Consumers are willing to pay more and wait longer for sustainably delivered products, but supply chain executives aren’t making sustainability a high enough priority, according to a study by business and technology consulting firm West Monroe Partners.
The study finds that 49 percent of North American supply chain executives don’t view sustainability as a strategic priority. This is despite the fact that more than half of consumers are willing to pay at least 5 percent more for products delivered sustainability and 76 percent would wait at least one extra day for climate-friendly transport.
Despite customers’ demands, the majority of companies (64 percent) surveyed by West Monroe Partners say they don’t plan to incorporate sustainability into their operations. This means they’re missing out on a major source of increased revenue, according to a study by the World Economic Forum, which identified revenue increases of 5 percent to 20 percent, cost reductions of 9 percent to 16 percent and 15 percent to 30 percent boosts in brand value among companies engaging in sustainable supply chain initiatives.
‘Efficiencies to be Gained’
There are multiple implications of failing to develop sustainable supply chains, cautions Yves Leclerc, managing director and leader of West Monroe Partner’s supply chain practice. “These include: higher forward costs due to lower efficiencies; greater risks of reduced resource availability; lost sales due to inability to demonstrate sustainable supply chain practices; higher cost of capital, or reduced access to capital sources, due to not adopting sustainability practices; reduced competitiveness; lower customer acceptance or purchases; and missing opportunity to positively impact organization EBITDA,” Leclerc says.
Creating sustainable supply chains matters not only to the environment, but to companies’ bottom line, says W. Michael Wilson, vice president of marking and communications at Afflink, a supply chain management firm. Willson says improving supply chain management can improve efficiencies on multiple fronts: “Everything from water and energy audits, recycling and waste reclamation, and even instituting a ‘healthy workplace’ campaign will all drive costs out of the system, increase productivity and position your company as a good steward of the environment.”
70% of Environmental Footprint Found in Supply Chains
For most companies, the supply chain represents the biggest opportunity for creating a more sustainable business, says Jennifer Clipsham, principal consultant corporate strategy solutions for thinkstep. Clipsham says for companies manufacturing non-energy using products, close to 70 percent of their environmental footprint can be in the supply chain: “This means that a high percentage of your material sustainability issues are likely in your supply chain and if you aren’t managing the environmental and social impacts in your supply chain you are facing a much higher degree of risk.”
To create a more sustainable supply chain, start talking with your suppliers, Clipsham says. “Set expectations and clearly communicate those — whether that is in the form of a code of conduct or supplier questionnaire or other form of engagement,” she says. “We find implementing a software solution or mechanism for assessing supplier performance against the code of conduct or questionnaire helps automate performance management and leads to improvement opportunities. It also highlights which suppliers are succeeding and those falling short of expectations and need additional engagement.”
Carbon Trust associate director Aleyn Smith-Gillespie, who leads the organization’s supply chain work, recommends setting expectations for minimum standards, working collaboratively with suppliers to improve performance and sharing best practices. “In turn, more sustainable supply chains can enable companies to offer higher-value sustainable products and services to end-customers,” Smith-Gillespie says.
Last month the Carbon Trust has launched a supply chain certification program and awarded the Carbon Trust Standard for Supply Chain to seven companies, ABP Food Group, Aviva, Central England Co-operative, Deloitte UK, Nationwide, PwC UK and Willmott Dixon, for these companies’ framework to measure, manage and reduce carbon emissions across their supply chain.
Going through a process of measuring the carbon footprint of a supply chain and engaging with suppliers can have hard financial or operational benefits, the Carbon Trust says. This can pinpoint areas of inefficiency and risk, helping to drive cost savings or increase resilience to threats such as the supply chain disruption, resource scarcity and regulatory change.
Where Do Raw Materials Originate?
In addition to carbon footprints, businesses should look at other issues facing suppliers across diverse global regions: extreme weather patterns, rising water costs, carbon taxes, natural resource constraints and pollution impacts. All of these create volatile commodity prices, increasing the cost of supply chain inputs and potentially causing disruption and putting companies’ growth at risk, Trucost says.
Trucost recommends companies examine how their business model depends on natural capital to grow revenue — and ask themselves is there sufficient natural capital in the regions where their companies do business? “This is important, because a company’s license to grow will hinge on being able to source raw materials from its supply chain without increasing environmental or social costs,” says Libby Bernick, Trucost senior vice president, North America.
Transparency Is Key
And when driving sustainability throughout the supply chain, transparency is key, says Jonathan Ivelaw-Chapman, CEO of Sedex, which last month launched a next-generation platform for sustainable sourcing. “By increasing transparency and sharing environmental data throughout the supply chain businesses can see beyond the ‘tip of the iceberg’ to the true impact of the products and services that they produce. Only with this transparency can they make educated purchasing decisions, work with suppliers to minimize their impacts, and ultimately drive sustainability.”
He points to the recent Rana Plaza factory collapse in Pakistan as an example of how unaddressed supply chain issues “can have a devastating impact on human life and the environment, as well as implications for corporate reputations and profitability. The more visibility companies have on their supply chain, the more accurately they can identify and mitigate potentially damaging risk.”
Sedex conducted a study, based on findings from independent audits, which showed that non-compliances found at audit increase in number further down the supply chain. These are business risks, Ivelaw-Chapman says. “Businesses that don’t look beyond first tier suppliers are therefore leaving themselves open to risk blind spots, as the majority of environmental, social and governance risks which could negatively affect revenue, corporate reputation and operational stability often lie deeper down the supply chain.”
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