Climate change. Degradation of the environment. Employment practices that are damaging to individuals and communities. No organisation that values its reputation would want to be associated with any of the evils listed above. Put simply, companies that don’t take their social and environmental impact seriously may struggle to hire talented people, attract customers and secure the investment they need to grow. What’s more, they may also attract negative press, with all the associated reputational damage.
That’s why just about every business is at pains to demonstrate good corporate citizenship. Listed companies – and many others as well – publish annual reports explaining their environmental and social governance policies and how they are working to mitigate any negative impact on the environment or communities.
Initially, sustainability policies tended to be focused on what was happening within the four walls of the organisation, but this has proved to be an inadequate approach. Organisations are not islands. Typically, they depend on and support a network of many suppliers. And if a supplier adheres to bad environmental and/or social practices, that also reflects badly on their customers. For instance, a fashion retailer that relies on suppliers who underpay workers or pollute rivers through their manufacturing processes will almost inevitably face a barrage of criticism.
As eyes across the globe have been transfixed in recent weeks on our world leaders formulating a battle plan against climate change at COP26, the importance of sustainable practices has never been higher. As a result, much more attention is being paid to how organisations manage their supply chains. Supply chain sustainability is now a key measure of good corporate citizenship at a global or local level.
But what does that mean in practice?
Well, a business might be importing finished products to resell or buying in raw materials. In both cases, it is increasingly important to measure the environmental and social impact of the product or material at all points on its journey.
There are many factors to consider, including the extent to which the production process has a detrimental effect on the environment, in terms of pollution, carbon emissions and general degradation. The impact on communities is important too. For instance, does food production in certain countries create monocultures that not only reduce species diversity but also negatively affect the lives of local people who are not directly employed in the industry.
Moving on from production, what is the measurable impact of supplier shipping and storage policies? And from the buyer’s point of view, is the cost-effectiveness of manufacturing in, say, Asia justified by the carbon emitted during the shipping process?
There are many more factors to consider and a single company may be buying from dozens or hundreds of suppliers – each with their own practices and policies. What we’ve got is a complex web.
Factoring in Sustainability
Traditionally, supply chain management has involved optimising networks of suppliers in terms of speed, reliability and cost – we live in a just in time world. Businesses tend to be very good at handling that side of the equation. However, managing sustainability requires new thinking.
Measuring Supply Chain Sustainability
Measuring supply chain sustainability is a crucial function but it’s not necessarily an easy thing to get right. Good practice is a work in progress, even for some of the world’s best companies.
Often the first step is to define what sustainability actually means in terms of the business and the expectations of society and stakeholders. That really comes down to establishing the metrics and the methodology. What will be measured and how.
To some extent, businesses will identify their own priorities. Depending on the industry, the priorities may include human factors such as pay, conditions and working hours of employees. Increasingly, however, supply chain manufacturers are looking at environmental impact and how it is mitigated. This could mean favouring suppliers who recycle material, target zero pollution or use renewable energy. One way of managing the supply chain effectively is to stipulate business and production practices before a supplier is brought on board.
However, it is also important to continue to maintain an overview of the supply network and indeed monitor the performance of suppliers.
This is an area where supply chain management platforms can play an important role. Most large companies – and many smaller ones – use ERP systems to optimise the efficiency of supply chains. Similarly, systems designed to collect sustainability data from suppliers provide a means for managers to continually assess the social and environmental impact at all points of the network. These platforms can draw on publicly available information, data from suppliers and live feed from sources such as sensors.
Hard Data
Access to metrics provides a means to back up sustainability reports, press releases and public-facing initiatives with hard numbers. Most organisations are keen to share their environmental and social governance achievements when there is a good story to tell. However, they can also expect to be subjected to close scrutiny from journalists and activists. Tangible evidence of progress makes accusations of greenwash much less likely.
It’s tempting to see sustainable supply chain management simply in terms of cost or as a regulatory or administrative burden. It needn’t be that way. An overview of the supply chain can help companies identify opportunities for new partnerships and better ways of working. There are also real opportunities to rationalise logistics in a way that reduces carbon footprint while also driving efficiencies.
And there are opportunities to create better businesses with strong brands and thus a greater appeal to talent, customers and investors. A positive approach to sustainability – coupled with transparent and accountable metrics is a pathway both to a smaller footprint and higher sales.
