| Written by Mark Buzinkay
Our modern economic world calls for a profound shift in the way we view supply chains. As environmental and social awareness rises, businesses must adapt to the call for sustainability. We unravel in this post the concept of a sustainable supply chain model, emphasising its vital importance in today's corporate world, and talk with Peter Klement, a member of the MIT Club Germany.
Come with us to learn about the challenges faced during this transition and understand the benefits awaiting those who successfully walk the talk.
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In an era where conversations about climate change, corporate social responsibility, and ethical sourcing dominate both boardrooms and break rooms, the sustainable supply chain has emerged as a key topic.
A sustainable supply chain is a system of various organisations, processes, resources, and data delivering a product or service to customers considering ethical, environmental, and economic principles.
It should balance generating corporate profits, promoting fair treatment of workers, and preserving the planet's well-being.
Without a doubt, transparency is the crucial component of a sustainable supply chain: Every step, including getting raw materials and delivering finished goods, must be visible and audited. Trust is the main currency here.
The sustainable supply chain represents a complex network that includes a multitude of organisations, actions, resources, and the seamless flow of information. This vast system brings a product or service to life, escorting it from the raw stages of the supplier's contribution to its final destination - the hands of the customer.
But the true hallmark of such a supply chain is its deep commitment to a trio of values: ethical responsibility, environmental stewardship, and sound economic practices. It's a delicate juggling act, really - a business model where the ambition for corporate profitability coexists with an equally compelling urge to uphold the ethical treatment of workers and nurture the health of our planet.
As a survey among 525 executives found out (EY 2022), business case initiatives for sustainability stretch beyond cost savings to increased revenue, customer loyalty and share price.
The beacon guiding this process is transparency - from the procurement of raw materials to the delivery of final products. Every link in the chain is examined to ensure that businesses not only thrive but also contribute positively under the idea of corporate social responsibility: fair labour practices, responsible sourcing, waste reduction, emissions control, and energy efficiency. This means holding the main company and every supplier and subcontractor accountable for their environmental and social impacts.
In practice, a sustainable supply chain might involve using renewable energy in manufacturing processes, minimising packaging waste, employing locally to support community economies, or working with suppliers who can verify their fair labour practices.
A sustainable supply chain, therefore, considers the entire life cycle: 1) Product design is durable, recyclable, or biodegradable. And 2) companies take responsibility for the end-of-life processing of their products, which involves take-back programs for used products or infrastructure to recover and recycle components.
Undoubtedly, sustainable supply chains are the future of commerce. They are an imperative response to current global concerns and a proactive approach to ensuring the sustainability of businesses and our planet. The shift towards sustainable supply chains is more than a trend as resource shortages, environmental concerns and more secure supplies for business are needed.
"There are so many ways to measure your sustainability performance or your sustainability transformation", says Peter Klement from the MIT Club Germany, "It's fair to say that the UN Sustainable Development goals are more or less just the beginning, and they are pretty broad framework. If you want to transform your supply chain, pick and see which of the 17 goals are relevant for you."
Creating a sustainable supply chain is not without its hurdles. While the concept is widely acknowledged as the future of commerce, companies worldwide grapple with several challenges in implementing this progressive shift. Understanding these obstacles can empower organisations to devise effective strategies and ultimately achieve their sustainability goals.
1. Supply Chain Complexity
One of the major hurdles is the sheer complexity of supply chains. They span across borders, involve multiple stakeholders – from suppliers and manufacturers to logistics providers and retailers – and depend on numerous processes. A change made at one stage can have unforeseen consequences down the line. The vast, interconnected nature of supply chains makes implementing and monitoring sustainability measures a significant challenge.
2. Lack of Transparency
This complexity also contributes to a lack of transparency. Many organisations struggle to achieve visibility across their entire supply chain. Without this, it's nearly impossible to identify unethical practices, environmental violations, or inefficiencies that could be improved. This visibility is not just about identifying issues, it's about verifying sustainable practices, an essential factor in building trust with consumers and stakeholders.
3. High Initial Costs
Sustainability initiatives often come with high upfront costs. Whether it's investing in energy-efficient machinery, transitioning to greener transportation options, or training employees in new processes, the financial burden for small and medium-sized enterprises can be daunting.
4. Regulatory Differences
Supply chains often cross multiple jurisdictions, each with its own set of regulations and standards regarding sustainability. This disparity can pose difficulties in establishing a consistent, company-wide approach to sustainability. The challenge extends to staying abreast of changing regulations and ensuring compliance at all levels of the supply chain.
5. Difficulty Measuring ROI
A significant challenge of sustainable supply chain implementation is the difficulty in quantifying the return on investment. Traditional ROI calculations may not account for the long-term cost savings, risk mitigation, or enhanced brand reputation associated with sustainability. This lack of concrete measurements can make it challenging to build a compelling business case for sustainability investments.
6. Cultural Shift
Creating a sustainable supply chain requires a fundamental company culture shift. Overcoming resistance to change can be one of the most significant hurdles which can't be achieved overnight; it requires education, awareness, and willingness to change at all levels of the organisation.
A well-designed sustainable supply chain framework addresses three critical dimensions: economic, environmental, and social – often referred to as the "Triple Bottom Line".
While profits remain a primary objective, a sustainable supply chain framework necessitates creating long-term economic value. This means not only maximising efficiency and productivity but also investing in the durability and resilience of the supply chain to withstand disruptions, such as those caused by global pandemics or climate change.
Environmental sustainability encompasses all efforts to reduce the environmental footprint of supply chain operations. This might include minimising waste, reducing energy consumption, curbing greenhouse gas emissions, or promoting recycling and the use of renewable resources. For instance, logistics companies are increasingly deploying electric vehicles or biofuel-powered ships to minimise carbon emissions.
This dimension revolves around ethical business practices. It includes fair labour practices, ensuring health and safety standards, promoting diversity and inclusivity, and respecting human rights throughout the supply chain. It is about contributing positively to the communities within which the supply chain operates.
A successful sustainable supply chain framework requires transparency and traceability throughout the entire supply chain, from raw materials to end-consumers. It necessitates rigorous supplier assessments and third-party audits to ensure adherence to sustainability standards. Moreover, as companies are increasingly held accountable for their sustainability performance, reporting and disclosure become a crucial component of this framework.
For Peter Klement, a sustainable supply chain framework includes two sides of the coin: "There are problems in current supply chains and there are opportunities and so the the first part of the framework is a collection of use cases. Such use cases that has described problems and opportunities organisations have around transforming their supply chain to become more sustainable. So that's the first thing. And then we say, OK, if I now have a specific use case I want to create a a solution. Yeah, that solution contains digital technology, but also includes people, processes, data and what have you. So what we want is a framework including specific blueprints and reference models."
Companies can use a range of tools and technologies out of this framework to implement their sustainable supply chain. For instance, digital transformation and data analytics can provide real-time visibility into the supply chain, facilitating efficient resource management. Technologies such as blockchain can offer improved traceability, thus ensuring ethical sourcing and production (continue reading about what sustainable development goals drive the industry forward).
However, creating a sustainable supply chain is not a one-time event but the contrary: an ongoing commitment, investment, and innovation. As such, a sustainable supply chain framework is for Peter Klement not a static model but a continually evolving approach, adapting to new sustainability challenges, regulatory changes, and technological advancements: "In the end of the day, the framework reference model needs to solve a problem or enable oganizations to pursue a certain opportunity. And so we come from a very much use-case centric approach to a reference model."
As they strive to balance profitability with environmental responsibility and social justice, the sustainable supply chain framework serves as an invaluable tool, shaping strategies and driving meaningful change.
They build brand reputation, foster customer loyalty, attract socially-conscious investors, and mitigate risk – making them a potent tool for long-term success in an increasingly conscious global market.
From enhancing brand reputation and consumer trust to long-term cost savings and risk mitigation, the shift towards sustainable practices presents opportunities that far outweigh the hurdles. It is a challenging journey, no doubt, but one that holds the key to sustainable success in an increasingly conscious business world.
What exactly is a sustainable supply chain model?
A sustainable supply chain model refers to a method of managing supply chains emphasising ethical, environmental, and economic considerations. It's about making a conscious effort to create and deliver products or services that respects people and the planet while still ensuring economic viability. This can involve strategies such as ethically sourcing raw materials, reducing waste and emissions and maintaining fair labour practices throughout the supply chain.
What are the benefits of implementing a sustainable supply chain model?
The benefits of a sustainable supply chain are multifold. From a business perspective, it can enhance brand image, foster customer loyalty, and even create a competitive advantage in the marketplace. It also mitigates risks associated with regulatory compliance and reputational damage. From an environmental and societal viewpoint, sustainable supply chains contribute to preserving natural resources, reducing waste and emissions, and improving livelihoods and working conditions in sourcing regions.
How can a company transition towards a more sustainable supply chain model?
Transitioning towards a more sustainable supply chain can be a complex process, but it often starts with building transparency. Companies need to gain a deep understanding of their existing supply chain - this includes where and how raw materials are sourced, labour conditions across the chain, and the environmental impact of operations. Armed with this knowledge, companies can identify areas for improvement and set measurable goals. Technology, like blockchain and AI, can play a significant role in enabling this transition by providing the tools necessary to track, measure, and manage sustainability efforts effectively.
Remember, sustainable supply chains are not just about being eco-friendly - they also entail a holistic approach that considers ethical sourcing, fair labour practices, and economic viability.