There’s no such thing as a perfect supply chain. The key question is: What are you doing to continuously make yours more sustainable?
A sustainable supply chain needs to embed environmental, social and governance (ESG) best practices into how raw materials are sourced, turned into products and delivered to market. It should address a wide range of issues, including environmental and social challenges like water security and deforestation, as well as human rights and fair labor working conditions. Adding to the complexity, companies need to ensure their suppliers and vendors—and their networks—are upholding similar commitments.
It can be challenging, and companies should avoid cutting corners when it comes to addressing sustainability goals. A lot of companies have greenwashed their ways into ESG reports, but if you look under the covers, those efforts don’t really mean anything. Go for transparency and trust, especially because there’s technology that enables you to provide that.
Supply chain management challenges
Leaders should focus on three common supply chain challenges, with high-level solutions that can kickstart organizations toward achieving their sustainability goals and improving their ESG scorecards:
Challenge 1: Companies struggle with visibility into whether their supply chains are sustainable.
By their very nature, global supply chains involve complex and multinational production and transportation networks. Primary suppliers may subcontract portions of large orders to other firms. And since companies often do not deal directly with all the providers in their supply chains, end-to-end traceability is hard to achieve. Each participant in the system tracks only their small segment of the journey and uses disconnected systems to log data.
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When information about the product is fragmented, it’s difficult to answer questions such as, Were all the parts sourced and built in service of the circular economy? Was the labor fair at every step? Getting reliable data from that pipeline feels like a huge and cumbersome task.
Solution: Technology and partnerships can provide a clearer view.
Only one in three organizations are working to drive transparency in the environmental impact of goods and services throughout the supply chain, according to a 2022 study from the IBM Institute for Business Value (IBV), Sustainability as a transformation catalyst. The most pioneering executives work with partners to execute their environmental sustainability strategies. Technology is key to bridging gaps and creating new opportunities for partners to collaborate.
Consider how blockchain technology can drive greater transparency and efficiency in a supply chain, simplifying the exchange and tracking of information and enabling greater trust. It creates a permanent digitized train of transactions that can’t be altered, and each network participant has a copy of the data.
A mobile application from Farmer Connect, for instance, uses IBM Blockchain to trace coffee from bean to barista. The final customer can even scan a QR code on a bag or cup to see the journey of the beans they’re about to enjoy.
Iberdrola, an international renewable energy leader, took another approach and implemented a third-party tool to score suppliers on their sustainability practices. For suppliers that don’t satisfy Iberdrola’s sustainability criteria, the scoring tool helps determine actions they can take to improve.
Challenge 2: Corporate leaders struggle to gauge the ROI of supply chain sustainability initiatives.
About 57% of CEOs say one of the biggest challenges to sustainability efforts is how difficult it is to define and measure the ROI and economic benefits, according to the IBV study. A company’s plans to set social and environmental targets for suppliers, for example, might hit a roadblock if executives don’t know how to measure the benefits. CEOs may have great ambition and great intentions, but they have trouble justifying some of the things that come out of their ambitions.
Solution: Think holistically when it comes to KPIs, as sustainability performance benefits turn up in unexpected places.
Companies are seeing that they can differentiate themselves in the market and appeal to a generation of consumers that is much more interested in sustainability and impact than prior generations. IBM worked with a consumer packaged goods (CPG) brand in Europe to put a QR code on the packaging. People could scan the code to learn about the journey of the products, which translated to an 8% lift in sales.
A sustainable supply chain can also help companies attract the best talent. In a 2021 global survey by IBV, Sustainability at a turning point, 71% of employees and job seekers said environmental and socially responsible organizations are more attractive employers, and nearly half of respondents would accept a lower salary to work at those companies.
Challenge 3: Some leaders do only the minimum that’s required to fulfill today’s regulations, and they fail to think ahead.
There are still companies that have just not bought into the idea. About 29% of CEOs are merely complying with regulations, according to the Own your impact study. And 15% haven’t yet made any sustainability investments at all.
Solution: To increase buy-in, reframe the conversation around practical business reasons, like increased consumer trust and regulatory compliance.
Values-based purchasing is growing. Consumers have more options to choose from and want to support brands whose business practices support their beliefs. Those not implementing sustainability programs or initiatives now are in danger of lagging behind competitors, a gap that will be hard to close over time.
Regulations, such as those around carbon emissions, are increasing too, and regulators are becoming bolder in what they’re requiring companies to do. Germany’s Supply Chain Due Diligence Act, for instance, states that companies with 3,000 or more employees must take appropriate measures to respect human rights and the environment with their supply chains. Audits will happen as the law goes into effect in 2023, and violations result in costly fines and disruptions.
Supply chain sustainability is a way of future-proofing your business. If you’re committed to being responsible, show the world that you are. Technology today, such as blockchain and AI, enables you to get transparency into your supply chain.