Consulting firms are now venturing into uncharted territory by incorporating sustainability for supply chain consulting strategy. With a focus on sustainability, supply chain executives are taking steps to secure their access to resources, build resilience, and explore new opportunities. However, challenges must be overcome, and new opportunities must be pursued.
While many executives have long-term sustainability goals for their supply chains, measuring progress has been difficult due to a lack of visibility, technology, and comprehensive programs. The main hurdles to their sustainability initiatives are the upfront costs and a lack of a clear business strategy to support the expenses and endeavors.
To get a handle on how businesses should approach sustainability, we should first grasp what sustainability is and wrestle with the challenges it entails for businesses.
What does sustainability mean in the context of business strategies?
Businesses have two ways of defining sustainability: Performance Sustainability, which refers to a company’s ability to sustain its growth and development without setbacks, and Environmental, Social, and Governance Sustainability (ESG), which involves adopting green programs or improving environmental credentials.
Organizations have a collection of procured goods and service supply chain decisions that affect their environmental, social, and financial performance. Improving green practice means reducing the carbon footprint or greenhouse gas (GHG) impact of the procured goods and supply chain operations.
Your business does not need to sacrifice its financial and performance goals just to give back to your people and environment. The correlation between better supporting your people and the environment around us is getting more inextricably linked with profitable and stable business performance. Achieving sustainability requires a shift in mindset and a repurposing of tools, skills, and measures.
Andrew Winston’s Harvard Business Review Whiteboard Session: “The Business Case for Sustainability” suggests that companies should focus on four components to redefine return on investment for supply chain sustainability: cost reduction, revenue growth, risk management, and intangibles.
By reducing material waste, improving efficiency, and managing regulatory and compliance risks, companies can improve their environmental impact and build a sustainable supply chain. They can also examine how sustainability can improve market share, stock price, and profitability, as well as customer loyalty, brand reputation, innovation, employee quality of life, and talent retention.
Having environmental, social, and financial performance goals at its center is essential for a business that aims to grow and succeed. Performance Sustainability and ESG Sustainability should be treated as one and the same.
Businesses are increasingly accountable for our suppliers’ approaches, policies, and decisions. They must be aware of the impacts of what they consume as a business. This can be broken down into three scopes:
Scope 1: Emissions / impacts from the assets under your control (such as facilities / vehicles)
Scope 2: Power, heating, cooling that you acquire for your own use
Scope 3: Goods and services that you procure or provide and their downstream use and treatment
A green supply chain is achieved by successfully integrating environmentally responsible principles and benchmarks into supply chain management. This can be practiced from the inception of a product’s design to its ultimate disposal, sustainability considerations now span the entire supply chain, from materials sourcing to manufacturing, logistics, and end-of-life product management. As consumers become increasingly eco-conscious, they are seeking greater transparency from businesses about the environmental impact of their purchases, making sustainability an increasingly important factor in purchasing decisions.
How can we incorporate sustainability into Business Strategy?
Sustainability is not just a buzzword or a trend. As a modern business, we recognize that we have a duty to safeguard the future by making sustainable choices in the present. It also means creating long-term value for the organization and its stakeholders while being mindful of conserving and protecting resources.
But how can businesses incorporate sustainability into the business strategy? How can businesses today harmonize their economic goals with their environmental and social responsibilities in their actions and operations to positively impact the future?
One way to approach sustainability is to use the concept of the triple bottom line: people, planet, and profit. This framework recommends that businesses should not only measure their financial outcomes but also assess their effects on society and the environment.
People: Collective Sustainability
Collective or Social sustainability is about creating a positive impact on people’s lives through business practices. It means respecting and empowering everyone who interacts with a business, from employees to customers, from suppliers to communities. It covers topics such as diversity and equality, fair treatment, ethical labor and governance, health, safety and security, relieving poverty, and privacy.
Some examples of social sustainability practices are:
- Providing fair wages and benefits to employees
- Promoting diversity and inclusion in hiring and leadership
- Ensuring safe and healthy working conditions
- Supporting employee development and well-being
- Engaging with local communities through volunteering and donations
- Respecting human rights and avoiding modern slavery
- Protecting customer data and privacy
Planet: Ecological Sustainability
Ecological sustainability is when businesses strive to use natural resources wisely and responsibly and reduce the environmental footprint of a business. It involves issues such as replenishing natural resources, ensuring chain of custody, renewable energy, sustainable water and land use, limiting or eliminating emissions, pollution, landfill waste, and utilizing a circular economy.
Some examples of environmental sustainability practices are:
- Reducing energy consumption and greenhouse gas emissions
- Sourcing energy requirements from renewable sources such as solar or wind power
- Implementing water conservation measures such as rainwater harvesting or recycling
- Adopting sustainable sourcing practices such as organic farming or certified forestry
- Reducing waste generation by reusing or recycling materials
- Creating products that have a long-life span, can decompose naturally, or can be reused for other purposes
Profit: Economic Sustainability
Economic or Financial sustainability refers to how businesses ensure their long-term viability by generating profitable growth while maintaining competitive advantage . It involves issues such as supply security, price stability, efficient processes, perception as a positive employer.
Some examples of financial sustainability practices are:
- Investing in innovation and research
- Developing new products or services that meet customer needs and preferences
- Improving operational efficiency and productivity by reducing costs and waste
- Enhancing brand reputation and customer loyalty by demonstrating social and environmental responsibility
- Attracting and retaining talent by offering remote and hybrid work options, ethical investment strategies, and opportunities for learning and growth
- Collaborating with nonprofits, governments, and other stakeholders to advocate for policy change or support social causes
How does incorporating sustainability into the business strategy benefit the business?
Creating a sustainable business strategy requires a holistic approach that aligns with the organization’s vision, mission, values, and goals. It also requires leadership commitment, stakeholder engagement, data analysis, action planning, implementation, monitoring, reporting, and continuous improvement. Because of this massive investment into sustainability, the benefits to a business should be equally rewarding.
According to CDP, an international nonprofit that promotes environmental disclosure, the impact of end-to-end supply chains on emissions is more than five times that of companies’ direct operations.
Making supply chains more eco-friendly—including direct operations—can also bring significant financial and commercial advantages for companies, especially in the long run.
Here are some reasons how incorporating sustainability into the business strategy benefit the business:
- Innovative supply requirements offer new possibilities for reducing costs, which can help balance out the investments made towards sustainability.
- Meeting the challenges of demand, implementing innovative solutions, and considering total cost of ownership are essential factors in achieving this.
RESULT: Improved EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
PRODUCT & MARGIN DEVELOPMENT
- New and higher margin product development is driven by customer demand, and they are willing to pay for sustainability.
Customer requirements are evolving rapidly with demographic changes.
RESULT: Higher margins
BRAND VALUE & CUSTOMER REQUIREMENT
- Positive sustainable practices strengthen the brand, attract new customers, increase loyalty, and retain business that meets updated sustainability requirements.
- Requests for proposals (RFPs) from tenders increasingly require proof of sustainability practices.
RESULT: Increased revenue
- Having an agenda for sustainability can assist in obtaining more advantageous investment partners and terms.
- Banks and private equity firms have plans in motion towards this.
RESULT: Investment Growth
Transformative actions create radical shifts in the environmental performance of the supply chain and set the company apart from its rivals. This could be through decentralizing production using newer technologies or focusing on process and design changes to maximize the recovery and reuse of byproducts.
Even though such actions require significant innovation and investment, businesses can gradually improve their environmental performance and competitive advantage.
What strategy can we employ to achieve these?
Sustainability is not only a moral duty but also a competitive advantage for companies that want to play the long game. But to employ sustainability in strategy, business should approach it with a holistic mindset that covers the entire supply chain, from sourcing to delivery and beyond. Here are six steps that can help organizations get started on their sustainability journey.
1. Set your sustainability vision and goals based on your business context
Understand the key elements of sustainability that mean the most in your industry, location, market, and leadership. Use these to guide you in your decision making.
2. Identify win-win opportunities where sustainability enhances your core values and principles
Understand the values that your organization believes and practices. Look for win-win situations where your values are not compromised in lieu of pursuing sustainability. Innovation is also key here, and empowering procurement teams to think differently and act differently is paramount.
3. Integrate procurement and supply chain functions to optimize performance and collaboration
Procurement and supply chain are becoming more aligned with one role often covering the delivery of both aspects from purchasing to manufacturing and distribution. Procurement needs to be better networked and informed than ever before. It needs to understand a broad range of topics to effectively achieve both business and sustainability goals.
4. Assess and establish a baseline for your current sustainability situation and performance across the supply chain
Organizations need to baseline their current positions and then identify ways of moving the company towards the direction of sustainability. Third-party consultants are perfect partners to help you identify where your company stands and how to move towards your priority areas.
5. Develop category-specific sustainability objectives, standards, and metrics
Building a sustainable procurement function requires new thinking, new measures, and new data. Ensure that your team is equipped with new knowledge to effectively incorporate sustainability in your strategies. Trained leaders and knowledgeable staff can better execute and develop your plans to produce results.
6. Monitor and measure your results against your goals using reliable data sources
Weave sustainability into the fabric of your company’s development. Improvements can be implemented in the procurement process, supplier relations, manufacturing, merchandising, operations, logistics, policies, management and ethics. Be data-led against the priorities and targets you’ve agreed, and try to step away from the cycle of reactive supply chain compliance reporting into a much more active and anticipatory work. Forging good relationships and discussions with your suppliers can lead you to innovate, find new approaches, and drive real change to achieve sustainability.
To substantially improve the environmental profile of their supply chains and operations, most companies will need to employ a combination of these strategies.
Leading organizations are focusing particularly closely on their global supply chains. These organizations are also working to improve their supply chains’ sustainability, often experimenting with unprecedented types of collaborations with suppliers, customers, and even competitors across sectors and geographies.
If your company is seeking to implement similar strategies, it is important to carefully consider how they can be adapted to your specific context. Taking this proactive approach to sustainability, your organization can position itself for long-term success and help to create a more sustainable future for all.
However, sustainability is not a one-size-fits-all solution. This can be a complex and tiring process, but companies are learning that these extra efforts have a high-payback investment, since greener supply chains can deliver benefits for both business and the environment. To make it work for your business, you need to tailor it to your unique situation and goals.
Partnering with us will decrease the learning curve which your business has to go through to achieve sustainability in your supply chain. With our team of experts, we can help you employ these concepts and incorporate sustainability into the business strategy. Contact us and book a call on our calendar to get started!