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One of the most critical areas where companies can make a significant impact is their supply chain management. Building a sustainable supply chain is essential for companies to achieve their social and environmental goals, minimise risks, and respond to evolving stakeholder expectations. In this blog post, we'll explore the meaning of a sustainable supply chain, its importance, and the steps businesses can take to build one. We'll also answer some common questions about sustainable supply chain management and provide insights on best practices. So, whether you're a sustainability expert, or new to the field, this blog should help give you a comprehensive overview of how to build a sustainable supply chain so that your company can thrive in the long run.
A sustainable supply chain is a system of managing the flow of goods and services from suppliers to customers in an environmentally and socially responsible way, that ensures long-term economic viability for your business. If you want to dive into more of what sustainability means for business, this blog should help.
To build a sustainable supply chain, companies need to focus on three essential elements.
1) Environmental sustainability
This involves reducing the environmental impact of supply chain activities by using renewable resources, minimising waste and emissions, and adopting sustainable practices throughout the product lifecycle. Environmental sustainability is critical to meet global climate goals, reduce operational costs, and mitigate regulatory risks.
2) Social sustainability
This involves promoting human rights, fair labor practices, and ethical sourcing across the supply chain. Companies need to ensure that their suppliers and partners treat workers fairly, provide safe and healthy working conditions, and respect human rights. Social sustainability is crucial to ensure that companies operate responsibly, enhance their reputation, and maintain the trust of customers and employees.
3) Economic sustainability
This involves creating value for all stakeholders by adopting sustainable business practices that promote long-term profitability, innovation, and growth. Companies need to consider the economic impact of their supply chain decisions, including costs, risks, and benefits, to ensure that they remain competitive and resilient in the face of changing market conditions.By focusing on these three elements, your company can build a sustainable supply chain that delivers economic, environmental, and social benefits. Many leading businesses have already embraced sustainable supply chain management and have implemented remarkable solutions to reduce their environmental footprint, enhance their social impact, and boost their bottom line. Patagonia being a prime example with their labor program that ensures all their suppliers meet strict labor standards.
Now I’m sure you’re wondering ‘why should we go to all this effort for something we don’t know the ROI for?’ Well think again because building a sustainable supply chain can bring a whole range of benefits for companies, including:
Cost savings
By reducing waste and improving efficiency in their supply chain, businesses can save costs on raw materials, energy, and transportation. For example, if you implement a closed-loop supply chain, where waste is reused or recycled back into the production process, you can reduce waste disposal costs and save on raw material procurement.
Risk management
By diversifying suppliers and building relationships with suppliers who have strong sustainability practices, businesses can mitigate risks such as supply chain disruptions due to natural disasters or political instability. For example, if you work with suppliers who have implemented sustainable practices such as renewable energy sourcing and reduced water usage, you can mitigate risks of supply chain disruptions due to climate change or water scarcity.
Brand reputation
By adopting sustainable practices in their supply chain, businesses can enhance their brand reputation and increase customer loyalty. For example, if you source raw materials from sustainable sources and implement eco-friendly packaging, you can attract environmentally conscious customers and differentiate your brand in the market.
Regulatory compliance
By building a sustainable supply chain, businesses can comply with environmental and social regulations, avoiding fines or legal penalties. For example, if you implement sustainable practices such as reducing carbon emissions and implementing fair labor practices, you can comply with regulations such as the Paris Agreement and the United Nations Global Compact.
Innovation
By adopting sustainable practices in their supply chain, businesses can drive innovation in product design and manufacturing processes, leading to new business opportunities and revenue streams. For example, if you implement circular economy principles and develop new products made from recycled materials, you can create new revenue streams and differentiate your business in the market.Building a sustainable supply chain can not only be the right thing to do from an ethical perspective, but it can also be a smart business strategy. Embracing sustainability this way can reap numerous benefits that go beyond financial gains.
To successfully build a sustainable supply chain, companies need to implement best practices across three stages of the sustainable supply chain management process.
1) Strategy and Planning Stage:
This first stage in building a sustainable supply chain is developing a strategy and planning. This involves identifying the goals, metrics, and targets for your sustainable supply chain initiative.Some best practice activities here include:
a) Conducting a sustainability risk assessment for your supply chain to identify potential environmental, social, and economic risks
b) Establishing key performance indicators (KPIs) to track progress towards sustainability goals
c) Setting targets for reducing carbon emissions, waste, and water usageFor example, Patagonia created a supplier code of conduct to ensure that all of its suppliers operate in an environmentally and socially responsible manner.
2) Implementation Stage:
The second stage in building a sustainable supply chain is implementing your strategy. This involves working with suppliers to improve sustainability performance, tracking and reporting on progress, and continuously improving processes.Some best practice activities here include:
a) Engaging with suppliers to promote sustainability and implement best practices
b) Tracking and reporting on sustainability metrics regularly to assess progress towards goalsc) Encouraging suppliers to adopt environmentally friendly practices, such as reducing energy usage and carbon emissions, and adopting circular economy practices. For example, Walmart launched its "Sustainability Index" program to track and measure the sustainability performance of its suppliers.
2) Monitoring and Continuous Improvement Stage:
The third and final stage in building a sustainable supply chain is monitoring and continuous improvement. This involves regularly assessing performance, identifying areas for improvement, and implementing changes to improve sustainability.Some best practice activities here include:
a) Conducting regular sustainability audits to identify areas for improvement
b) Collaborating with suppliers to develop and implement sustainability improvement plans
c) Continuously tracking and reporting on sustainability metrics to assess progress and identify areas for improvement. For example, Unilever launched its "Sustainable Living Plan" to track and report on the company's progress towards its sustainability goals.One can look at this loop as a continuous improvement exercise for how you onboard, work with and monitor any supply your business works with. It’s worth noting that every supplier management process will be different. Your size, industry, geographic, resources and priorities all determine this.
For your priorities, doing a materiality assessment might be great first step for you. But however yours looks, remember it’s an iterative process that only gets better in time.
To sum up, a sustainable supply chain must consider environmental, social, and economic factors. It should be built on the principles of transparency, accountability, and collaboration with suppliers. From reducing emissions, waste, and pollution to improving working conditions, companies can make a genuine positive impact on the planet and the communities they operate in.
Above all, remember sustainability is a journey, not a destination, and every step counts towards a better future. Managing your suppliers correctly is just one of them.[b]If you're business is looking for help with supply chain management or simply wanting to improve your company's sustainability speak to us today.
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