The time when sourcing strategies had minimal impact on their bottom line has come to an end. Businesses are facing pressure to create more sustainable, transparent, and socially conscious supply chains. The drive for Corporate Social Responsibility (CSR), sustainability and more transparency is driven by both internal and external sources, and even non-profit and federal organizations. A recent study shares 6 in 10 consumers (57 percent) are willing to change their purchasing habits to help reduce negative impact to the environment. All of this points to an inescapable fact impacting modern retail: building a sustainable and transparent supply chain is no longer just a strategy – it’s a necessity.
What is supply chain sustainability?
In a recent interview with Dr. Alexis Bateman, Research Scientist and Director of MIT Sustainable Supply Chains at the MIT Center for Transportation & Logistics (CTL), she explains, “The reality of supply chain sustainability is to understand that you are quantifying your impact and critically tracking progress over time, leading to a goal that’s relative to your impact as an organization and also relative to the entire supply chain. In sum, the key to becoming a more sustainable supply chain is to recognize your impact and make persistent, measurable change.”
Fortunately, taking steps toward supply chain sustainability and transparency can have a measurable impact on retailers’ ROI and sales.
Supply chain transparency is the new gold standard
Consumers are willing to pay between 2 to 10 percent more for products from companies that are transparent about their supply chain process. This number is growing as Generation Z consumers make more purchasing decisions. In response to this shift, retailers’ investments in responsible supply chains will grow to $889 million by 2023 as government organizations, employees, and consumers band together to urge retailers to be more transparent about their supply chain practices.
Most companies are starting to rank their supply chain practices on a public sustainability scorecard that addresses categories such as where they are in terms of CSR, where they want to be, and the steps they will take to improve their ecological footprint. Target is a great example of a company that excels at holding themselves accountable. The company releases a sustainability report each year in accordance with Global Reporting Initiative (GRI) standards. Target also publicly shares its progress towards evolving CSR metrics, showing a level of corporate accountability and transparency rarely seen from retailers – and helping to make Target one of Motley Fool’s favored retail stocks for 2020.
For Gen Z, a brand’s ethos is the most important characteristic and 58 percent of the demographic says that “a brand’s purpose, values and mission” are the number one factor they consider before making a purchase. Millennials rank brand ethos as the third most important factor in their purchasing decisions. In response to next-gen consumers’ desire for a more sustainable production process, retailers in fashion are using more sustainable raw materials, and even fast-fashion retailers such as ASOS and H&M are making a shift towards recycled materials.
But this isn’t the only strategy modern retailers are using to cater to consumer demand. When challenged to think of ways to create a more sustainable production process, retailers should first take a look at their suppliers. New developments in supply chain technology are enabling retailers to create a more intelligent and sustainable production process from product inception through sourcing and production to delivery. As consumer tastes and demands change, retailers often must identify ethical suppliers in real-time, as well as make adjustments as they occur. This is an important feature to have in a time when overseas trade relationships with countries which are major manufacturing hubs – such as China, Europe, and South Korea – can be nebulous.
Reduce waste by swiftly remarketing returned products
As more customers opt to make online and mobile purchases, the processing of returns continues to be challenging. At this point, returns cost retailers $309 billion annually. But this is also an environmental issue; there is transportation impact and 5 billion pounds of returned goods go to landfills each year in the U.S. alone. The reverse logistics industry is expanding in tandem with e-commerce sales as retailers look for solutions to reduce waste and mitigate the expense of online returns. Deloitte reports, “With e-commerce revenues growing 15 percent annually and a product return rate near 30 percent of sales, we can expect 4 billion incremental units to be added to the annual reverse logistics pipeline by 2022.”
It’s never been more important for retailers to take initiative to create a transparent and sustainable supply chain. Retailers can reduce waste by reintroducing returned goods back into their supply chain faster before they have to reduce margins on products or send them to landfill. By adopting a supply chain optimization platform that’s capable of performing reverse logistics, retailers can accelerate the process of return sorting and product re-merchandising. In turn, this will reduce waste by getting returned inventory ready for the selling floor in less time.