Sustainability in Supply Chain Management

Sustainability has become an essential aspect of modern business strategies, and supply chain management is a critical area where sustainability can be implemented to create more efficient, responsible, and future-proof operations. The growing awareness of environmental degradation, resource scarcity, and climate change has driven corporations to reevaluate how their supply chains contribute to their overall sustainability objectives. As Richard M. Kashmanian and Justin R. Moore highlight, companies are facing increasing pressure to reduce their environmental footprints not only within their operations but also across their entire supply chains.

Supply chains represent a significant proportion of the environmental impact of many companies, particularly in industries with complex, globalized networks. The intricacy and span of these supply chains often present challenges in terms of transparency, traceability, and risk management. However, they also offer numerous opportunities for positive change. Sustainable supply chain management involves integrating environmental and social considerations into supply chain operations to reduce their negative impact while also improving business performance. This essay will explore various facets of sustainability in supply chains, including its challenges, importance, tools, strategies, and the role of third-party organizations in fostering sustainability.

A company’s supply chain is a significant factor in its overall environmental performance. As Kashmanian and Moore point out, disruptions in supply chains – such as plant closures, shortages of key resources, or quality issues – can significantly impact a company’s operations, from production to employment and profitability. Beyond operational efficiency, stakeholders, including consumers, governments, and investors, are increasingly holding companies accountable for the environmental and social practices within their supply chains.

Sustainability in supply chains is crucial for several reasons:

3. Regulatory Compliance

Governments around the world are enacting stricter environmental regulations. Compliance with these regulations often necessitates that companies ensure sustainability practices are adhered to throughout their supply chains, not just within their own operations. For example, the United States Lacey Act prohibits the trade of illegally harvested forest products, which forces companies to trace and ensure the legality of timber products in their supply chain.

4. Long-term Profitability

Sustainable supply chain practices often lead to cost savings and increased efficiency. This includes reducing energy consumption, waste, and the use of hazardous materials. Companies like Unilever have set ambitious goals to double their sales by 2020 while reducing their environmental impact by 50%, recognizing that sustainability is key to achieving profitable growth.

While the benefits of sustainable supply chains are clear, achieving them presents numerous challenges. According to Kashmanian and Moore (2014), while many CEOs recognize the importance of sustainability, only a small percentage believe their companies have effectively integrated sustainability into their supply chains.

3. Costs of Implementation

Sustainable supply chain practices often require significant upfront investment in terms of new technologies, systems, and processes. Small suppliers, in particular, may lack the financial resources to implement sustainable practices, even if they are willing to do so. Moreover, companies must balance the costs of sustainability initiatives with the need to remain competitive on pricing.

4. Supplier Engagement

Engaging suppliers in sustainability efforts is challenging, particularly when they operate in countries with weaker environmental regulations or different cultural attitudes towards sustainability. Suppliers may also have conflicting priorities, focusing more on cost reduction and productivity than on environmental or social issues. Therefore, fostering a shared commitment to sustainability across all supply chain participants can be difficult.

Despite these challenges, many companies are adopting tools and strategies to improve sustainability in their supply chains. Kashmanian and Moore discuss several approaches, such as supplier codes of conduct, supplier audits, and performance scorecards, which can help companies engage with their suppliers and monitor their sustainability performance.

4. Collaboration and Capacity Building

In addition to monitoring, companies can play a proactive role in helping suppliers improve their sustainability performance. This can include offering technical assistance, providing training, or facilitating knowledge-sharing between suppliers. For instance, Coca-Cola has developed its “Pass-It-Back” program, which rewards suppliers who demonstrate strong sustainability performance with reduced audit frequency.

5. Certification Programs

Certification programs provide third-party verification that suppliers are meeting specific sustainability standards. Certification can improve the credibility of sustainability claims and offer transparency to consumers and stakeholders. Examples of certification schemes include the Forest Stewardship Council (FSC) for timber products, the Roundtable on Sustainable Palm Oil (RSPO) for palm oil, and the Rainforest Alliance for agricultural products. These certifications help companies ensure that their suppliers are adhering to best practices in environmental and social responsibility.

Third-party organizations play a critical role in promoting sustainability in supply chains. They provide companies with the tools, frameworks, and guidance necessary to improve supplier performance and ensure compliance with sustainability standards. Kashmanian and Moore list several key organizations involved in this space, such as the Better Cotton Initiative (BCI), Bonsucro, and the Sustainable Apparel Coalition (SAC).

These organizations help in various ways:

3. Information Sharing and Capacity Building

Third-party organizations often create networks for companies and suppliers to share best practices and collaborate on sustainability initiatives. For example, the Sustainable Apparel Coalition (SAC) brings together apparel and footwear companies to collectively improve supply chain sustainability through the development of tools like the Higg Index, which measures the environmental and social performance of products.

4. Encouraging Traceability

Many third-party organizations work with companies to improve the traceability of materials through their supply chains. This is particularly important for industries like food and apparel, where raw materials are often sourced from distant locations with varying sustainability standards. For example, the Rainforest Alliance works with companies to trace agricultural products, such as coffee and cocoa, back to the farm level.

Several companies have been recognized for their efforts to create more sustainable supply chains. Their experiences offer valuable lessons on how to successfully integrate sustainability into supply chain operations.

Unilever

Unilever has been a pioneer in supply chain sustainability. The company launched its Sustainable Living Plan in 2010, setting ambitious goals to halve the environmental impact of its products by 2020 while doubling its sales. A key part of this plan involves working with suppliers to ensure they adopt sustainable practices. By 2013, Unilever had already sourced 36% of its agricultural raw materials from sustainable sources, with a target of 100% by 2020. Unilever’s approach includes supplier audits, performance scorecards, and a strong emphasis on collaboration and capacity building with its suppliers.

IKEA

IKEA has also made significant strides in creating a sustainable supply chain. The company has set goals to source 100% of its cotton and wood from preferred and certified sources by 2020. In addition, IKEA aims to improve energy efficiency across its supply chain by 20% by 2020. IKEA uses a product sustainability scorecard to track the environmental performance of its suppliers and offers financial support and training to help them improve.

Coca-Cola

Coca-Cola has focused on addressing sustainability issues in its agricultural supply chain, particularly in terms of water usage and sugar sourcing. The company worked with the Water Footprint Network to determine that 99% of the water footprint of its products is embedded in the agricultural supply chain. As a result, Coca-Cola has made sustainable agriculture a priority, developing a set of Sustainable Agriculture Guiding Principles that apply to its suppliers of agricultural ingredients.