Sustainability was a major topic of conversation for businesses and the media over the last couple years. Today, consumers are willing to put their money where their morals are, but organizations have yet to do anything about it.
Consumers will often pay more and wait longer for products they buy to be delivered sustainably, but a new West Monroe Partners survey of North American supply chain executives found that half (49 percent) don't consider sustainability a strategic priority. To that end, only 36 percent of supply chain leaders have plans to incorporate sustainability into their operations and, of this group, 22 percent plan to do so in the next three years.
This is a missed opportunity for businesses, given how discerning consumers are about the brands they're loyal to and the tangible benefits sustainability efforts deliver. A 2015 World Economic Forum report noted that organizations can boost revenue up to 20 percent, and brand value up to 30 percent, by investing in supply chain sustainability.
Sustainability initiatives offer supply chain executives the chance to impact their organizations' customer relationships and bottom line—if they build a sound business case for it first.
Making the Case for Supply Chain Sustainability
A handful of factors enabled U.S. organizations' sluggish approach to supply chain sustainability. Though some individual states and local governments are pushing through policies to enforce stricter supply chain standards, the U.S. still lags behind places like Europe in terms of regulatory pressure. At the same time, there's a minimal understanding among C-level executives around the long-term value sustainable supply chains create. From a technical perspective, some businesses lack the information technology (IT) platforms necessary to help measure their current costs against the projected savings of a sustainability initiative.
The upshot of these variables is that organizations today have an opportunity to differentiate and pioneer a shift toward more environmentally, economically and socially responsible logistics operations. In order for supply chain leaders to start making operational changes, they must be able to present a quantified business case for disrupting the status quo. There are three key exercises executives can undertake to build the strongest case, including:
- Carbon footprint assessments. Proving the mitigated environmental effects of sustainable supply chain operations is critical to winning the C-suite's support. By running a carbon footprint assessment, supply chain leaders can measure the organization's current environmental impact and frame the benefits of a sustainability strategy in a big-picture context.
- Customer sentiment analyses. In addition to calculating the environmental impacts of a sustainable supply chain, it's important to understand how making certain changes will affect the organization's customer relationships and sales. Earning buy-in from other business leaders is contingent on demonstrating how sustainability can grow the brand's audience and strengthen customer loyalty.
- Bottom-line savings. Using the results of carbon footprint and customer sentiment assessments, supply chain executives need to illustrate the dollar savings unlocked by more sustainable operations. Other stakeholders will look to you to prove sustainability's revenue potential before supporting the cause.
Recommendations for Supply Chain Transformation
Sustainability may be far from a mainstream concept in the corporate world, but there are a number of tangible changes organizations willing to evolve their supply chains can pursue:
- Renewable energy adoption. Integrating renewable energy sources into supply chain operations doesn't have to be as large scale as investing in wave energy research (as Apple recently did.) With the price of solar photovoltaic (PV) installations dropping steadily, cost is no longer a primary barrier to commercial and industrial renewable adoption. Even smaller tweaks, such as installing energy-efficient lighting in company warehouses and switching to fuel-efficient vehicles for last-mile delivery, can have a significant impact on a brand's total carbon footprint.
- Smarter procurement strategies. Another way to improve supply chain sustainability is through an organization's suppliers. With input from other departments, procurement teams can lead the charge to set specific sustainability criteria used to vet current and future suppliers. These factors could range from a supplier's carbon emission levels to where they source raw materials or their internal labor practices. Large organizations are beginning to embrace automated solutions to more efficiently compare potential suppliers (against the firm's sustainability criteria) and ensure relevant controls are baked into supplier contracts from day one.
- Facility site selection. Rethinking supply chain real estate can also help organizations realize sustainable operations. For example, national retailers are beginning to develop warehouse and distribution facilities in close proximity to intermodal transportation hubs—partly to minimize their dependence on truck shipping and take advantage of greener rail options. Similarly, more brands are swapping massive logistics facilities located in rural or suburban areas in favor of smaller buildings closer to population centers. This helps organizations reduce the environmental impact of getting goods to consumers, without sacrificing delivery speed.
In the next few years, sustainability will no longer be an exception, but a rule that all organizations must follow. Supply chain executives who start addressing these concepts now can position their brands as industry leaders and customer favorites.
Yves Leclerc is a managing director and leader of the firm's supply chain practice. David South is a senior manager with West Monroe Partners and leader of the firm’s sustainability practice.