Published: 14 March 2024
Contributors: Amanda McGrath, Alexandra Jonker
Sustainable supply chain management is the practice of integrating environmental, social and financial considerations into the sourcing, production and distribution of goods and services.
The practice involves managing the entire supply chain, from raw materials to final disposal, with sustainability in mind, including goals such as reducing greenhouse gas emissions, improving working conditions and adopting eco-friendly practices. Sustainable supply chain management aims to minimize any negative impacts of business operations on the environment and society while ensuring efficiency and reliability.
In this publication we set out to provide you with guidelines to assist with your approach to ESG reporting.
Supply chains are increasingly complex—and have an increasingly significant impact on the environment. According to a report by the Carbon Disclosure Project (CDP), companies' supply chains are responsible for up to 11.4 times their direct emissions—more than 90% of their total greenhouse gas emissions.1 Sustainable supply chain management initiatives reduce the environmental impact of business operations by minimizing carbon emissions and waste.
Implementing a more sustainable supply chain can benefit businesses beyond lowering their carbon footprint. Some sustainability efforts can make operations more cost efficient—for example, by reducing waste and minimizing energy requirements—and improve reliability and resiliency within the supply chain. Together, these benefits can deliver significant savings and improve profitability. In fact, one survey found that 61% of companies were motivated to pursue supply chain sustainability to improve cost savings and efficiency.2
As more organizations focus on corporate social responsibility, a sustainable supply chain can help businesses reach their environmental, social and governance (ESG) goals. It may also boost brand image: Sustainability is increasingly important to consumers and stakeholders. Embedding it in supply chain management can protect against reputational damage from negative environmental impact or unethical labor practices. At the same time, sustainable supply chain management may aid in regulatory compliance by ensuring operations align with local and international laws.
Supply chain lifecycles and logistics involve many participants and stages, from product design and manufacturing to transportation, distribution and disposal. To manage them sustainably, companies must focus on three issues:
Environmental responsibility involves reducing greenhouse gas emissions, conserving natural resources and minimizing waste—all key parts of combating climate change. Companies can implement sustainable practices such as using renewable energy, optimizing transportation and logistics and incorporating circular economy principles.
Social responsibility involves protecting human rights and ensuring ethical labor practices throughout the supply chain. This includes fair wages, safe working conditions and responsible sourcing of raw materials. Companies can also further their social responsibility by conducting supplier audits.
Financial responsibility involves managing costs and risks associated with supply chain operations. This includes reducing operating costs, limiting risk exposure and ensuring compliance with regulations. Companies can implement cost-saving measures such as optimizing inventory management, reducing packaging waste and using technology and tools such as artificial intelligence (AI) to monitor their supply chain and drive efficiency.
Making supply chains more sustainable requires looking at environmental impact, supplier relationships, procurement practices, use of technology and overall efficiencies. Supply chain managers can address these issues through sustainability strategies including:
When choosing suppliers, companies may consider whether they share the same sustainability goals and environmental and social values. For example, do they support ethical labor practices and work to limit the environmental impact of their business practices? Through supplier relationship management (SRM), companies can ensure that the companies and organizations they work with meet sustainability standards, such as KPIs around carbon emissions, waste reduction, and responsible sourcing of raw materials, as well as form effective risk-management strategies.
Reducing the carbon footprint of supply chain practices happens in a number of ways. For example, by using more fuel-efficient vehicles, consolidating shipments and planning route optimizations, companies and their suppliers can reduce GHG emissions. Companies may also choose to invest in renewable energy and energy-efficient technologies. This can help reduce Scope 3 emissions, which are indirect emissions generated by a company's value chain.
Companies can reduce supply chain waste by adopting circular economy principles—that is, operating in ways that focus on recycling, reuse, sharing and resource efficiency. Examples include reducing the amount of packaging or using recyclable elements, adopting composting practices and investing in renewable energy. They can also implement reuse programs that limit the need for new resources within the supply chain or allow consumers to upgrade or dispose of products in a responsible way.
Supply chain visibility refers to the ability of companies to track and monitor products as they move through the supply chain. It’s an important way companies can monitor suppliers' environmental and social sustainability practices and trace the origin of raw materials. Supply chain transparency practices extend that visibility to the external world, allowing consumers, stakeholders and regulatory bodies access to information about environmental and social impacts that may guide decision-making and build trust.
Collaboration allows companies and suppliers to work towards shared sustainability goals, such as reducing carbon emissions or minimizing waste. This may involve knowledge sharing about best practices, using resources jointly among providers, coordinating transportation or manufacturing for maximum efficiency, and mutual investments in sustainable technologies or processes.
Training and education can help employees and suppliers understand the importance of sustainability and how to implement sustainable practices. This can help create a culture of sustainability throughout the supply chain and ensure that ongoing decision-making aligns with those values.
Technology plays a pivotal role in supporting supply chain sustainability initiatives. Artificial intelligence (AI) and machine learning (ML) can enhance supply chain visibility by tracking and analyzing data across the value chain. This allows for better risk management and decision-making, and may limit the impact of global disruptions. Blockchain technology can improve traceability by providing a secure and transparent record of transactions. This is particularly useful in verifying sustainable sourcing and ensuring social sustainability.
Advancements such as Internet of Things (IoT) devices can monitor and control energy usage in supply chain operations, contributing to reductions in greenhouse gas emissions. They can also provide real-time data for audits and compliance checks. And software solutions and digital platforms can facilitate collaboration between different stakeholders in the supply chain, and provide actionable insights based on real-time data and metrics.
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Footnotes
1 Scoping out: Tracking nature across the supply chain (link resides outside ibm.com), Carbon Disclosure Project, March 2023
2 How sustainable supply chains are driving business transformation (link resides outside ibm.com), EY, September 2022