5 Ways to Achieve a Sustainable Supply Chain
By Hugo Britt | August 31, 2021
For most of us, sustainable sourcing means looking after the environment. But there are three types of sustainability that should be considered holistically when building a responsible supply chain:
- Environmental sustainability
- Social responsibility
- Economic sustainability.
Many of the actions that sourcing professionals take to improve sustainability do not fall neatly into one category or another. Local sourcing, for example, ticks all three boxes.
Sustainability – once thought of as a nice-to-have – has now become a business imperative. In fact, the major credit rating organizations such as S&P and Moody’s are now including ESG (Environmental, Social, and Governance) factors in their calculations, elevating the issue of sustainability to the Boardroom.
5 Ways to Build a Sustainable Supply Chain
Here are five ways to achieve a sustainable supply chain.
1. Local sourcing
For a long time, it has been cheaper to have goods shipped from the other side of the planet than sourcing them from local manufacturers in your area. Sourcing from low-cost countries has made economic sense for decades, but now the equation is beginning to change.
Although goods may cost more due to higher worker wages, sourcing professionals are increasingly recognizing that local sourcing:
- Carries less risk in terms of geopolitical disruption or disasters such as COVID-19.
- Has a significantly lower carbon/pollution footprint.
- Supports local economic development and helps the business gain a social license to operate.
- Massively lowers transport costs and eliminates border costs such as tariffs.
- Enables organizations to adapt to customer demand faster, with associated economic gains.
- Lessons the risk of environmental or human rights breaches occurring in the supply chain.
2. Embrace traceability
- Tracing technology (such as product QR codes) is getting better, enabling a product to be traced from the point of sale down the supply chain to the primary producers of raw materials (farms or mines).
- Savvy shoppers are increasingly concerned with where a product has been sourced from and expect to be able to scan a product to understand its provenance before purchase.
- Accreditation providers insisting that organizations prove their products are sourced sustainably.
3. Stamp out modern slavery
With as many as 40 million slaves worldwide, there are now more slaves than any time in history. Slavery isn’t just a developing world issue but exists everywhere, including in the United States.
As explained by FreeTheSlaves.com, modern slavery flows into our homes and businesses through the products we source:
“Slaves harvest cocoa in West Africa, and it ends up in our chocolate. Slaves make charcoal in Brazil, which is used to run smelters that make steel for our cars. Many food products and raw materials are tainted by slavery—such as tomatoes, tuna, shrimp, cotton, diamonds, iron, sugar, and gold.”
If every organization makes a conscious effort to identify and remove sources of modern slavery in their supply chains, this will go a long way towards stamping out the practice forever. It is a highly challenging task that will take time, money, and commitment, but there is plenty of support available.
4. Source sustainable materials
Lithium could run out by 2025. Copper, antimony, zinc, and indium all have vanishing reserves. Common foods such as bananas and cacao may become extinct due to climate pressure. Yet organizations continue to source these goods and products as if they are unlimited.
Unsustainable materials make poor business sense for two reasons. Most obviously, they will one day run out. This means that a business or manufacturing process that is built around this material will grind to a halt unless a sustainable alternative is found. Secondly, prices skyrocket as materials become scarce: The Bank of America recently warned that copper prices could rise to $20,000 a ton if inventories dry up.
Smart and sustainable companies are getting ahead of mineral shortages before they start to bite. For example, many electric vehicle manufacturers are now recognizing the limited future of lithium, and are turning to other materials including sodium-sulfur and hydrogen fuel cells for EV batteries.
5. Deal with suppliers in a sustainable fashion
Old-school sourcing professionals see it as their job to “squeeze” suppliers for every last cent at the negotiation table. This is unsustainable because suppliers face their own rising costs and need to make cuts somewhere, leading to lower quality products or poorer quality delivery of services.
A better approach is to build sustainable, long-term partnerships with suppliers through which you tackle challenges such as rising supply chain costs together. This may involve accepting that prices will rise over time, but higher costs are balanced by benefits such as gaining preferred customer status, better service, unlocking innovation, and more. Squeezing suppliers for short-term savings will damage relationships and long-term value creation opportunities will be lost.
Don’t have the time to focus on building a sustainable supply chain? Partnering with a GPO will help you save procurement costs, time, and effort, and allow you to focus on making a positive difference. Get in touch with Una today.