I'm sure you agree: "You don't know what Supply Chain Sustainability (SCS) means, but it sounds like a good idea."
Supply chain sustainability is like saying, "I'm going to start eating healthily" - it sounds great on paper, but when you get down to it, what does "eating healthily" mean? And how do we know if the food is healthy?
Sustainable supply chains emerged as a response to consumer demand for better information about the environmental impact of products, such as food and clothing, that they purchase. According to research, 80% of consumers indicate sustainability is crucial to them. Yet another survey from IBM says 57% of CEOs identify unclear ROI (return on investment) as a leading sustainability challenge.
Do you know what's the most sustainable thing a company can do?
That's right: nothing.
Seriously though, that's not a wrong answer—you must be careful about defining "sustainability."
The United Nations defines sustainability as follows: "Supply Chain Sustainability is the management of environmental, social, and economic impacts and the encouragement of good governance practices throughout the lifecycle of goods and services."
The lifecycle of goods includes sourcing, transportation, manufacturing, distribution, and end-of-life disposal or recycling. Therefore, we could look at Supply Chain Sustainability as a matrix with Environment, Social, and Economic on the y-Axis and Sourcing, Transportation, Manufacturing, Distribution, and Recycling on the x-Axis. The matrix finally wrapped with the encouragement of good governance practices!
This illustration is so clear that I can easily use it in daily conversations with friends and colleagues.
Whenever anyone talks about sustainability and offers solutions, one should determine whether individual points, combined points, or the whole matrix is meant. Meaning when it comes to supply chain sustainability, there are many ways that companies can measure their impact on the environment and how they choose to manage it. Some look at carbon dioxide emissions while transporting cargo, water consumption in manufacturing, or guaranteeing no child labor sourcing raw materials. Others use a Life Cycle Assessment (LCA) approach, which analyzes all stages of a product's life—from sourcing materials through manufacturing and distribution to use by consumers and disposal.
While there's no one-size-fits-all approach to measuring sustainability, it's clear that companies need to be able to track and measure their impact on the environment. They also need a way to manage this information to decide how—or if—they should take action.
As a company grows, it can become increasingly more work to manage its environmental footprint. For example, if a company's product is sold in many countries and regions worldwide, it must track how each one cares about its supply chains. The same goes for manufacturers—if they outsource parts of their production process or use suppliers who do so themselves.
The challenge for managers is to keep track of all these changes and ensure they don't negatively impact the environment.
All too often, though, this lack of transparency means that some well-intentioned organizations are afraid of reporting on the impact of their supply chains for fear of being accused of greenwashing (i.e., making false claims about sustainability).
Therefore, a sustainability strategy defined as part of the overall strategy underlined with consistent processes aligned with the latest technology and reliable data is required today.
But where to start and how to make a supply chain sustainable?
The following steps are a good starting point for companies that want to make their supply chain sustainable:
1.) Commit
If you want to build a sustainable supply chain, you must commit.
Sustainability can't be done half-pregnant. So top management support needs to be guaranteed. This is even more important because sustainability requires collaboration across different functions. More on this in point 4. But management support is only given once a clear business case is defined. Every decision-maker will decide on any project with a clear business case. It can be a business case for one single dot from the matrix above, any combination of dots, or the whole matrix. The business case can also include soft factors and non-quantifiable factors of influence for additional argumentation. But a business case is required!
2.) Assess
Next comes the assessment phase. Given the scale and complexity of most companies' supply chains, choosing areas of the supply chain to focus on is essential. Where is the most impact? Where are the long-hanging fruits? Finally, the approach and projects must be scoped—scoping also includes the reality check: Is the technology available to calculate the carbon footprint while cargo is in transit? Or are inspectors available and reliably integrated to guarantee social sourcing commitments?
3.) Define:
Executives should clearly define and articulate the approach to supply chain sustainability with concrete milestones and metrics. Executives must communicate such an approach to manage expectations and engage with suppliers and partners.
4.) Implement:
Companies should consider how to integrate sustainability into their supply chains best. Sustainability efforts can be applied across the entire supply chain or in specific areas. Are required resources available? Are technologies and solutions available? Competing requirements from different functionalities internally can negatively impact supply chain sustainability. Various functions need to work together to align business requirements with sustainability objectives.
5.) Monitor:
Monitoring your supply chain is like watching a movie. You can't just sit there and enjoy the plot; you must pay attention to all the details, especially the little stuff at first glance. If you don't, you'll miss something important. To evaluate performance against its supply chain sustainability goals, a company must collect and track performance data over time. Collaborative efforts will require a system for monitoring performance and measuring progress. The most successful programs use a combination of internal and external data sources. So, companies must be ready to share at least some of their data externally.
6.) Communicate:
Communication is key! You can't just talk about an issue—you must tell everyone about it and ensure they understand what's happening. While traditionally, sustainability and financial reporting have been kept separate, it should be noted that integrated reporting is emerging from combining information on the company's environmental, social, and ethical performance with financial information.
Finally: We often use the word "carbon footprint" interchangeably when discussing sustainability. But they're not the same thing!
The carbon footprint is the total amount of greenhouse gases (GHG) a company or person generates through their activities. Of course, it's only a tiny part of sustainability. But, as often discussed, it should be mentioned here quickly to clarify some open questions.
There's an essential distinction between carbon offset and emission allowances. Emission allowances are tradable certificates issued by governmental or regulatory organizations. One emission allowance represents the right to emit, e.g., one metric ton of carbon dioxide or other GHG equivalent gases. Carbon offsets, though, are instruments representing avoidance, reduction, or removal of one ton of carbon dioxide or other greenhouse gas equivalent; they do not reduce the footprint. For example, cargo visibility solution providers could calculate the carbon footprint per cargo based on weight, traveled distance, and mode of transport. Such calculations can analyze different routes, and the overall footprint can be reduced by choosing the less polluting routes. The remaining CO2 emission could finally be offset by planting trees. This would then be called CO2-neutral. However, this approach does not mean that no CO2 is emitted.
Remember, there are many ways to measure your impact. Also, let's clear up a common misunderstanding: Carbon footprint isn't equal to sustainability. It's just one element. To truly make a difference, we need to address all aspects of sustainability.
Start making a difference with your supply chain today! Let's create a positive impact together!
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