What is supply chain sustainability?

A look at people, profits and the planet

By | 8 minute read | November 11, 2020

When your sourcing team chooses what to buy and who to buy from, are you selecting vendors who share the same social values as your brand?

When your manufacturing plants produce goods, are you minimizing waste and effectively using finite resources?

When fulfilling orders for customers, do you know how your packaging and shipping decisions impact the environment?

If you haven’t been thinking about these questions, the time to start is now. Your customers, employees and shareholders want to know you have a plan to address supply chain sustainability.

Supply chain sustainability is defined as embedding environmental, social or corporate governance considerations as raw materials are sourced, converted to products and delivered to market. But the supply chain doesn’t end when the product hits the market and neither does supply chain sustainability. We have to plan and execute on reuse/recycle/retire strategies.

Supply chain leaders tell us they are concerned about sustainability. In this blog, let’s explore the best practices that drive sustainable supply chains. This will include specifically reducing waste and creating efficiencies that lower resource consumption and can also lower costs, with the ultimate objective of preserving conditions to support future generations.

Why is supply chain sustainability important?

Planning with supply chain sustainability in mind delivers on the triple bottom line: people, profits and the planet – the three “P”s.

People: Key stakeholders increasingly expect the brands they buy and support to address sustainability issues.

  • New consumer research finds 60% of consumers are willing to change their shopping habits to reduce environmental impact, and 71% of consumers that indicate traceability is very important, are willing to pay up to a 35% premium.
  • A survey of employees found more than 70% of workers would choose to work at a company with a strong environmental agenda, nearly 40% of millennials have chosen a job because of company sustainability, and more than 60% of workers said a strong sustainability plan would affect their decision to stay at a company.
  • Investors prioritized sustainability, even during the COVID crisis. As they sought to rebalance their portfolios during the market turmoil, they increasingly preferred sustainable funds over more traditional ones. In the first quarter of 2020, global, sustainable, open-ended funds (mutual funds and exchange-traded funds) brought in $40.5 billion in new assets, a 41% increase year-over-year. U.S. sustainable funds attracted a record $7.3 billion in new assets for the quarter.

Profits: Although many people think there’s a tradeoff between sustainability programs and profitability, research shows otherwise. Sustainability practices can increase profitability at the same time. Corporations that plan with climate change in mind can secure an 18% higher return on investment than companies that do not. And the World Economic Forum cites many reports that find a direct correlation between sustainable practices, share prices, and business performance. You don’t have to go far to find examples. Think of the hospitality industry that initiated towel reuse programs back in 2014 and the subsequent savings on water and energy. Today, these programs are nearly universal and 25% of U.S. properties have received a Green Certification, the gold standard of sustainability. Such programs are a great example of the three P’s in action, along with a fourth P – progress!

Planet: We have limited environmental resources. The UN Environment’s Global Resources Outlook 2019, which examines trends in natural resource use, finds that usage has skyrocketed over the past five decades as population and economic growth have increased fourfold. According to Joyce Msuya, Acting Executive Director of UN Environment, “The Global Resources Outlook shows that we are ploughing through this planet’s finite resources as if there is no tomorrow, causing climate change and biodiversity loss along the way. Frankly, there will be no tomorrow for many people unless we stop.”

How to get started with supply chain sustainability

Supply chain leaders can drive near-term results by narrowing their scope of supply chain sustainability efforts to an environmental focus. Here are just four areas to explore for a greener supply chain:

  1. Shipping. Since we know consumers value brands that prioritize sustainability, empower customers to make eco-friendly decisions. Do they really need that order next-day, or is three to five days sufficient? Can they wait until all items in an order are available to receive everything in one shipment, or do they need each item as soon as possible? Show them the tradeoffs with a “green” shipping option at check-out. Transportation and third-party logistics providers can provide similar analysis and options to their B2B customers as well.
  2. Inventory positioning. Visibility across your entire network allows you to optimize the fulfillment of each order. Additionally, you can purposefully position inventory closer to the consumer to provide the best of both worlds – faster availability and lower emissions.
  3. Packaging. Shift your mix of product packaging to reflect shifting buying patterns. Less foot traffic in stores means less need for expensive packaging. You may have an opportunity to cut down on elaborate displays and in-store safeguards for tampering. As online orders and pickup or ship-from-store become more prevalent, include multiple items in one package to reduce waste and costs.
  4. Returns. Reduce waste and protect the bottom line by swiftly remarketing returned products. This cuts down on the large amount of returned goods that go to landfills each year in the U.S. alone, and a loss of $309 billion in value of returned goods to retailers.

Longer-term opportunities for supply chain sustainability

In supply chain, we talk about the concept around ‘plan, make and deliver’. As supply chain leaders set longer-term goals, focus on product planning and the elements you can change over time for a more sustainable supply chain.

  • Materials – Look for opportunities to use recycled materials in the manufacturing of products, like Patagonia does, or follow Parker Hannifin’s lead and avoid using materials that are harmful to the environment. Innovations such as Newlight Technologies’ biodegradable plastic alternative unlock new, sustainable options.
  • Suppliers – Build out your own viable and sustainable ecosystem of partners, designing business and governance models that reflect shared values, like The North Face with its Futurelight material and Farmer Connect for the coffee industry.
  • Packaging – Rethink packaging with an emphasis on minimizing the amount and type of waste and the ease with which it can be recycled. Nespresso is a great example, including a recycling bag with coffee pod shipments.
  • Circular models – Minimize the environmental impact of products and maximize the recirculation of materials back into use by reselling returns like the Eileen Fisher Renew take-back program does, reusing components, recycling the entire product or elements as is Plastic Bank’s mission, and repairing or servicing products as part of a lifetime warranty – think Coach.
  • New revenue models – Explore leasing or “product-as-a-service” models for everything from recreation equipment as REI offers, to office furniture, lighting, and special-occasion fashion.

Supply chain sustainability best practices

Business are facing pressure to increase supply chain sustainability and the bottom-line benefits are real. Following best practices will help you start to develop a plan that identifies key participants, sets short- and long-term goals, establishes a timeline, allocates funding, implements intelligent workflows and digital solutions to transform processes, and measures progress.

  • Baseline – Understand your own operations and supply chain and its impact on the environment.
  • Educate – Discover peer standards and industry shifts. Know the relevant sustainable development goals, legislation, regulations and information sources for your industry.
  • Benchmark – Since this is a collaborative process, find relevant peers, exchange learnings and goals, and work together to develop practices.
  • Set BHAGs – Set big, hairy, audacious goals (BHAGs). Declare them and drive towards them without fear of failure. Aim for learning and progress.
  • Measure – Use software and checklists to audit and measure results against goals. Publish results at regular intervals.
  • Communicate – Stakeholders highly value supply chain sustainability, so the C-suite should take ownership for communicating the mission, championing the programs, engaging employees, and sharing progress and learnings.
  • Revisit – Sustainability is a journey. Achieve goals and make new ones that continue to stretch the value chain to reach new heights.

Solutions for supply chain sustainability

It’s never been more important to start your journey to supply chain sustainability. IBM knows what it takes to create more sustainable, transparent and socially conscious supply chains.

Consider the following solutions to help you on your way:

  • An intelligent fulfillment platform capable of performing reverse logistics to accelerate the process of return sorting, product re-merchandising and repair lifecycle tracking, reducing waste and environmental impact of returned goods.
  • Offer more eco-friendly shipping options with an AI-empowered analytic engine that enhances and extends existing order management systems, balancing fulfillment costs against service.
  • A control tower that provides end-to-end visibility of inventory to make more informed decisions, harnessing third-party data to quickly detect events that could impact inventory so you can reduce waste and optimize outcomes.
  • A multi-enterprise business network that allows you to quickly engage with 800,000 preconnected trading partners. Enabled with blockchain, it empowers transparency, trust and provenance across the supply chain ecosystem.
  • A blockchain platform so you can build your own ecosystem with trusted supply chain partners and authenticate the origin, sustainability and integrity of products as they travel through the value chain.
  • To evolve supply chain planning and processes to address sustainability goals and expectations, integrate intelligent workflows that strategically apply technologies like AI and blockchain into the supply chain.

Future of supply chain sustainability

Supply chain sustainability has reached a tipping point. Nearly half (49%) of all companies have corporate supply chain sustainability goals, but another 35% lack such objectives, according to new research from the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics and the Council of Supply Chain Management Professionals (CSCMP).

Increasingly, enterprises recognize that embedding sustainable practices within the supply chain is good for business – creating a vibrant corporate culture, more engaged customers and bottom-line growth. Bringing sustainability more to the forefront, organizations like the Ellen MacArthur Foundation are helping to accelerate the transition to a circular economy, working with and inspiring businesses, academia, policy makers, and institutions. Projecting an estimated $700 million annual material cost savings in the consumer goods industry, 48% reduction in carbon dioxide emission by 2030 and $550 billion reduction in healthcare costs associated with the food industry, the Foundation is garnering support from leading investment managers and banks, and companies who are signing on to voluntarily set standards.

It’s an exciting and gratifying time to pursue supply chain sustainability. Wherever you are on your journey, we’re here to help you explore and capture new opportunities.