Over the past couple of years, supply chains have been more of a necessary evil than a valuable part of the business. Indeed, at their worst, they’ve been a source of significant headaches for businesses, from the sudden stoppages of the Covid lockdowns to the components and materials shortages experienced in their wake – and even various logistics nightmares, such as the Suez Canal blockage.
Unfortunately, the same would seem to apply to sustainability too. Here, supply chains have made themselves something of a nuisance when it comes to added requirements around environmental accounting (for the likes of scope-three emissions), social due diligence (for modern slavery or human rights abuses) and organisational transparency (for sanctions compliance, for instance). It’s all an extra burden on the shoulders of operations professionals.
But beyond these pressures, some switched-on supply chain executives are realising that their everyday decisions can be an asset. They’re finding that not only do responsible sourcing choices help to create long-term operational resilience but, crucially, they can also be a valuable point of differentiation, helping businesses to attract and retain customers.
How to make your green supply chain work for you
For one thing, the costs of failing to get your supply chain’s green credentials working in your favour are plain enough to see. As many as 76% of consumers claim they would discontinue relations with companies that treat employees, communities and the environment poorly, according to PwC. And research from the Massachusetts Institute of Technology indicates that consumers are willing to pay up to a 10% premium for products with greater supply chain transparency. It’s all evidence of consumers aligning their spending with their values where ESG is concerned.
The faster businesses recognise this – and appreciate the fact that a greener supply chain can serve as a customer acquisition tool – the faster their teams can start adopting these practices. And some are already doing so. One survey by EY found that eight out of 10 supply chain executives actively considered natural resources use, decarbonisation and ethical sourcing last year. And among those, 32% had already experienced an increase in customer loyalty. A further 44% expect to see a financial return from this focus on sustainability within the next three years.
We have a responsibility to respond to the shifts in our customers’ priorities
Global food giant Danone is one example of a business where the bottom line and sustainable supply chain management already go hand in hand. As responsible sourcing director Gemma Brierley explains: “We have a responsibility to respond to the shifts in our customers’ priorities as they call for more sustainable products. With better transparency and management practices, we can anticipate risk hotspots and potential disruptions, and meet the increasing demands for supply chain due diligence.”
Supply chain professionals need new ESG skills
Yet despite the rise of climate consciousness among consumers, procurement professionals haven’t traditionally been trained to consider how their supply chain decisions affect customer engagement and loyalty. So, what would it take to reconfigure their skills to address these new demands?
Updated training programmes and a change in the dynamics between internal teams – to work more closely with the likes of marketing, sales and product teams – would be a good place to start, but might be easier said than done. Amid inflation, ongoing geopolitical turmoil, climate change worries and Brexit-related challenges, many supply chain managers are having to focus on traditional skills in vendor and project management, market dynamics and logistics to meet key targets.
But, as PwC operations transformations partner Barry Middleton explains, there is an important skills crossover here. “Managers must adopt a familiar risk-based approach when it comes to sustainability, and then continue to upskill,” he says.
That extra sustainability training is rapidly becoming an essential investment. A survey from supply chain platform Avetta found that ‘a lack of in-house understanding of the importance of ESG issues within the supply chain’ is now the greatest barrier to incorporating sustainable practices, followed by a ‘lack of suppliers’ understanding of ESG issues’.
The supply chain team should work with sales and marketing to embed the sustainability features into the value propositions
It may help to begin by focusing on a few specific aspects of supply chain sustainability. Torsten Lichtenau, a sustainability specialist at management consultancy Bain & Company, advises that managers in this more “ESG-conscious era” should prioritise the skills required to address emissions and climate change concerns – specifically, understanding how to optimise quality, price and carbon footprints in their procurement decisions. Not only is this a more manageable task than tackling everything environmental, but it should also produce some concise and tangible results which can then be used by the marketing team.
The training for supply chain professionals doesn’t end there, though. Lichtenau adds that these environmental capabilities must be in addition to an awareness of social and governance issues, particularly those related to corruption, working conditions and human rights abuses.
Danone has done several things to help its supply chain managers navigate this dizzying mix of requirements, according to Brierley. “We developed in-house online training programmes and integrated them into our sourcing academy,” she says. “And we have partnered with platforms such as Sedex and EcoVadis to provide training for our buyers.”
Why it pays to forge cross-department relationships
All this training may end up giving procurement professionals a whole new perspective on their role, suggests Martin Roberts, director of digital learning programmes at the Cambridge Institute for Sustainability Leadership. “Integrating environmental and social value creation across functions where previously the focus was on financial value alone requires a shift in mindset and an innovative approach to finance, investment and marketing strategies,” he says.
That change of outlook could bring supply chain managers into contact with some new collaborators. Lichtenau explains that sustainable supply chains can be a real point of differentiation for product and marketing teams to make the most of, assuming they have the right information to work with.
“It requires the supply chain to work with the finance and sustainability functions to put the tracking and reporting in place to assert the sustainability credentials,” he says. “They should then work with sales and marketing to embed the sustainability features into the value propositions and ultimately the sales motion.”
For this process to work, though, supply chain managers can’t afford to view sustainability as a tick-box exercise, or to think of it as being secondary to simply keeping the show on the road. That kind of attitude will impress no one.
As Roberts points out: “Measuring and reporting against ESG metrics may be a first step, but on its own it will not transform a company into one that has a resilient supply chain or that is seen by its customers and investors as managing environmental and social risks.”
Only a genuinely proactive approach to supply chain sustainability can deliver that kind of transformation.
Over the past couple of years, supply chains have been more of a necessary evil than a valuable part of the business. Indeed, at their worst, they’ve been a source of significant headaches for businesses, from the sudden stoppages of the Covid lockdowns to the components and materials shortages experienced in their wake – and even various logistics nightmares, such as the Suez Canal blockage.
Unfortunately, the same would seem to apply to sustainability too. Here, supply chains have made themselves something of a nuisance when it comes to added requirements around environmental accounting (for the likes of scope-three emissions), social due diligence (for modern slavery or human rights abuses) and organisational transparency (for sanctions compliance, for instance). It’s all an extra burden on the shoulders of operations professionals.
But beyond these pressures, some switched-on supply chain executives are realising that their everyday decisions can be an asset. They’re finding that not only do responsible sourcing choices help to create long-term operational resilience but, crucially, they can also be a valuable point of differentiation, helping businesses to attract and retain customers.
