5 Strategies for a More Sustainable Supply Chain

5 Strategies for a More Sustainable Supply Chain

The myth that sustainability is daunting and expensive is costing companies millions of dollars. The reality is that implementing a sustainable supply chain strategy can actually reduce cost, time, and risk while increasing efficiency, resiliency, transparency, and agility, allowing your firm to prepare for the challenges of tomorrow instead of being embroiled in the issues of today.

The current global COVID-19 pandemic has been a great litmus test for this theory, with supply chains being tested like never before. While it’s still too early to have a complete picture of the socioeconomic fallout, early indications show that firms whose sustainability strategy is embedded in their core business operations are outperforming the rest. Similarly, ESG investments have weathered the storm to a far better degree than the S&P 500.

This tells us a few important things. First, planning for the future makes you more secure in the present and more resilient to the growing stresses caused by changes in demand, manufacturing, climate, tariffs, and political unrest. Second, sustainability no longer comes with a financial or performance-based tradeoff. In other words, the business case is becoming clear.

There’s no doubt that every firm is grappling with how to best respond to the “new normal”, but as the problems of today begin to subside, attention must be given to the root of the problem at hand. A more strategic and long-term approach to supply chain management where your entire value chain is operating within natural and social thresholds will start to pay immediate dividends in people, planet, and profit metrics while ensuring that you’re able to keep your customer promise.

Strategic Considerations. What is a sustainable supply chain? MIT Sloan Management Review
Fig. 1: Strategic Considerations. What is a sustainable supply chain? MIT’s hierarchical supply chain codification shows that operating legally, ethically, and/or responsibly does not equate to sustainable. Whichever stage you’re at includes the prior stages, but not the subsequent ones. Source: MIT Sloan Management Review.

5 Strategies for a More Sustainable Supply Chain

1. Embedded Sustainability Strategy

For your business to reap the benefits from any investment of time or resources, you must embed your sustainability strategy in your core business strategy. The idea that sustainability is inherently at odds with the financial performance and, therefore, the overall health of a business can be traced back to Milton Freidman’s economic theory of shareholder primacy, which says that “corporations have no higher purpose than maximizing profits for their shareholders.” The trouble with this assertion is that any sustainability efforts that aren’t integrated in your business model are effectively just philanthropy: money out the door without any plan to deliver business or stakeholder value.

By siloing your sustainability efforts, you’re missing out on marketing and sales opportunities, as well as cost and time savings from efficiency gains. Further, sustainability itself is no longer a novel idea and consumers can sniff out greenwashing if your marketing and communications don’t align with your business’ priorities and actions. Simply put, surface-level commitments without deeper action will drain your resources, not add business value.

2. Strengthen Partnerships & Supply Base

The interdependent nature of supply chains means that the actions of one have implications on all. Supply chain managers have the privileged position of being at the center, selecting suppliers based on their capabilities and orchestrating all the different components. As regulations tighten and the margin for error nears zero, the importance of developing a strong supply base and relationships throughout your supply chain are imperative to delivering the final product while keeping cost, time and risk as low as possible.

Setting clear standards, insisting on continuous improvement beyond just the regulatory minimum, and keeping clear communication channels all play a role in the ultimate success of your product launches. The more you invest in these relationships in times of prosperity, the more resilient they’ll be in times of strain. And, it’ll allow you to pull your supply base toward a more sustainable, shared future. After all, it’s great to reduce your own environmental impact, but the real opportunity for noticeable impact and value is when these improvements are echoed throughout your entire supply chain.

3. Product & Process Design

Supply chain managers have the unique ability to oversee all phases of production, which allows for the opportunity to select suppliers based on their innovative processes and capabilities and to also help shape various stages of product design. By way of an embedded supply chain sustainability strategy, your supply chain managers can be involved in the critical design and process development phases, finding ways to cut costs without increasing risk through process improvements, while also decreasing the product’s impact through proper life cycle management. New and innovative products have the benefit of a clean slate, whereas mature firms perhaps have more resources and experience.

Regardless of where you stand, the product design phase is an incredibly powerful lever. Whether it be by incorporating more recycled content in your products build materials, increasing modularity so that broken components can be easily swapped out instead of replacing the whole, or identifying partners that can repurpose items like Li-ion batteries instead of them ending up in a landfill, purposeful design will decrease costs while creating more opportunities to capture value throughout your product’s lifespan.

4. Certifications

Pursuing a credible third-party certification such as ISO (9001, 14001, 24001), LEED, or B Corp will help authenticate your sustainability efforts, distinguishing you from the rising tide of greenwashing. In fact, research conducted by the World Economic Forum has shown that certification has a positive environmental, social, and economic impact on business activity. Sound familiar?

Certifications help build more resilient supply chains through increased transparency, shared responsibility, and a process of continuous improvement, furthering your strategic aims and granting you access to a network of innovative partners with like-minded goals. For example, ISO 14001 helps build an Environmental Management System, giving your company a competitive advantage, increasing efficiency and performance, and ultimately saving you money. But as is the case with any sustainability metric, failure to measure success as a part of a longer-term holistic business strategy will mean that you miss out on the benefits.

5. Cloud-based Software

The digitization of supply chains has been perhaps the greatest advancement in supply chain efficiency and visibility, leading to a reduction of cost, time, and risk while repaying the initial investment multiple times over. From a sustainability perspective, cloud-based platforms have led to massive efficiency gains, cutting down waste and providing data that can be used to reduce emissions and lead to better informed decision-making.

Equally important has been the ability to increase transparency across different tiers of suppliers, as firms continue to come under increased scrutiny from consumers who expect responsible supply chain practices that don’t just satisfy legal requirements but uphold human rights. The damage done to your brand from failure to prevent these issues could be catastrophic, and a risk not worth taking. Digitization eliminates blind spots in your supply chain, ensuring that your increasingly complex web of suppliers and parts act in concert. And tracking this data will allow for proper measurement and reporting of sustainability metrics that are critical to benchmarking and ensuring your sustainability strategy is paying economic, social, and environmental dividends.

Conclusion

Convention has shown us that having a coordinated strategy for your supply chain is necessary to reduce your cost, time, and risk. But it’s become evident that a more holistic strategy that includes environmental, social, and corporate governance considerations is vital to ensuring your firm’s success in the short and long term. Through a process of continuous improvement and capacity building, you’ll become more resilient and increase the value delivered to all stakeholders in your network. Further, the attainment of certifications can differentiate your product, opening new markets and revenue streams you didn’t know existed. As consumers start to think harder about how they choose to spend their money, a sustainability strategy is a must for any company looking to navigate these uncertain times and come out more successful and resilient.

-Sam Alden, UVM MBA Consultant

Sam was a student at the University of Vermont’s Sustainable Innovation MBA program. He worked with IndustryStar on his capstone project, which focused on developing new opportunities to increase sustainability in the supply chain space.