is the way forward. Companies in the same sector can collaborate and set best practice standards for sustainability performance. This also enables them to provide a playing field where suppliers are evaluated on the same metrics. Zero Discharge of Hazardous Chemicals, an industry collaboration initially founded by six brands (Adidas Group, C&A, H&M, LiNing, Nike Inc. and Puma SE) finally led into a bigger coalition including Esprit, Gap Inc., Levi Strauss & Co., and United Colors of Benetton. This coalition is working towards the integration of higher standards and best practices for the industry by eradicating 11 hazardous chemicals from textile production by 2020. By changing industry demand and setting clear timelines, significant and sustainable change is more achievable than going alone.

The greening of supply chain models holds tremendous value for all kinds of organisations today. It essentially increases the business’s functionality, efficiency, reduces resource costs, and opens up doors for innovation. This increases business' resiliency, making the business strong enough to address the hits of climate change in a continuously transforming world. The only difference is the level of understanding which drives such behavioural change, and the sooner organisations realize this, the better they will thrive.