The emphasis on sustainability throughout the supply chain often results in mixed emotions from executives and other key decision-makers. While touting sustainability is a great marketing and PR tool, it’s hard to measure its return on investment when sustainability initiatives don’t deliver typical key performance indicators (KPIs).
However, in a world in which 60% of global emissions stem from supply chains, and in which regulatory agencies are tightening environmental, social and governance (ESG) policies, getting business executives to embrace supply chain sustainability is critical.
In order to demonstrate the real impact and return on investment of supply chain sustainability, organizations must view it, not just as a compliance measure or marketing tool, but a crucial means of driving sales and building consumer trust.
Following are three major roadblocks that currently stand in the way of companies embracing sustainability throughout the supply chain:
Data collection, centralization, and management. Too many organizations today rely on siloed technology and manual data collection. Without a comprehensive view of key data across the supply chain, they can’t accurately measure their carbon footprint and other sustainability metrics.
The management of data across multiple levels of supply chain organizations requires a comprehensive, centralized approach to data management. In the absence of complete and real-time data, companies are limited in their ability to respond to sustainability issues.
Misplaced trust in suppliers. Established brands and organizations have long-standing relationships with their suppliers. As such, many organizations simply trust that their suppliers adhere to agreed-upon standard and practices. But this isn’t always the case. Organizations can’t obtain a complete view into their supply chain operations without effective data collection and validation across all levels, including suppliers.
It shouldn’t be too hard to get suppliers on board. Regulatory compliance is becoming an imperative, and the consequences of inaction, in the form of hefty fines, promises to impact suppliers as well as brands.
The failure to monitor production at all levels of the supply chain creates blind spots, risking non-compliance with sustainability goals. Companies find themeselves unable to identify environmental violations or unethical practices, resulting in reputational damage and financial penalties.
Lack of budget for compliance and sustainability. Since sustainability initiatives don’t deliver the typical KPIs that excite business leaders, assigning the proper budget can be a challenge. It depends on each individual organization’s goals, mission and vision for their brand.
Organizations are well aware of the pitfalls of regulatory fines that arise from compliance issues. However, it’s better to invest in sustainability now, rather than pay much more in the form of hefty fines later. How, then, can companies get enough buy-in to invest in key sustainability initiatives?
Key business leaders and executives are always going to be pushed to drive growth and gain impressive returns on their investment. Therefore, sustainability goals must be embedded within a brand’s overall business strategy, to ensure that they’re a central consideration in budgeting.
Additionally, cross-department collaboration becomes crucial. Organizations must involve various departments in planning for sustainability initiatives to ensure a holistic approach that aligns with broader business objectives.
In the current global marketplace, sustainability has gone beyond legal mandates to become a broad social expectation. Consumers and stakeholders increasingly hold companies accountable not only for what theyre legally obliged to do, but also for what they ought to do environmentally.
Word spreads quickly when a business fails to meet expectations, or on the other side of the coin, willingly goes beyond minimum requirements. For instance, even if local regulations don’t require fair trade practices or eco-friendly production methods, many consumers still expect companies to pursue these initiatives.
To get executives on board, brands must find innovative ways to scale their sustainability programs affordably. Here are four ways that they can do that:
Improve supply chain automation. New technology, like artificial intelligence and cloud-based data analytics, can streamline supply chain operations and enhance data visibility and management, all while reducing costs. For example, AI can perform continuous analytics on immense volumes of supply chain data, allowing companies to receive autonomous insights in real time.
In this way, technology can be used to automate routine compliance tasks such as data collection, monitoring and reporting. Automation not only reduces the labor costs associated with these tasks; it also increases accuracy and reduces the risk of non-compliance due to human error.
Time-consuming ESG audits are costly and inefficient. Brands can eliminate much of the manual processes and paperwork and gain valuable insights that enable more impactful decision-making.
Additionally, organizations can proactively and seamlessly address compliance and sustainability risks through automated recommendations for tracking results and managing follow-up.
Embrace supply chain partnerships. Cost-effective sustainability isn’t a one-sided job. Organizations must work closely with their supply chain partners and put the right incentives in place to improve sustainability practices.
Joint initiatives might include digitizing previously manual practices and rewarding high-performing suppliers with more autonomy and self-inspection privileges. Collaborations across the industry, with other organizations and regulatory bodies, reduces the cost of developing compliance programs. and provides insights into effective sustainability strategies that have been tested by other companies.
Enhance supply chain visibility. End-to-end sustainability requires visibility over the entire supply chain. From direct suppliers all the way to the sourcing of raw materials, brands and retailers can use technology and a partnership model to improve compliance along every step of the supply chain.
It’s essential to establish mechanisms for continuous improvement and regular feedback in compliance processes, including improved data collection, centralization, and management. Ongoing evaluations allow companies to make necessary adjustments that optimize sustainability efforts and reduce resource waste.
Utilize economies of scale. Investing in sustainability can lead to significant cost savings over time, such as reduced energy costs, fewer regulatory fines, and enhanced brand loyalty. As demand for sustainable products grows, economies of scale can make these products cheaper to produce. The resulting increase in production volume then reduces the per-unit cost of sustainable materials and production techniques.
To realize this, standardization is crucial. Brands must develop and implement standardized procedures for compliance across all levels of the organization. Uniformity allows for the replication of processes in new locations or business units without the need for customized approaches, while also enabling all data to speak the same language. This significantly reduces the complexity and cost of implementation.
To maintain a competitive advantage in today’s market, organizations must view these strategies not merely as sustainable necessities, but as opportunities for innovation and growth. The future of supply chain management demands a commitment to sustainability that goes beyond mere legal compliance. It requires a comprehensive, integrated approach that positions sustainability at the heart of business strategy.
In doing so, brands will enhance their reputation, foster consumer trust, build a resilient business able to thrive in a dynamic global economy, and ensure a strong return on investment.
Katrina Duck is an enterprise account executive at Inspectorio.