A sustainable supply chain isn’t just good for business; it’s good for the planet. Yet too few organizations are realizing the benefits that come with supply chain sustainability. Numerous studies have found that although many supply chains might be operating to guidelines for sustainability, many are not actually sustainable; in one review of 40,000 corporate social responsibility reports, only five percent quantifiably addressed the company’s impact on the ecology.
Supply chain sustainability helps companies save money, strengthen business relationships, and benefit the environment. But to accomplish these goals requires science-based targets and business-based metrics. Here are the three elements of supply chain sustainability you need to see measurable, long term success.
What are the 3 elements of supply chain sustainability?
Sustainability in supply chains requires three responsibilities: social, environmental, and financial. For those of you familiar with the Triple Bottom Line (TBL) method of accounting, these three elements will sound familiar. Instead of simply focusing just on profit and loss, TBL accounting evaluates a company’s overall performance by measuring the company’s impact on:
- People—the social equity bottom line
- Planet—the environmental bottom line
- Profit—the economic bottom line
Just like companies as a whole, sustainability in supply chains can also be measured using these three elements. As a result, many forward-thinking companies are now looking at ways to link their procurement strategy with their overall sustainability strategy. Using people, planet, and profit as key elements of your supply chain strategy results in a procurement methodology that promotes sustainability at every step—while also saving you money.
How? A focus on people helps you understand your impact on your staff and the communities in which you operate. Understanding your supply chain’s impact on the environment leads to improvements in energy efficiency and a host of logistics optimizations. And of course, improving profits means adding financial value and cost savings to your organization.
Now, let’s look at how procurement professionals can pinpoint ways that these elements can improve overall supply chain sustainability and the business as a whole.
Supply chain sustainability: Social
Maximizing your organization’s social impact is the name of the game for the first of TBL’s three elements. When you consider “people” in your sustainable supply chain, you’re not only including company employees, but also workers at vendors across your supply chain, your customers, local communities, and society as a whole.
To improve social sustainability, companies need to come up with measurable goals for maximizing their positive social impact. Let’s take your suppliers, for instance. Sustainable supply chain management means ensuring you’re working with vendors who conduct fair labor practices and meet Health & Safety regulations. It also means making sure they don’t pollute and cause problems for the communities in which they operate. True supply chain sustainability means ensuring you have diverse suppliers in your vendor rotation, so that you are helping to build a more equitable business.
The good your company does down one end of the supply chain reaps benefits all the way up to your consumers. One study found that Millennials place a premium on corporate social responsibility and are happy to pay more for products from companies that share their values.
Supply chain sustainability: Environmental
Environmental improvements are easy to conceptualize, but harder to achieve. Environmental concerns in the supply chain incorporate a host of considerations:
- How much waste are your suppliers and your delivery logistics generating?
- Are your vendors’ manufacturing operations polluting the environment or helping to clean it up?
- What are your supply chain’s water and energy usage rates, and what’s your overall carbon footprint?
- Where possible, do you require suppliers to use recycled materials and packaging?
The more complex a supply chain, the harder it is to achieve true sustainability. Yet there are best practices that can be implemented. First, task a point person on your procurement team to implement and monitor sustainability policies. This point person will guide the overall process and provide your organization with a regular supplier sustainability assessment. Then establish your own sustainability policy with goals that are achievable—and measure your progress towards these goals.
Next, require your main suppliers to set their own goals—and monitor their progress, too. Once you and your top suppliers are sorted, start evaluating your lower-tier suppliers.
Supply chain sustainability: Financial
Last—but certainly not least—is profit. Supply chain sustainability is about helping the people your organization touches and the planet on which we all live. But it is also about positioning your company to be sustainably profitable. Towards this goal, digitization and process automation are great tools for lowering costs and maximizing profitability.
Technologies like Electronic Data Interchanges (EDIs) can help your procurement team go paperless—helping you save the environment while lowering your operational costs. Automatic Identification and Data Capture (AIDC) and Enterprise Resource Planning (ERP) platforms help make the procurement function more efficient and reduce waste in the supply chain. Implementing a Supply Chain Code of Conduct among your vendors—one that incorporates social and environmental elements—not only improves working conditions across the supply chain, but it also helps reduce supply chain risk and improve brand image.
Supply chain sustainability helps your business diversify sourcing partners, become more efficient, and save money. There are a wide range of reasons to invest in supply chain sustainability now; to learn more, check out Fairmarkit’s blog, The Source.
