Supply Chain Sustainability: Introductory Considerations
Supply chain processes directly impact the environment. As the demand for corporate social responsibility grows, companies that operate in this sphere have to make strategic course corrections and chart a path toward sustainable supply chain operations.
Leaders in supply chain management have been confronted by, and responded to, the directive to shift operations toward sustainable practices. These efforts must be defined and timely, but also reasonable and scalable.
Wherever you are in this process, allow us to shed light on both the business case for supply chain sustainability as well as the critical elements for effective change.
A Business Case for Supply Chain Sustainability
In a 2022 letter to CEOs, BlackRock CEO Larry Fink explained that industry leaders must prepare for and participate in a transition toward sustainability, saying, “I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. . . . It will also leave behind the companies that don’t adapt, regardless of what industry they are in.” In every sector, the push for climate action is real, as will be the return on investment for companies that make the right decisions in this pivotal time.
Environmental sustainability in the supply chain requires a thorough assessment of net impact at every stage of operations. This is a labor and time-intensive process that will undoubtedly uncover areas for improvement. All of that investment can give pause, but there is a compelling case that what will be gained is more than what will be spent:
- Sustainable supply chain operations directly impact core business value drivers, including risk mitigation, efficiency, creating sustainable products, and building cultures of responsibility.
- Sustainable supply chain approaches also impact value creation levers, such as pricing power, market share, cost savings, and risk premiums.
Of course, what most business leaders want to evaluate is the cost / benefit equation. Here are some important findings:
“According to research by Deutsche Bank, which evaluated 56 academic studies, companies with high ratings for environmental, social, and governance (ESG) factors have a lower cost of debt and equity; 89 percent of the studies they reviewed show that companies with high ESG ratings outperform the market in the medium (three to five years) and long (five to ten years) term.”
Source: McKinsey reporting on a study by Deutsche Bank
“Companies with low-carbon-emission intensities—with carbon emissions being a key component of the Paris Agreement—have high excess returns. A portfolio of companies with a high proportion of Leadership in Energy and Environmental Design (LEED)-certified buildings also exhibits high excess returns. Such companies also contemporaneously exhibit high return on assets.”
Source: The Journal of Impact and ESG Investing Winter 2021
The facts are clear: Companies that focus on sustainability are winning.
Roadmap for Sustainability in the Supply ChainThe question of how to upscale into more sustainable practices is answered differently across various industries and companies. A thorough assessment must be made to deploy change management.
Scalable Supply Chain Sustainability Solutions
Researchers published in Global Environment Change have these three recommendations for scaling successful sustainability solutions:
- Improve understanding and raise awareness for a critical mass of stakeholders.
- Create motivation and incentives for new practices by embedding the practices into institutional and policy standards.
- Develop capabilities to implement new practices at a socially acceptable cost.
Framed specifically toward supply chain, here is how those steps are carried out:
Internal Alignment and Governance
Shifting toward supply chain sustainability is a holistic endeavor, and no department will be untouched. This requires intensive efforts toward internal alignment, as well as governance measures to enforce new protocol. Winning buy-in from staff at every level of an organization is key to frictionless implementation.
Roles and Responsibilities
A move toward sustainable practices is an “all hands” situation. It will be important to impart ownership by assigning new roles and responsibilities.
Engaging With Suppliers
Once internal stakeholders have been given the plan, it is vital to proactively engage with suppliers and vendors. These key players in supply chain operations will be directly impacted by measures that support sustainability. It is important to support and reward suppliers, make it easy for them to align with new standards, and highlight shared benefits and opportunities that result from necessary changes.
Establishing Goals and Tracking Performance
Business leaders are well-trained to establish performance indicators, set goals, and track performance. To do all of these things, you need sound data and data governance processes. This is where freight audit and payment comes in, as well as regular data cleansing and other operational best practices. A freight audit and payment program can capture the foundational transportation logistics data needed to build a sustainability program and measure KPIs over time.
High standards and meticulous tracking are important in sustainability efforts for the supply chain, as the timeline for implementation can extend indefinitely. Benchmarking the process, then being public about success, is an important component of maintaining endorsement both internally and externally.
How Trax Supports Supply Chain Sustainability Efforts
Technologists are a key cohort advocating for supply chain sustainability. In the 2021 Techstars Sustainable Supply Chain Innovation Report, a growing community of tech providers are identified as change-makers, helping corporations solve problems related to supply chain visibility and adopt new sustainability solutions.
At Trax, we have embraced this calling as well, and are busily working on innovative tactics to empower our own clients, and future clients, to enhance visibility and transparency when it comes to supply chain operations. Our Freight Audit and Payment processes provide the perfect foundation upon which to build a sustainability program. To learn more about Trax and the ways in which we support supply chain operations, contact us.
Are you subscribed to The Road Ahead? For executives in transportation, The Road Ahead provides elite insights and a deeper dive into topics like these. Subscribe now to receive the February edition of The Road Ahead, which will discuss how shippers can optimize their transportation network while simultaneously reducing their carbon footprint, and much 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.