What are the Various Aspects of Supply Chain Sustainability?

Your partners and customers don't simply want to know that your supply chains work; they want to understand the provenance of whatever you supply them. A 2018 paper from the MIT Sloan School of Management found that consumers would even pay 2% to 10% more for products from a source with a transparent and sustainable supply chain.

Ensuring your supply chains are sustainable is a critical pillar of your success.

Defining Sustainability: What Does it Mean to say Your Supply Chain is Sustainable?

The United Nations Global Compact delivers ten principles of supply chain sustainability. These principles consider your company's performance around environmental impact, human rights, labour practices, and anti-corruption initiatives.

It isn’t enough for your business to follow these principles in-house, then choose partners that say they do the same; you must take an active role in promoting and developing them.

Furthermore, you must recognise that your supply chain isn't just those partners with whom you deal directly. It is your responsibility to ensure suppliers upstream in your supply chain follow these principles. You must work with your direct partners to help them ensure this is the case.

These are all vital actions in light of your environmental, social, and corporate governance (ESG). While you may previously have struggled to measure ESG given the intangible assets involved, various means of measuring and tracking this increasingly crucial element in demonstrating enterprise value are evolving. Ensuring supply chain sustainability is just one pillar of ESG, but one that you must get right.

Why is it important you understand and know about the partners you work with?

1. You reduce your business’ environmental impact

A 2016 McKinsey report considering supply chain sustainability in an environmental context revealed that, on average, 80% of a consumer business's carbon footprint came from its supply chain. Collaborating with suppliers to help them be more environmentally responsible means your business does the same.

2. You protect your reputation

Brands like Apple and Nike have suffered immense reputational damage in the past decade due to revelations about their supply chains. Human rights abuses in factories producing things used to create iPhones or Air Jordans were a world away Silicon Valley and Oregon, but consumers still held these brands responsible.

3. You make yourself an attractive partner

In developing sustainable supply chains, you become a desirable partner to other businesses, even more so if your company is part of a supply chain itself. You can advocate partnerships on the foundation of having already done the due diligence around supply chain sustainability.

4. You grow your bottom line

While developing supply chain sustainability involves looking beyond the bottom line, the process will come full circle. Whether creating a transparent supply chain for consumers or gaining ISO certifications to attract commercial partners, knowing about those you work with will help you grow your bottom line.

How do you measure sustainability?

You have several options for measuring supply chain sustainability.

Harvard Business School’s Impact Weighted Accounts Initiative is useful for measuring environmental impact alone.

Harnessing software can be helpful for complex supply chains or you need complete visibility and traceability around your partners and what they supply to you.

You could also develop supplier codes of conduct, or encourage suppliers to acquire ISO and other accreditations themselves.

What do you need to know about your supply chain?

At a minimum, aim to ensure direct and upstream suppliers follow the United Nations Global Compact’s ten principles. But, at the same time, you should treat these as a starting point.

Use the below as a checklist to start building sustainable, transparent supply chains.

1. Develop your policies. What standards do you want to set for your business to follow, and for your partners to adhere to?
2. Choose your partners carefully. Use those standards to choose partners that either meet them now, or that will commit to meeting them in a short timeframe. If your business has significant purchasing power, you can have considerable influence over how your suppliers work.
3. Trace source ingredients and materials. Ensure you can work with both direct and upstream suppliers to measure supply chain sustainability at all levels.
4. Conduct audits and communicate with your suppliers. Sustainable supply chains are a collaborative effort. Make audits and identifying opportunities for improvement a joint project, not “us versus them.”
5. Analyse, store, and share data about your supply chain. By taking a data driven approach to your supply chain, you can identify potential sustainability improvements, but also operational issues like inefficiencies and bottlenecks.
6. Develop a governance structure for supply chain management. Who is accountable for implementing your agreed standards and ensuring your supply chain remains sustainable on a day-to-day basis?

What can your business do to improve sustainability, go beyond the ten principles, and bring transparency to your supply chains?

Lindsey Hermes is Head of Enterprise Solutions at Serai Trade.

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