From Apple and Adidas to Walmart and Whole Foods, companies around the world are actively taking steps to improve their supply chain sustainability. Important issues like forced labor in Xinjiang and worsening climate change continue to elevate the need for supply chain sustainability, traceability, and transparency in 2023 and beyond.
Supply chain sustainability ensures that all the processes, activities, and steps involved in producing, transporting, and delivering goods and services within a supply chain are environmentally friendly, socially responsible, and safe
Supply chain sustainability considers the environmental impact of sourcing raw materials, manufacturing products, and transporting them to customers, as well as the impact on the communities where these activities take place. As a practice, it embeds environmental, social, and corporate governance considerations across supply chain procurement, sourcing, and logistics.
Additionally, supply chain sustainability involves making sure workers involved in a supply chain are treated fairly and have access to good working conditions. The overall goal of supply chain sustainability is to reduce the negative impact of business operations on the environment and society, while still meeting the needs of customers. There are both social (human rights) and environmental (carbon, water, waste, pollution) aspects to supply chain sustainability.
Three major difference between a traditional supply chain and sustainable supply chains are (1) efficiency, (2) proximity, and (3) circularity. Circularity means raw materials and/or products in a supply chain are renewed or re-used, rather than wasted. All other things equal, a circular supply chain is more sustainable than a linear, non-circular one.
Unlike a company's internal or operational sustainability initiatives, supply chain sustainability requires a unique mix of analysis, collaboration, due diligence, and encouragement. When a major percentage of your business' environmental and social impacts reside in your supply chain, but those suppliers aren't employed by you directly, how can you incentivize and partner with them to achieve more overall sustainability across your value chain?
Supply chain sustainability is important and beneficial to organizations (as well as communities, consumers, and the planet) for a number of reasons:
According to analysis by DHL, the global supply chain and logistics industry generates approximately 3.9 billion tons of CO2 emissions annually, which is about 8% of the world's total emissions. In fact, in their entirety, supply chains create more than half of all global carbon emissions. Supply chains really matter in terms of their environmental impacts.
Moreover, as international commerce increases and supply chains become more global and complex, it's estimated that carbon emissions from supply chains will exceed growth in emissions from all other transportation activities, including passenger transportation. And of course there are other water, waste, and pollution impacts too.
From a social perspective, supply chains also respresent millions of jobs (and workers) around the world. Supply chains determine people's economic livelihoods, the type of labor they perform, and how capital gets allocated to different countries, regions, and communities. Supply chains can be a source of economic opportunity and empowerment, or they can contain terrible human rights violations like forced labor, modern slavery, and child labor.
Supply chain sustainability is also an untapped environmental, economic, and social opportunity. Research suggests only 46% percent of companies audit their suppliers, while only 25% actively engage their suppliers on sustainability improvement.
In 2023, many companies are in the process of implementing more sustainable practices into their supply chains. Common examples include Patagonia, which is known for using organic cotton, recycled materials, and fair wage supply chains to produce its clothing, and IKEA, which is actively investing in supply chain sustainability and circularity around the world.
Patagonia takes a holistic approach to sustainability in their supply chain. This includes implementing environmentally and socially responsible practices at every stage of production, from sourcing raw materials to final product delivery. Some specific actions they take include:
Similarly, IKEA has implemented several initiatives to make their supply chain sustainable. Some of these steps and actions include:
Making new furniture from discarded furniture and recycled materials. Source: IKEA
You also don't need to be a global brand like IKEA to implement and invest in supply chain sustainability, for example, Brazilian meal delivery startup LivUp recognized an opportunity to purchase surplus products from local farmers to provide healthy, affordable, and accessible food to low-income families in need. In the same supply chain cycle, LivUp's model provides farmers with additional income, reduces food waste, and helps improve access to healthy food - all of it implemented through a circular, highly efficient logistics model.
While LivUp employs a particularly thoughtful, circular business model, there are learnings and lessons that can be applied to any company:
There are many steps and best practices a company can follow to improve the sustainability of its supply chain. Some of these include:
If necessary, it can be helpful to engage senior leadership in these efforts. Communications to suppliers, partners, and other stakeholders often carry more weight if it comes from the CEO or Head of Procurement. Power mapping, both internally, within a supply chain, and at the individual supplier level is important.
In our experience working with global suppliers on sustainability and ESG, the majority of suppliers genuinely want to support sustainability efforts, but are also under-resourced and often under-educated in these areas. Most suppliers are used to filling out sustainability surveys, but not necessarily engaging directly on sustainable sourcing plans or environmental efficiency projects.
it's important to find common ground with the supplier and communicate why sustainability is in their best interest for the long-term growth, health, and stability of their business.
While many supply chains - particularly global ones - can be quite large and complex, it helps to break things down and prioritize specific supplier relationships based on tiering, procurement volume, and strategic importance. We've seen organizations of all shapes and sizes (including some of the world's largest procurement organizations) increase their focus and investments in supply chain sustainability, traceability, and transparency in the past several years, and expect this trend to continue and broaden, influencing more upstream suppliers and partners to comply with better sustainability standards and labor practices.
Remember, this work is challenging, and most organizations are undertaking it right now. In a recent survey by The Sustainability Consortium, a non-profit dedicated to improving the sustainability of consumer products, less than 20% of the 1,700 respondents said they have a comprehensive view of their supply chains' sustainability performance. More than half reported being unable to determine top sustainability issues within their supply chain.
Despite these difficulties, in most industries, engaging suppliers on sustainability is one of the most material paths to reducing a company's own environmental and social footprint. Supply chains are the foundation of an organization's sustainability performance and GHG emissions inventory, and it can't be overlooked.
Decarbonizing a global supply chain is complex, and requires internal capacity, resources, investment, and, most of all, time. But, when done well, supply chain sustainability leadership boosts everything from local community benefit to your firm's brand, reputation, operating financials, and investor consideration.