August 18, 2021

Sustainability in supply chain management - a pressing responsibility for businesses

Sustainability

Over the last few years, customers, investors, and even the government have increased pressure on businesses to show more responsibility towards social, economic, and environmental factors. This is happening at a time when the case for sustainable operations throughout the globe grows stronger. Supply chains have come into focus due to the number of resources and funds that are wasted on an ongoing basis and sustainability has now become a key corporate goal for its reduction.

This has become more evident at a time when the world has been hit by the Coronavirus pandemic, affecting even the smallest of business operations. One can’t negate the impact the rapid usage of resources is having on the socio-economic strata as well as the environment and businesses themselves. COVID-19 has been responsible for several logistical operations to come to a sudden halt without any sight of when it will open again. Research by Businesswire states the global supply chain management market is going to grow at a CAGR of 11.2% till 2027.

Along with the virus affecting people’s health, the complete stopping of businesses has also had a domino effect on the cost of operations and resources. In fact, RetailNext says that 64% of retailers had to adapt their supply chain in 2020 when the pandemic hit. The current fuel price hike is a big demonstrator of that and seems to have become a big burden on the logistical operations for many businesses all over the world. Apart from the livelihood of people, businesses shutting down, high costs incurred to keep the operation going, it has now become a matter of sustainability to ensure a longer threshold for businesses to survive.

What is Supply chain?

A supply chain is essentially the complete network between a business and its suppliers that works towards producing, completing, and distributing their products to consumers. This network consists of suppliers, activities, vendors, entities, data, resources, and more to complete the lifecycle of the product. Supply chain management has become a crucial process for businesses of all kinds as an optimised process can result in lower operational costs and faster production, while also helping businesses remain competitive in the industry.

What is Supply Chain sustainability?

“Business is often taking the initiative to move things forward. Focusing only on the business case underplays the value that business is and should be providing in society and with regards to development.”

– Mads Øvlisen, Chair of the UN Global Compact Advisory Group on Supply Chain Sustainability.

Supply chain sustainability refers to the management of social, environmental, and economic impacts a business has, as well as the application of good governance practices during the complete lifecycle of goods and services offered by that business. The objective of creating sustainability in the supply chain rises from the need to create, protect, and grow long-term value for everyone involved in bringing the finished goods to the consumers. In fact, there are UN Global Compact principles for supply chain relationships, that businesses companies can use for advancing corporate sustainability and promoting broader sustainable development factors.

There are various reasons to hop on to the supply chain sustainability journey - the foremost being compliance with regulations and a need to adhere to international principles. Additionally, businesses need to take the correct measures for better social, economic, and environmental impacts for managing societal expectations and business benefits.

Problems Plaguing Supply Chain Sustainability

Supply chain sustainability refers to any businesses’s efforts towards making their environmental and human impact much lesser or negligent. From the sourcing of raw materials to its production and transportation - the supply chain consists of every movement made. There are many factors that are jeopardising the smooth and sustainable running and management of the supply chains but the main goal is to minimise environmental and socio-economic harm. Factors such as water consumption, energy usage, waste production, fuel consumption, and more make it difficult for businesses to sustain their operations in the long run without creating a negative impact on the communities in and around their operations. Apart from these concerns, there are also several traditional corporate supply chain concerns about the company’s revenue and profit. Supply chain disruptions can negatively impact businesses and cause significant losses in finances (62%), logistics (54%), and reputation (54%). (Source: Financeonline)

Conventional supply chain management majorly aims at improving and managing the speed, cost, and reliability of operations. With the addition of sustainability, there is an added need for upholding environmental and socio-economic values. There is ample research that shows the supply chain of any company is responsible for a huge percentage of negative impact, leading to costly damage control practices. As part of their very nature, supply chains use energy-intensive production as well as transportation from several places till the product reaches the customer. In fact, most organisations believe they can make a huge difference by changing their supply chain strategies instead of their business operations. There is also the complexity of supplier relationships and border crossings to be considered when it comes to making a case for more sustainable logistical operations.

The importance of being sustainable in a supply chain in fact goes much beyond just the company’s need to go green. A sustainable supply chain over time creates increased partnership opportunities as environmental responsibility has become such an integral focal point for every industry. Practicing eco-awareness helps in legitimising your organisation as well as improve productivity and save money. Sustainable resources and techniques also offer increased efficiency of vehicles, buildings, and equipment with a significant impact on cost savings. For instance, Nike being the world’s number one shoe manufacturer set a prime example of sustainability by changing the way it makes some of its shoe designs. By making small changes, they were able to reduce labor costs by almost 50% and material use by up to 20%, resulting in a 0.25% increase in margins. (Source: MH&L)

Does the Supply Chain impact ROI?

Companies of all sizes these days are facing an increased competition when it comes to their operating speed and decision-making accuracy. Getting a handle on these two factors can greatly provide a competitive advantage. Unfortunately, according to a latest market research, there aren’t too many businesses that are prepared to face such a shift in economic and environmental factors depending on the kind of tools they are using to support decision-making processes, be it strategic or tactical.

The idea here is to turn to analytical applications that can efficiently help in measuring, analysing, and optimising everyday performance as well as supply chain logistics. This will in turn help in leveraging all the existing investments a company has made in transactional systems. Such applications help in supporting businesses as much more than just transactional systems and can provide intelligent analytic applications and ERP systems. But the fact of the matter is that 69% of companies don’t yet have complete visibility on their supply chains, leading to disruption in operations. (Source: BCI)

As supply chain risks continue to grow and the situation grows even more challenging, a recent 2021 research by Deloitte shows:

  • 41% of companies require expedited shipping to ensure critical supply chain flow.
  • 36% of businesses are losing revenue because of supply shortages.
  • 11% have incurred brand damage due to supplier issues.
  • Only 26% of businesses can estimate risks at their supply base.

The key to achieving a high ROI in supply chain management is solving highly focused problems with shorter decision-making processes. As opposed to using spreadsheets on MS Excel, companies need to move towards decision process automation.

As businesses evaluate their priorities in 2021, they also need to examine the risks that most concern them so that they can make decisions that positively impact their bottom line. With supply chain management and logistics, not having sustainable options is no more an option. It is now time to consider and understand how supply chain visibility and automation can help in transforming the supply chain to be as efficient as it can be.

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