5 Key Challenges to Building a Supply Chain With Environmental Sustainability in Mind
Managing a supply chain with sustainability in mind is a massive undertaking. Much of the work requires course-correcting or shifting processes that have been decades long in the making. That said, the importance of sustainability in supply chain management should not be underestimated. Beyond meeting goals of the higher good and environmentally conscious practices, there is real money and time to be recovered when sustainable systems are in play.
Most companies are somewhere along this journey, and at every stage are facing one of these five key challenges to creating sustainable supply chains.
Want an overview of the ideological framework behind sustainable supply chains? Read this article from Trax.
1. Increased Costs
Change always comes at a cost. Leaders in the supply chain may feel caught between the economics and social responsibility or consumer demands. Keep in mind that, for the past decade, regulatory initiatives worldwide have made it clear that what is now a choice could become an imperative.
Cost pressures are real, and here are some that could be introduced as companies strive toward sustainability in the supply chain:
- Cost of hiring and using specialists to advise on new systems, policies, and protocols.
- Cost of creating additional checkpoints and procedural processes in the workflow.
- Cost of either vetting suppliers or sourcing differently to meet certain sustainability or environmentally conscious criteria.
- Cost of tracking new metrics along the supply chain.
- Cost of non-compliance.
- Cost of inefficient carriers or vendors.
- Cost of reputation damage due to poor environmental impacts.
Many believe that the gap between low cost procurement and sustainability is closing, and with public favor shifting so dramatically in favor of corporate social responsibility, costs are certainly justifiable, and likely to eventually be recovered. For example, choosing carriers who have invested in (or partnering to invest in) emission efficient vehicles including trucks, planes, etc. is a long-term play that costs more up-front but yields a return in the long run.
There are two important points to keep in mind as you calculate costs:
- There is also a measurable cost to not implementing sustainable practices in the supply chain. Some analysts have estimated that environmental supply chain risks will amount to $120 billion by the year 2026. This means there could be a high cost in the future for not implementing sustainable systems now.
Supply chain mapping is already being mandated in some industries, as are sustainability disclosures and accountability measures throughout the supply network. This may mean that the cost now, even if it is significant, is one you would pay later anyway.
2. Lack of a Sustainability Framework Across Supply Chains
Whether your company is just venturing into this territory or is well along its way, the ongoing question of how to build a sustainability framework across supply chains remains. Businesses don’t operate in a vacuum, and rely on numerous systems which are both internal and external. This is why the question of supply chain sustainability is often a systemic one, addressed from the very highest level of governance.
For example, the European Union is implementing a new approach to supply chain sustainability. In a parliament-backed initiative, the Corporate Due Diligence and Corporate Accountability bill will enact an EU-wide regulation around the environmental, social, and governance (or ESG) risks to supply chains. Laws are expected to follow this initiative, and companies throughout the region are putting measures in place to align with these standards.
For global enterprises, it will be important to build frameworks that meet any legal requirements and also make it possible to maintain new, sustainability-oriented policies and procedures. The good news is that interoperability is already a goal many are working toward, and one that technology is making more possible.
As leaders work toward transportation spend management maturity and other large-scale business development goals, the transparency and clarity offered by that work will have a positive impact on sustainability initiatives as well.
3. Operationalizing Sustainable Development
The goal of any change is for it to become instinctive and habitual, part of the lifeblood and inner-workings of an organization so that it no longer requires consideration or decision-making. This is the tipping point, and one that is accomplished when sustainable practices are effectively operationalized.
There are a vast number of stakeholders that must be equipped to make this happen in supply chain sustainability. Because of the nature of economic dependencies, the aforementioned government initiatives, and a variety of other dynamics, this challenge is particularly salient, and one that has no easy or immediate solution. Researchers, analysts, and leaders in various industries are making progress toward ecological integrity as a norm and sustainability in the supply chain as a standard practice, but it is likely that — on the global scale at least — this will take more time.
For a company, strategic shifts toward operationalizing sustainable practices can be made. A working group at the Chief Sustainability Forum offers this advice for progressing toward operationalization:
- Perform due diligence on environmental, social, and business impacts
- Understand the supply chain and craft a business case for sustainability
- Identify major stakeholders and begin engaging with suppliers
- Create and communicate a plan to effectively measure and manage risk, and institutionalize the approach with a step-by-step plan
- Train internal and external stakeholders on the dimensions of sustainability
- Enact policies and frameworks, communicating expectations every step of the way
- Monitor and evaluate progress
This is no overnight transformation. But incremental moves, in a phased approach, will work to accomplish lasting change.
4. Lack Of…
Assessing how work toward supply chain sustainability will impact existing relationships and structures is one side of a coin. The other side is what is missing, and essential, to enacting change.
Here are some that come to mind that could add friction or even major hurdles to the process:
- Lack of resources
- Lack of technical expertise
- Lack of process expertise
- Lack of knowledge/experience in general
- Lack of managing standard environmental control policies in an organization
- Lack of visibility to current carbon emissions, as well as areas of optimization
The good news is that these lacks are compensated for in a growing cohort of talented individuals who are specializing in supply chain sustainability. The other bit of good news is that some of the practices that will best position your organization for change in this area are practices you should already have in play. Freight audit and payment systems, for example, streamline operations and optimize transportation networks, infusing high quality, reliable data into the analysis phase of supply chain sustainability efforts.
5. Paradigm Shifts: Mindsets & Cultures
A last key challenge to creating sustainable supply chains is shifting paradigms and company culture. People favor the familiar, and default to what they know. Introducing new ideas may always be met with resistance and require a learning curve.
However, businesses of the future are already on this journey, and messaging around the importance of sustainability is already in the cultural milieu. Companies that fail to adapt will alienate not only clients but their teams: everyone wants to work with businesses that have an eye on the horizon, and sustainability is part of the future.
Better Tools for Better Operations: Trax for Supply Chain
At Trax, we acknowledge and have fully embraced the importance of sustainability in the supply chain. As we continue to meet the many needs of organizations in the transportation and logistics space, we are also on a mission to support better practices toward supply chain sustainability. We are with you and to help you solve those challenges and work to develop products and processes that align with your sustainability needs. Contact us today to learn more.
Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.