The Cost and Importance of a Sustainable Supply Chain

Sustainability practices are paramount for most businesses today. Eco-friendliness has become a key component of business models and corporate sustainability as companies respond to pressure from consumers, investors, government regulations, competitors, and employees to implement sustainability initiatives.

But simple initiatives within the walls of the company won’t cut it this time, and a total overview of the supply chain is needed. That’s where the triple bottom line approach to a sustainable supply chain comes into play. It is the intersection of social, environmental, and financial performance linked with a broader sustainability strategy.

Investment in such grassroots sustainability initiatives tends to be more cost-effective in the long run with a host of other added benefits, including cost control, reduced environmental impact, and increase brand loyalty and reputation.

What is a sustainable supply chain and why is it important?

A supply chain is a collaboration between several different organisations, including a company and its supplier, to produce and deliver a product or service to an end user. It also encompasses the steps, information, and resources that go into the process from start to finish. Effective supply chain management can result in lower costs and a faster cycle of production and distribution.

What makes a supply chain more effective is the integration of sustainability initiatives within the full lifecycle of goods and services across social, environmental, and economic impacts. The United Nations Global Impact has outlined 10 practical steps to supply chain sustainability. These include the protection of human rights, the advocacy of ethical labour, the promotion of environmental responsibilities, and the work against corruption in all its forms.

The purpose of supply chain sustainability is to provide long-term value for all stakeholders involved in the process of production and distribution of goods and services. It also offers business transparency through compliance with international regulations for sustainable business conduct. In fact, scholars argue that success in the modern business environment has shifted from one company competing against another to one supply chain competing against another.

Cost control

The successful management of a supply chain sustainability and the adoption of the triple bottom line approach can result in long-term cost reduction despite the initial investment. By reducing waste and increasing machine efficiency, companies can see massive financial returns while reducing their carbon footprint.

Take Nike, for example, who applied changes to the manufacturing process of some of its trainers by reducing labour costs by up to 50% and minimising material usage by 20%. This resulted in 0.25% increased margins.

Digital transformation is a key factor when it comes to increasing the efficiency of supply chain sustainability and cutting costs. According to a study conducted by PwC which surveyed over 6,000 senior supply chain executives between 2019 and 2020, those who implemented heavily digital supply chain technologies (Digital Champions) reported a 7% drop in supply chain operations costs. 55% of the Digital Champions said that the pandemic has made the investment in supply chain sustainability a top priority.

Reduced environmental impact

Traditional supply chains tend to have a severe environmental impact. This includes toxic waste, deforestation, water pollution, long-term damage to ecosystems, and higher greenhouse gas emissions. Through an adept network with suppliers and the implementation of eco-friendly technologies, companies can promote greater environmental responsibility.

Let’s look at a case study done on P&G’s environmental initiatives. The majority of its consumers are willing to buy sustainable goods only if they receive the same quality product. A recent report from Unilever indicates that 33% of consumers are supporting brands based on their social and environmental impact, and this will increase with time.

In order to ensure that “life cycle thinking”, which is essentially a sustainable supply chain, runs across all operations from sourcing raw materials to the end disposal, P&G has issued a Supply Chain Environmental Sustainability Scorecard. Its purpose is to track improvements on key partner-related environmental sustainability measures in the supply chain. These measures include electric vs fuel energy use, water usage, hazardous vs non-hazardous waste disposal, direct vs indirect greenhouse emissions, and environmental management system. P&G aims to develop a new industry standard for supply chain evaluation.

Building brand loyalty and reputation

As corporate sustainability is influencing consumers’ behaviour, a company’s green reputation is at stake. In order to enhance business growth, brands need to look after their reputation and strive to increase loyalty.

When it comes to social footprint, consumers are concerned with ethical labour and fair working conditions. Since employees represent a company’s ethics and communicate the brand’s corporate sustainability, it’s important that they receive fair treatment and are engaged in green practices. This could be done through the implementation of eco-friendly team-building activities, such as planting trees, hosting green awareness workshops, and investing in sustainable warehouse workwear.

Through proving their green credentials, companies are likely to attract new business as they show potential clients that they’re taking action towards reducing their environmental impact. On the other hand, if a company has a damaged reputation, it’s likely to lose business and have a hard time rebuilding its reputation.

Reviewing a company’s supply chain and implementing sustainable initiatives through the triple bottom line approach has become paramount in today’s business environment. Through making small changes, companies can receive a multitude of benefits for both their business and the environment.