Over the last decade, the ability to operate sustainably has become a top priority for large enterprises. Ensuring internal operations are sustainable is no longer enough; businesses must implement strategies to ensure sustainability ambitions are being supported throughout all tiers of the supply chain. Promoting sustainability throughout a complex supply chain is challenging, but a simple framework could address the issue.
Supplier collaboration plays a critical role in developing sustainable supply chains of the future. Developing collaborative partnerships with key suppliers will enable enterprises to manage the impacts and risks of their operations whilst capitalising on opportunities for value creation. By aligning projects with UN Sustainable Development Goals (SDGs), collaboration can promote incremental efficiency gains and transformational changes to business models that create a more sustainable economy.
The Carbon Emissions Example
The reduction of carbon emissions is part of a number of SDGs, and many companies have initiated programs that aim to reduce the carbon footprint of their supply chains. This isn’t surprising. Research Carbon Disclosure Project (CDP) found that the average business’ supply chain generates approximately 5.5 times more carbon emissions than its direct operations, with the retail industry producing 11 times the emissions.
“[L’Oreal] will be looking to collaborate with suppliers and drive emissions reductions further down the supply chain”. Alexandra Palt, Chief Corporate Responsibility Officer, L’Oréal
However, opportunities do exist to collaborate with suppliers and reduce emissions. For example, CDP research found that increasing renewable energy use within the supply chains of 125 large corporates by 20% would reduce emissions by over a gigaton. A big challenge for corporates is promoting such initiatives to a larger number of smaller suppliers, and through multiple supplier tiers to trigger a cascade change throughout the supply chain. This obstacle is well recognised, and some firms such as L’Oréal are making efforts to overcome it.
Start with a Framework
Modern supply chains are very complex, and managing risk and impacts whilst capturing opportunities to sustainably create value is challenging. However the fundamentals for an effective framework are consistent across all organisations, regardless of industry – understand, plan, apply and evolve.
Understanding risks, opportunities, challenges and capabilities within the supply chain is key for creation of a supply chain program, and reveals opportunity for value creation via collaborative innovation…
- Identify the drivers of risk and opportunity (E.g. Legislation, Pricing, Disruptive technology).
- Scenario planning – how these drivers may develop, how can they be planned for and how revenue/costs could be affected
- Outline actions to capitalise on opportunities and mitigate risks.
Plan approaches that address the sustainability risks and opportunities identified…
- Create ambitious sustainability targets that align with wider business objectives
- Segment the suppliers based on these targets, using understandings of risks and opportunities.
- Prioritise goals and develop a plan of action that uses company resources and top tier suppliers.
- Establish necessary process, governance and capabilities to execute the strategy.
- Engage with suppliers on scalable pilot projects that demonstrate value.
- Scale up successful initiatives, enabling them to impact the value chain.
Programs within a sustainability strategy have the potential to have very high impact. It is therefore important that organisations continuously learn from outcomes and adapt the strategy accordingly. This is best achieved through creating a learning loop that focuses on rapidly iterating, piloting and validating of sustainability initiatives.
The world population will reach 9.8 billion in 2050. The U.S. Energy Information Administration predicts energy consumption will increase by 50% between now and then, and natural resource use shows a similar trend.
With this in mind, the supply chain is one area with plenty of room for improvement when it comes to sustainability. A successful approach will involve the use of supplier collaboration to reduce impacts, mitigate risks and capitalise on opportunities for innovating new products and processes. Employing best-in-class technology to do just that will help drive sustainability and drive profit margins in equal measure.
With today’s public being more socially-conscious than ever, businesses must align themselves with this shift towards a sustainable supply chain.