Shannon Flynn
Sustainability has become a significant issue for businesses in recent years, and supply chains are not exempt from public and governmental scrutiny. Measuring supply chain sustainability is crucial for helping organizations operate in a socially responsible, environmentally sound manner. Companies need a robust framework to set sustainability goals and measure their progress.
Components of supply chain sustainability
What makes a supply chain sustainable? There are three key areas businesses should consider when evaluating supply chain sustainability:
- Social impact: Products and services should be ethical. Organizations must determine whether forced labor, child labor or other inhumane conditions occur at any point along the supply chain.
- Governance impact: Numerous companies manufacture, coordinate and ship products. Do their values align with their mission statements? What do their boards of directors look like and how do they measure corporate performance?
- Environmental impact: The farther a product travels to reach its final destination, the more fuel, temperature control and packaging are required. In turn, shipping exerts strong environmental effects.
The electronics industry has already progressed on a number of these issues, such as reducing its dependence on materials from conflicted regions, focusing on the power consumption of factories, warehouses and other facilities, and emphasizing the recycling and reuse of electronic products. Measuring the progress of these efforts is important.
Here’s why businesses must pay attention to sustainability along the supply chain.
Improving public perception
Because many organizations employ hundreds or thousands of suppliers, measuring supply chain sustainability can be challenging. However, it’s imperative as consumers become increasingly conscious of their purchasing choices.
A 2020 McKinsey study found products making environmental, social and governance (ESG) claims enjoyed an average of 28 percent cumulative growth since 2015 — 8 percent more than products not making similar claims. People have begun voting with their dollars.
Lowering costs and environmental impacts
Unsustainability takes many forms along the supply chain. By driving an inefficient route, truck drivers may inadvertently use more fuel. A poor package design could waste material, take up extra space in the cargo hold or add too much weight. Shipping items during the hottest part of the day requires more energy for refrigeration. For example, the pharmaceutical industry wastes $35 billion annually due to failures in temperature control logistics.
In addition to being bad for the environment, these unsustainable practices eat into corporate profit margins. Identifying and remedying inefficiencies can lower shipping and manufacturing costs.
Even small changes can add up quickly. Installing LED lights, implementing smart temperature control and installing low-flow water fixtures in warehouses can positively affect the environment and cut costs.
Attracting talent
People want to work for companies with strong ESG practices. In fact, a recent survey found almost 40 percent of millennials have taken a job because of the business’s sustainability policies.
Organizations examining and rectifying problems along their supply chain are more attractive to job seekers. That’s good news in the age of the Great Resignation, when many companies are struggling to recruit and retain new talent.
When people feel like they’re making a positive difference at work, they tend to be happier and experience less burnout. In turn, they become more productive and save the business even more money.
Complying with regulations
Measuring supply chain sustainability is also essential for compliance. Regulations govern everything from allowable emissions to which types of fuel shipping companies can use.
Even third-party vendors far down the supply chain can damage the reputation of — or incur legal repercussions for — the parent company using their services. They may face financial penalties or have to cease operations altogether, which would throw a wrench in the overall supply chain. Therefore, it’s critical to keep a watchful eye on sustainability practices.
Improving human welfare
Inhumane practices can occur at any point along the supply chain. Many organizations source their raw materials from countries with lax labor laws and may inadvertently support practices like child labor, slavery and dangerous working conditions.
For example, Nestlé continues to face severe criticism for using child laborers on cocoa plantations. Although the African cocoa farms are far down the supply chain when it comes to the final product — chocolate bars — Nestlé is still responsible for the overall sustainability of its supply chain. By monitoring raw material production, shipping, packaging and delivery from start to finish, corporations can improve human welfare and bolster their public image.
Fostering sustainability
Measuring supply chain sustainability is vital to a company’s success. It improves public perception, attracts better talent, lowers costs and helps meet compliance regulations. Crucially, it also ensures products are ethically and legally sourced, processed and shipped to maintain people’s welfare every step of the way.
