If your company is focused on growth and intends to be in business for the long term, supply chain sustainability is an imperative. Climate change, the COVID-19 pandemic and regional conflicts have created a new set of risks and opportunities for growth in the global business environment. In this New Normal, it is more important than ever to scrutinize the environmental, economic and social impacts of the products and services required to deliver your enterprise’s value proposition. This holds true whether you’re in the manufacturing, commercial services, retail or government sector.
At the macro level, decisions made by sourcing and procurement professionals either create big risks or enable big growth opportunities for an organization. More fundamentally, product and material sourcing are often a significant contributor to a company’s greenhouse gas (GHG) emissions.
Today’s business case
Why is it important to address supply chain sustainability now? Four main drivers emerged in 2022:
- We are now facing a climate emergency. Since the “World Scientists’ Warning to Humanity,” signed by over 1700 scientists 30 years ago, there has been a roughly 40% increase in global GHG emissions.
- ·Many of the world’s most powerful businesses have joined governments in pledging to reduce GHG emissions. In addition, over 500 organizations have committed to reducing use of virgin plastic and increasing use of post-consumer recycled content in products and packaging by 2025, which also reduces GHG emissions.
- The Inflation Reduction Act (IRA) passed earlier this year provides unprecedented (over $400 billion) federal funding that includes incentives to boost supplier sustainability across the United States. This funding will transform supply logistics to create localized circular economies and aid scaling of innovative technologies to reduce GHG emissions.
- The Security and Exchange Commission (SEC) proposed a rule last March to address climate risk by mandating public companies report climate-related risks, emissions and plans for a net-zero transition. This is a global trend, as other countries moved ahead with similar measures. The rule requires reporting supplier greenhouse gas emissions (also known as Scope 3 emissions) if they are material or if the filer has a target.
What makes a supply chain sustainable?
According to the United Nations Environmental Program, Business for Social Responsibility, and their member companies, supply chain sustainability is defined as “the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the life cycles of goods and services.” Practically speaking, the objective of supply chain executives is to reduce risk while growing long-term value for the key stakeholders that produce products and services and bring them to market.
What makes them unsustainable? They are often too long, involving complex logistics, and hence are vulnerable to more disruptions. Inefficiencies in manufacturing and transport result in higher GHG emissions. For example, the number of stakeholders involved, potential conflicts and likelihood of extreme weather disruptions all increase with distance.
To achieve sustainability and climate risk reduction objectives, supply chains need two characteristics:
- They need to look more like supply networks (think of a web) rather than chains. There need multiple, shorter chains that provide redundancy and improved material efficiency. This approach ultimately lower costs and carbon emissions as well.
- These supply networks need to become aligned with the UN Sustainable Development Goals (SDGs). More than 193 countries are on board with the SDGs and more than 8,500 companies are impacted by them.
How to get started
Here are some practical steps to get started. Begin by reviewing your own organization’s sustainability commitments and extend any relevant commitments to your suppliers. Look at policies related to environment, but also diversity, equity and inclusion and governance given these are material sustainability risks as well. Talk to peers responsible for these policies about training to raise supplier awareness.
Update procurement policies to systematically incorporate these commitments into all supplier engagement (meetings, guides, forms) and RFQs.
Review supplier contracts with the objective of creating longer-term, partnership-oriented agreements that promote value creation rather than just cost savings in the short term. For example, your suppliers can fund capital investments in innovative technologies if they have long-term customer contracts that justify their financing.
There are some excellent resources available on environmentally preferable purchasing (EPP) to implement your company’s supply chain sustainability initiative. EPP guides the procurement of goods and services that have a reduced impact on human health and the environment compared to competing products. It is commonly utilized by federal and progressive state governments seeking both quality and cost-competitive goods.
EPP requires consideration of numerous environmental considerations, including:
- Post-consumer recycled content
- Energy efficiency
- Low/zero air emissions
- Low/zero hazardous substances
- Water efficiency
- Easy, non-hazardous maintenance
- End-of-life management keeps materials out of landfills (e.g., reuse, recycling, return to manufacturers)
- Low life-cycle cost
- Responsible manufacturing
- Packaging and distribution efficiency
Bottom line, you as customers are in the best position to catalyze sustainable business growth. Collective brainstorming between buyers and sellers will create long-term sustainable partnerships that drive the results you seek – higher quality products and services at competitive prices.