Climate Protection & Air Quality
Sustainable Supply Chain
How Companies Can Make a Green Supply Chain
Companies across the globe are striving to reach net-zero CO2 emissions goals. However, many aren’t focusing enough attention on how to make a green supply chain. It’s no easy task.
According to a study by Deloitte, only 46% of companies have begun requiring supply chain partners to meet sustainability requirements.
This effort is paramount because a company’s supply chain exacts a much greater social and environmental cost than its own operations.
In a circular economy, a green supply chain and sustainable logistics represent an incredible opportunity to reduce a company’s carbon footprints.
McKinsey estimates that a typical consumer company’s supply chains account for more than 80% of greenhouse gas emissions.
So reducing carbon from supply chain practices has the potential for a massive impact, especially through adopting long-term sustainable practices.
Why is making a green supply chain so difficult?
Visibility and motivation
One big reason many companies fail to make adequate progress on addressing supply chain sustainability is a lack of visibility.
Companies often don’t directly deal with all of the stakeholders in the supply chain. That’s because primary suppliers routinely subcontract portions of orders, especially if they are manufacturers.
Others depend on purchasing agents to place orders with secondary suppliers on their behalf. This reduces stakeholders’ ability to identify deficiencies and take corrective actions or make demands of their partners.
In a study by Ernst & Young, only 37% of executives said they’d seen increased supply chain visibility.
However, the study revealed another striking reason why companies failed to make more progress.
In a notable finding, 33% of companies felt they lacked a business case for making their supply chains greener.
Half of the survey respondents reported their companies struggled to measure the return on sustainable supply chain activities.
Furthermore, cost savings was listed as the primary motive for making improvements.
Ernst & Young concluded that a lack of a business case for sustainability improvements may make it difficult to get funding for future initiatives.
Tackling the issue
How to make a green supply chain is a challenging question because it varies widely between industries, organizations, products, and methods.
So it’s important for companies to evaluate each stage of their supply chain and scrutinize areas for improvement.
Sustainable business expert Andrew Winston suggests companies can redefine return on investment by focusing on four areas.
1. Reducing costs: decrease waste, consume less, and improve efficiencies
2. Revenue growth: evaluate how a greener supply chain can affect market share, stock prices, and overall profitability
3. Risk management: manage regulatory and compliance risks and develop robust outsourcing strategies
4. Intangibles: examine how a greener supply chain can improve customer loyalty, company reputation, and lead to innovation.
Steps for achieving supply chain sustainability
There are steps each company can take to tackle supply chain sustainability.
First, any organization ought to prioritize its sustainability goals and examine how the supply chain fits. The next step is to audit the supply chains and suppliers in terms of risk assessment, diversity, and human rights.
Once this step is complete, an organization should work on improving visibility and traceability.
This may require using more advanced logistics technology and improving communication with suppliers and stakeholders. This could involve sharing data and finding areas where everyone can work together.
Companies also need to understand that return on investment includes intangible aspects that should also be measured. These include improved reputation and loyalty. There is also the added benefit of innovations discovered through solving problems.
Also, a greener supply chain doesn’t mean stopping at sourcing and procurement.
A business that takes an end-to-end approach to all aspects of its operation is much more likely to discover benefits.
Furthermore, cross-functional collaboration with other departments such as finance, procurement, and research and development can expand opportunities.
Sustainability reaps benefits
Companies that make progress in reducing the environmental impact of their supply chain stand to reap real benefits.
According to Ernst & Young’s study, trailblazers in supply chain sustainability have succeeded by focusing on transparency. Additionally, they are less focused on cost savings as a motivating factor for making a supply chain greener. Yet, they are gaining financial benefits.
“Twenty-five percent (of trailblazers) have already experienced increased revenue because of their supply chain sustainability efforts. Moreover, 43% expect increased share price from their efforts in the next one to three years.”
What’s more, they have achieved greater visibility into Tier 2 and 3 supply networks.
They are also 15% more likely to have public-facing sustainability goals. Moreover, nearly half of the trailblazers involved in the study reported an improvement in their employees’ quality of life.
Many companies have made commitments to achieve carbon neutrality by the end of the decade. Taking action beyond operational activities may be the best way to achieve goals and make the world more livable.