Sustainable Supply Chain
01 Mar 2018

How Green is Your Supply Chain? And why it matters. Part I

lalidah
by siel
on 01 March 2018
Sustainability - 2018

“Our growth ambitions and meeting the rising expectations of our consumers are only possible with a smarter, faster and more sustainable supply chain” Eric Sprunk, COO Nike.

“How to grow sustainably is the biggest challenge facing companies everywhere” - Paul Polman, CEO Unilever.

Both these quotes by two global industry giants is a great way to start this discussion. Why, you wonder? Because it shows both sides of the same sustainable coin: although companies want to up-green their supply chain (and are aware of the repercussions if they fail to do so), they struggle to actually get the job done.

Let’s take a closer look at both the obstacles and incentives faced by companies of all shapes and sizes on their path towards greater supply chain sustainability.

Sustainability is Serious Business

Sustainability is a hot topic in the boardrooms of many businesses. It’s an aspect you can’t choose to ignore: not only due to good global corporate citizenship but also because governments (understandably, one might argue) keep on implementing regulations. Moreover, none of us can keep denying that our energy demands are too high for the planet (unless you also believe in fake news). And it seems that most of us did get the memo, as investors prefer investing in sustainable companies and these are actually outperforming the less sustainable ones on the stock markets.

Still, be that as it may: only 23% of respondents of the Carbon Disclosure Project, CDP, questionnaire said they were investing in the sustainability of their supply chain. This is a relatively small number, which means that there are still many opportunities left untouched and we can and should only go upwards from here on out. The number of leaders that are looking into increasing their supply chain sustainability has doubled in the last year. Doubled! Also, around 93% of executives see sustainability as a key factor to success for the future of their business, as well as believing they’ll achieve increased market share in comparison to their competitors as a result of a more sustainable performance.

So why the discrepancy between what these executives seem to know and what they actually do? The biggest barriers to applying sustainability in the supply chain are: the implementation costs, unimportant to the management board, lack of knowledge, lack of shared values and lack of resources. But change never comes easy or cheaply, and there are plenty of reasons why they will have to power through it eventually, teeth grinding or heads held high.

Global Corporate Citizenship

The main reason why companies are or will be more focused on sustainability these days is global corporate citizenship, which involves the social responsibility of businesses and the extent to which they meet legal, ethical and economic responsibilities. Roughly 32% of respondents of in McKinsey Survey answered that the second best reason is their corporate reputation: companies are more aware of their customers’ demands for more environmentally-friendly products and increased transparency… and the punishment they’ll endure if they do not comply with these demands.

Government Regulations

Besides good corporate citizenship, there are also external drivers for sustainability. One example is carbon regulations and air quality targets set by governments and transnational organisations like the EU. Or even guidelines and initiatives coming from within the industry itself. A recent example is the EU’s target to reduce CO2 with 20% by 2020. This is supported by the ‘Measurement, Reporting, Verification’ (MRV) regulation: beginning January 1st, 2018, all ships over 5,000 GWT, regardless of flag, have been reporting their CO2 emissions on voyages to, from, and between EU ports.

Global Energy Demands

The global energy demands are way too high for this planet we call home to keep up with. By 2050, we would need the resources of 2.5 Earths in order to support a population of 9 billion people. There’s only 1.0 Earth, which means we have to go about our daily and industrial lives smarter and more efficiently in order to waste fewer resources. And there’s no time like the present. Seriously, there’s not, because if we wait much longer, we will be risking our future.

Investors

So keeping things green is crucial. Not only for our planet but also for your own company - just in case we couldn’t persuade your cold heart with the last argument. A report by BCG & MIT Sloan Management Review found that 75% of senior executives see a company’s sustainability performance as a very important factor in their investment decisions. Almost half would not invest in a company that doesn’t have a good sustainability record. So you’re not doing your wallet any favours either, as it seems that investing in a greener supply chain in the short-term, will get more investors buzzing around your company in the long-term.

Sustainability can be Big Business too

So here’s how that whole ‘greener company = fatter wallets’ equation works. It seems that for every 1% reduction in carbon emission, your company sees a 1% reduction in costs. This means that sustainability equals efficiency in logistics, because when you start working on your sustainability, you’ll have to take a look at all the steps in your supply chain to see where you can lower your carbon emissions and which steps cause the most waste. Simple maths, people.

Reducing the environmental footprint of your supply chain has many more positive effects. It can reduce the use of energy, water, natural and synthetic materials whilst also improving your workers’ motivation, productivity and cost efficiency. Another benefit whose value should not be underestimated, is an increased understanding of your processes, as this will give you an opportunity to manage your resources better. And this will give you a competitive advantage, as Etho Capital‘s research found that the more climate-efficient companies outperform their less efficient counterparts (see first graph of the blog).

From Knowing to Doing...

Stay tuned for part II on this topic in next month’s blog for a more hands-on, practical review of how to really lower your company’s footprint. But whether it be theory or practice, it seems that the greener supply chain is going to be the one that is smarter and better connected to its partners. Pro Alliance is here to make the ‘smarter and better connected’ part happen. We can provide you with the opportunity to work with all your stakeholders in order to get a clear picture of your entire supply chain, which in turn will result in a greener and more profitable process. Contact us to make your supply chain green, smart and connected!

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