Over the past decade, the ability to operate sustainably has become a top priority for large enterprises, specifically around areas such as plastic elimination and carbon reduction. In fact, if an organisation has a poor sustainability performance, as measured in environmental and social impact, this can considerably slow its growth ambitions and impact shareholder value.
To make and sell goods, consumer businesses need affordable, reliable supplies of energy, as well as natural resources and a sustainable supply chain, and of course the permission from consumers, investors, and regulators to do business. But companies can no longer take those enabling factors for granted. Indeed, scientific consensus, along with pledges by governments and business leaders—including the leaders of some of the largest consumer companies—calls for dramatic improvements in sustainability performance.
Likewise, ensuring internal operations are sustainable is no longer enough; businesses must implement strategies to ensure sustainability ambitions are being supported throughout all tiers of the supply chain. However, promoting sustainability throughout a complex supply chain is incredibly challenging, therefore in this article, I have outlined a simple framework that will help organisations to start to address this issue.
Supplier collaboration plays a critical role in developing a sustainable supply chain. Developing collaborative partnerships with key partners will enable enterprises to manage the impacts and risks of their operations whilst capitalising on opportunities to create value. By aligning projects with UN Sustainable Development Goals (SDGs), collaboration can promote incremental efficiency gains and transformational changes to business models that create a more sustainable economy.
Reducing the carbon footprint of your supply chain
The reduction of carbon emissions is part of several SDGs, and many companies have initiated programmes that aim to reduce the carbon footprint of their supply chains. This is not surprising. Research from the Carbon Disclosure Project (CDP) found that the average business’ supply chain generates approximately 5.5 times more carbon emissions than its direct operations, with the retail industry producing 11 times the emissions.
However, opportunities do exist to collaborate with suppliers and reduce emissions. For example, CDP research found that increasing renewable energy use within the supply chains of 125 large corporates by 20% would reduce emissions by over a gigaton. A big challenge for corporates is promoting such initiatives to a larger number of smaller suppliers, and through multiple supplier tiers to trigger change throughout the supply chain. This obstacle is well recognised, and some firms, such as L’Oréal, are making efforts to overcome this. Indeed, Alexandra Palt, Chief Corporate Responsibility Officer at L’Oréal, stated that the company was looking to collaborate with suppliers to drive emission reductions further down the supply chain.
Modern supply chains are very complex and managing risk and impacts whilst capturing opportunities to sustainably create value is challenging. However, the fundamentals for putting in place an effective framework are consistent across all organisations, regardless of industry. There are four logical steps: understand, plan, apply and evolve.
- Knowledge is power
Start with understanding. This is all about understanding the risks, opportunities, challenges, and capabilities within the supply chain. This is key for the creation of a supply chain programme to address sustainability and reveals opportunities for creating value via collaborative innovation. It is important to identify the drivers of risk and opportunity (for example, legislation, pricing, disruptive technology and more). Once identified, undertake scenario planning so that you can see how these drivers may develop, how they can be planned for and how revenue/costs might be affected. Once you have undertaken this exercise, outline the actions to capitalise on opportunities and mitigate risks.
- The importance of planning
I can’t emphasise enough how important it is to plan. Plan approaches that address the sustainability risks and opportunities that you have identified. Create ambitious sustainability targets that align with the wider business objectives and with the relevant UN SDGs. Segment your suppliers based on these targets, using your understanding of risks and opportunities. But most importantly, prioritise your goals and develop a plan of action that uses company resources and top tier suppliers.
- Apply your plan
Now establish the necessary processes, governance, and capabilities to execute on your strategy. Engage with suppliers on scalable pilot projects that demonstrate value. Then you will be able to scale up successful initiatives, enabling these projects to impact the value chain.
- Evolve your strategy
Programmes within a sustainability strategy have the potential to have very high impact. It is therefore important that organisations continuously learn from outcomes and adapt their strategy accordingly. This is best achieved through creating a learning loop that focuses on rapidly iterating, piloting and validating your sustainability initiatives.
The world population will reach 9.8 billion in 2050. The U.S. Energy Information Administration predicts energy consumption will increase by 50% between now and then, and natural resource use shows a similar trend. With this in mind, the supply chain is one area with plenty of room for improvement when it comes to sustainability. A successful approach will involve the use of supplier collaboration technologies and platforms to reduce impact, mitigate risks and capitalise on opportunities for innovating new products and processes. Employing best-in-class technology to do this will help not only help to drive sustainability but also profit margins.
With today’s public being more socially conscious than ever, businesses must align themselves with this shift towards a sustainable supply chain or risk losing business as a result of inaction.