What is a sustainable supply chain?
A sustainable supply chain is one that fully integrates ethical and environmentally responsible practices into a competitive and successful model.
Sustainable supply chain overview
A sustainable supply chain is one that fully integrates ethical and environmentally responsible practices into a competitive and successful model. End-to-end supply chain transparency is critical; sustainability initiatives must extend from raw materials sourcing, to last-mile logistics, and even to product returns and recycling processes.
Digital transformation and the growing sophistication of digital supply chain technologies are playing a major part in the evolution of supply chain sustainability. Big Data management, advanced analytics, artificial intelligence (AI), and security tools, such as blockchain and RFID sensors, have brought unprecedented visibility and accountability to modern supply chains. Companies now have a much greater ability – and obligation – to demonstrate corporate social responsibility and to share best practices for green supply chains and sustainable logistics.
As ethical supply chain practices become a greater and more immediate priority for businesses, compliance goals and sustainability benchmarks are also becoming more standardized. The United Nations Global Compact has laid out 10 criteria for measuring supply chain sustainability. These cover areas of environmental responsibility, labor practices, human rights, and corruption. These principles are built upon the realization that socially responsible practices and products are not only good for people and the planet, but are also good for building positive brand awareness, competitiveness, and long-term profitability.
Sustainable supply chain management for a changing world
For many businesses, it took the disruption of COVID-19 to deliver the sharp jolt of realization as to just how outdated and vulnerable their supply chain operations were. However, even before the pandemic, some fundamental changes to consumer behavior had been causing global supply chain managers to begin reevaluating their operations.
One such change has been the rising demand for ever-faster shipping times. On one hand, your customers value green and sustainable logistics and packaging practices yet on the other, they prioritize same-day delivery options. It presents a significant supply chain challenge when you wish to deliver on both speed and sustainability in a meaningful way. It requires the ability to have real-time access to third-party logistics networks and deep, end-to-end visibility into your entire supply chain operation, including the most distant low-tier suppliers.
Three components of sustainable supply chains
Twenty years ago, the word sustainability was almost completely synonymous with eco-friendliness. Today, it is a much more holistic term. Green, transparent, and circular supply chains are all components of a modern sustainable supply chain.
Components of sustainable supply chain (green, transparent, circular)
What is a green supply chain? A green supply chain is achieved by successfully integrating environmentally responsible principles and benchmarks into supply chain management. This includes product design, materials sourcing, manufacturing, logistics, and end-of-life product management. With the rise of e-commerce, there are more product and shopping choices than ever. To compete, businesses need to find resilient solutions to greening their supply chains while still growing profit. Supply chain technologies such as AI and machine learning can help businesses spot risks, patterns, and opportunities – allowing them to minimize waste and improve efficiency.
What is a transparent supply chain? Supply chain transparency refers to the ability and willingness of a business to openly disclose information about the provenance of goods and labor and end-to-end supply chain practices. Many businesses invest significant time and resources into establishing and maintaining ethical and environmentally responsible standards. The problem is, even with the best of intentions, this has traditionally been very difficult to enforce and reliably implement. Fortunately, through the use of digital technologies such as blockchain and RFID sensors, supply chain managers can now obtain an accurate and irrefutable record of all the products and suppliers along the entire supply chain journey.
What is a circular supply chain? In a circular supply chain, products are disassembled or reduced to their raw materials form, and remade into sellable products – thus allowing businesses to achieve the environmental benefits of recycling while recouping costs in the process. Some of the modern technologies that support these initiatives include the use of recycled plastics in 3D printing, and the ability for advanced analytics to map out the most efficient logistics journeys for returning products into the supply chain loop. Furthermore, businesses are increasingly using circular product design principles to incorporate waste reduction into the very DNA of products and their component parts.
How do sustainable supply chains work?
Sustainable supply chains work by collaborating. A surprising number of the world’s largest companies use the same raw materials and low-tier suppliers. Often, it’s been difficult to prove that these suppliers adhere to green and ethical operating standards. If supply chain managers are to combat this, they can best do so by working together, sharing information, and sending a message that sustainability compliance is essential to doing business. The Fashion Revolution movement began in 2013 and is a great example of many major – and highly competitive – fashion brands choosing to work together to combat unethical suppliers in their industry. Despite some initial skepticism, a 2022 Fashion Transparency Index report shows that 10 years on, supply chain transparency has overwhelmingly improved in the fashion industry, and that far from damaging their competitiveness, the collaboration and sharing of data allowed all players in the industry to benefit from the improved public sentiment this brought to their brands.
Sustainable supply chains work by leveraging the best available technologies. Supply chain sustainability presents a challenge due to the complexity and wide distribution of the many links in the chain. Agile sustainability is driven by a connected network of systems, people, and technologies that are brought together in the cloud - allowing for the integration and analysis of multiple data sets and real-time access to insights and customized reports. The best systems start with cloud ERP and leverage AI-powered supply chain solutions to manage end-to-end tasks, from sustainable sourcing, to greener manufacturing and logistics.
Sustainable supply chains work by setting consistent standards. In order for a strategic supply chain sustainability plan to work, it’s important that benchmarks, targets, and guidelines are clearly spelled out. They must then be shared – and agreed to – among all the stakeholders and suppliers across the chain. Fortunately, today we have numerous bodies that help businesses set these goals and criteria, and digital technologies that make it easier than ever to track and manage compliance. There are also growing amounts of data and intel to demonstrate the bottom-line value of sustainability benchmarking. A recent paper from the Harvard Law School Forum on Corporate Governance suggests a positive correlation between companies’ improved ESG (environmental, social, and governance) records, and their profit and growth.
Sustainable supply chains work by communicating their successes. Your customers can’t know what you don’t tell them. When you attain your sustainable supply chain goals, it’s important that you share the good news, or you risk wasting the powerful reputational benefit of that news. A deserved reputation as a green corporation is always good for your brand and can help to improve your reviews and customer loyalty. But that’s only part of it. Businesses have the opportunity to lead their industry by example, and to demonstrate how supply chain sustainability initiatives can bring measurable benefit – both financially and environmentally. By sharing your accomplishments and best practices, you associate your brand with innovation and thought leadership in the sustainability space.
Top three benefits of a sustainable supply chain
For companies that invest in more sustainable and transparent supply chains, there are potential benefits across the entire business, including:
Cost control
At the heart of any sustainability initiative, is a commitment to increasing efficiency and decreasing waste. And of course, using raw materials more efficiently, recycling, and reducing packaging, helps you reduce both your carbon emissions and your costs. But with smart, cloud-connected supply chain and business solutions, you can go one step further – you can build greener methods into your products and manufacturing process all the way from the designer’s drawing board to the customer’s front door. Sustainable product design helps you control costs and reduce waste by:
Creatively minimalizing design using fewer superfluous parts
Developing product styles that reduce complexity in manufacturing and assembly
Building circularity into products, with constituent parts that are designed to be easily disassembled and recycled
Using your customer and marketing data to create a buzz around products that are built for durability – and celebrating the move away from a throwaway
Building brand loyalty and reputation
It’s no secret that your customers are more likely to be loyal when they can see that you demonstrate strong social and environmental responsibility. Consumer awareness and preference for sustainable businesses had been steadily increasing for decades – but now, public demand for transparent supply chain and business practices is at an all-time high. A recent report from the US Environmental Protection Agency (EPA) digs into this issue to determine a growing correlation between competitiveness and profitability, and a company’s proven reputation for taking a stance on ethics and sustainability.
Minimizing risk and vulnerability
It seems that every few years, we hear a story about how a tainted or dangerous product slipped through the cracks and made it into the supply chain. Quite apart from the devastating consequence of anyone getting hurt, a product recall has the potential to damage a company – sometimes beyond repair. Often what isn’t lost in costs and legal fees is taken away via reputational damage. When supply chain transparency is enforced and implemented with digital security solutions, unscrupulous suppliers and manufacturers have nowhere to hide. Not only can these measures protect businesses from unethical and environmentally irresponsible partners, they can track and document all the labor, handling, and materials components from source to destination.
Technology components of a sustainable supply chain
Digital transformation in the supply chain allows you to meet and exceed sustainability benchmarks while also innovating and growing your business.
Artificial intelligence: AI technologies allow for the curation and analysis of multiple, disparate data sets across the supply chain. A particularly powerful benefit that AI brings to the sustainable supply chain is the capacity for synchromodality and collaborative shipping. This means tracking the status and location of packages to take real-time advantage of opportunities to combine shipments or utilize less resource-heavy logistics if time permits.
Machine learning: As an application of AI, machine learning uses Big Data to help systems and connected devices adapt in real time – to discover patterns, learn from experience, and automate agile and responsive workflows. For supply chain managers, the operational optimization measures that come out of this process can significantly reduce waste and energy usage.
Robots and automated warehouses: Online shopping has risen by over 149% since the start of 2020. With many customers expecting fast or next-day delivery, we are pushing the existing capacity of warehousing and last-mile logistics provision to its breaking point. Electronic drones and inventory management robots are examples of automated things that can be optimized with intelligent automation to improve workflow efficiency, optimize energy, and save on fossil fuel usage in the logistics network.
Additive manufacturing: Also known as 3D printing, additive manufacturing allows companies to maintain virtual inventories and to manufacture stock on demand. The ability to manufacture on-site and on-demand eliminates fossil fuel usage and other resources used in overseas shipping and packing. It also has the potential to use recycled plastics from within the supply chain loop as the base material for 3D manufacturing.
Industrial Internet of Things (IIoT): When connected devices and machines within a business are fitted with unique identifiers and the ability to send and receive digital data, they become part of an IIoT network. Asset intelligence in a sustainable supply chain can help to optimize machine performance and automate maintenance to reduce energy usage and eliminate redundancies in workflows.
Blockchain: In sustainable supply chains, blockchain is particularly useful in its ability to act as a single source of truth. Through the use of sensors, products and materials can be accurately tracked back to their source to remove any speculation as to their provenance, quality, and handling – at any stage across the supply chain.
Sensors: RFID devices and other small, inexpensive sensors can easily be fitted to products and raw materials – at their source or anywhere along the supply chain. When partners and suppliers comply with mandatory sensor attachment, an unprecedented level of transparency is achieved – especially in regions that may have previously been somewhat hard to reliably monitor.
Modern databases and ERP: The best sustainability solutions run on in-memory databases and ERP systems that can manage Big Data and diverse, complex processes. The technologies and automated components of a sustainable supply chain are dependent upon predictive and advanced analytics as well as on the real-time insights made possible by these modern, centralized business systems.
Sustainable supply chain in action
By combining innovation, creativity, and modern supply chain technologies, these companies have leveraged solutions to keep their supply chains green, transparent, and more competitive than ever.
Minth Group Ltd is one of the world’s top 100 automotive parts manufacturers. Learn how they used SAP services and support to achieve their digital transformation.
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