A sustainable supply chain is one that fully integrates ethical and environmentally responsible practices into a commercially competitive and operationally successful model for the delivery of products and services. In its effective and efficient management, transparency is critical throughout the end-to-end supply chain and sustainability initiatives must extend from raw materials suppliers to last-mile logistics to the end customer.
While conventional supply chain management focuses on the speed, cost and reliability of operations, sustainable supply chain management adds the goals of upholding environmental and societal values. This means addressing global issues such as climate change, water security, deforestation, human rights, fair labour practices and corruption.
For many organisations, it took the disruption of COVID-19 to provide the sudden realisation of how outdated and vulnerable their supply chain operations were. However, even before the pandemic, some fundamental changes to consumer behaviour had been causing global supply chain managers to reevaluate the efficiency of their operations while delivering key business objectives. For example, the rising demand for ever-faster shipping times, conflicting with customer’s desire for green and sustainable logistics and packaging practices.
This presents a significant supply chain challenge when you wish to deliver on a key business objective (minimised delivery time) 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.
History of Supply Chain Management
Supply chains have evolved significantly over time. They have existed since ancient times, starting with the creation and sale of the first products or services. With industrialisation and technological advancements, supply chains and their management has become more complex and sophisticated, enabling efficient production and delivery of products and services. For instance, innovations like Henry Ford’s standardisation of automobile parts revolutionised mass production to meet growing customer demands.
Today’s supply chains are complex networks, extending from the array of raw materials to the end customers. They operate 24 hours a day, with consumers expecting prompt and customised order fulfilment. Effective SCM is crucial for business success in our technology-driven, dynamic environment and companies that adapt well to change will thrive.
The recent application of radical new technologies such as AI, machine learning, the Internet of Things, automation, and sensors are transforming the way companies manufacture, maintain, and distribute new products and services. Fundamental to this is a comprehensive understanding and management of the myriad supply chain combining the component elements to achieve this.
The way organisations apply technology to the supply chain is fundamentally different from how they applied it in the past. For example, organisations would typically wait until a machine malfunctioned to fix it, but smart technology has changed the maintenance. We can now predict failure before it happens, and then take steps to prevent it so that the supply chain can continue uninterrupted. Today’s SCM is about using technology to make the supply chain―and the organisation―smarter. This facilitates enhanced sustainability within supply chain management.
What are the Seven Pillars of Supply Chain Management?
Sustainable procurement is the procurement of goods and services that do not harm the environment or human health and involves the integration of environmental, social and governance (ESG) criteria into an organisation’s procurement processes. It encourages organisations to obtain the products and services they need while also considering sustainable development, stakeholder expectations and regulatory requirements.
Sustainable procurement is gaining popularity as organisations prioritise environmental concerns, social responsibility, and ethical practices in today’s business environment with a focus on building a sustainable and resilient future. The following are critical aspects to procure products and services in a responsible and ethical manner:
- Environmental Responsibility
Sustainable procurement involves integrating ESG criteria into an organisation’s procurement processes to reduce the environmental impact of the entire supply chain, from sourcing materials to product disposal. Key examples include using sustainable materials (like recycled materials and responsibly sourced wood) and embracing renewable energy sources. - Social Equity and Inclusivity
This emphasises fair labour practices, human rights, and diversity within the supply chain with organisations assessing suppliers to ensure workers are treated well, paid fairly, and work in safe conditions. This drives positive change, benefiting communities and fostering inclusive economic growth. - Economic Viability and Long-Term Relationships
Organisations must strike a balance between cost-effectiveness and responsible sourcing, which involves evaluating the total cost of ownership, considering factors such as environmental impact and social responsibility alongside traditional financial metrics. Sustainable procurement also encourages the development of long-term relationships with suppliers, fostering collaboration and innovation for mutual benefit. - Ethical and Transparent Governance
Organisations committed to sustainable procurement need to prioritise transparency in their sourcing processes and share information about their supply chain, supplier practices, and performance. Ethical governance ensures that procurement decisions align with the organisation’s values and ethical standards. - Innovation and Technology Integration
In a rapidly evolving global landscape, the integration of innovation and technology is critical to sustainable procurement. Leveraging cutting-edge technologies, such as blockchain and AI, can enhance transparency, traceability, efficiency and promote sustainability in the supply chain. - Risk Management and Resilience
This involves identifying and mitigating risks associated with the supply chain including geopolitical instability, climate change and economic fluctuations. By building resilience into procurement strategies, organisations can adapt to this uncertainty, ensuring the continuity of their operations while maintaining a commitment to sustainability. - Collaboration and Stakeholder Engagement
Achieving sustainability goals requires collaboration with suppliers, customers, and other stakeholders to foster a shared commitment to sustainability, driving collective efforts towards positive environmental and social impact, and to enable the exchange of best practices, knowledge, and resources.
Importance of Sustainability in Supply Chain Management
In recent years, customers, employees, investors and governments have put increasing pressure on organisations to demonstrate greater environmental stewardship and social responsibility. For the majority of these companies, the management of supply chains has come into greater focus because they are a common source of unnecessary waste and consumer of scarce resources. For this reason, supply chain sustainability has emerged as a critical focus of strategic objectives requiring organisations to measure the environmental and societal impact of their products and services across their entire lifecycle.
Research has shown that, for most organisations, the supply chain is responsible for the bulk of their environmental impact. For example in the consumer goods industry, the supply chain accounts for more than 90% organsiations’ environmental impact, according to McKinsey & Company. By their very nature, supply chains often involve energy-intensive production and transportation as goods are made and moved around the globe. Therefore, organisations can often make the largest positive impact by optimising their supply chain rather than other business operations.
Examples of the benefits of adopting more sustainable supply chain practices are widespread. For example, a road builder that previously bought asphalt based on price alone cut shipping distance and related carbon emissions by 40% and achieved a lower total landed cost by sourcing locally. A fast-food company redesigned its packaging to avoid repacking in the supply chain, eliminating literal tons of waste. An outdoor clothes retailer made clothes from recycled plastic bottles and collected used garments, repaired them and resold them as “upcycled” goods. This was at the same time as operating an award-winning green distribution centre and building a “zero waste” program by reducing the weight of packaging and using sustainable packaging materials.
Challenges of Sustainable Supply Chain Management
The complexity of myriad supplier relationships, business operations and logistics movements between supply chain stages also makes supply chain sustainability challenging. With cost being the primary impediment to sustainable supply chains, smaller organisations find it particularly difficult to afford the upfront costs of making a supply chain more sustainable. However, these investment costs can pay for themselves – for example more compact packaging can lead to a reduction in the size and number of shipments, a lower environmental footprint and cost savings over time.
Other organisations often find that sustainable options for components are not available, or a shift towards sustainable practices is too difficult/costly because of complexity or organisational structure. However, in recent years a rising number of organisations have pledged to only source from suppliers throughout the extended supply chain that adhere to strict sustainable practices and social and environmental standards.
This is an admirable target, but it’s been hard to implement in practice. Many organisations have faced scandals due to suppliers that, despite being aware of sustainability standards, have nevertheless gone on to violate them. Major organisations like Apple, Dell, and HP recently endured negative impacts on brand and reputation for sourcing electronics from overseas companies that required employees to work in hazardous conditions, and Nike and Adidas suffered from using suppliers that were dumping toxins into rivers in China.
All these focused on issues with their first-tier suppliers, but the practices of upstream suppliers are almost always worse, increasing organisations’ exposure to serious financial, social, and environmental risks. Procurement professionals should take a hands-on approach to collecting data about suppliers’ sustainability performance, and engaging with them in continuous improvement projects focused on the best ways to disseminate sustainability requirements throughout their supply chains. The danger of not acting is clear: A supply chain is only as strong as its weakest link.
Sustainable Procurement Policy
In the public sector government policy seeks to provide a framework within which all procurement activity will result in enhanced sustainability outcomes. This is based on sustainable procurement involving a process whereby organisations deliver their business needs for products and services in a way that “achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.”
The aims of government policy are widespread and focused on the ability of public sector organisations:
- To improve their own ability to effectively respond to the government’s sustainability agenda
- To improve visibility and understanding of, and engagement with, the sustainability agenda among its current and future supply chain
- To ensure that procurement processes appropriately consider sustainability and do not unfairly disadvantage some suppliers
- To improve contract management processes so that it can actively monitor, manage, and report the performance of its supply chain
Government plans to achieve this by working with suppliers to improve their own sustainability performance and that of their supply chain in areas such as:
- Encouraging suppliers to develop and implement effective environmental management systems such as ISO14001
- Ensuring suppliers can provide suitable assurance on the sustainability of their supply chain
- Where practicable, favouring products with a lower environmental impact and avoiding products which contain substances harmful to the environment
- Reviewing high impact ongoing contracts to identify potential opportunities to reduce negative and enhance positive sustainability outcomes
How to Implement Sustainable Procurement
For many organisations, sustainability is no longer just something to monitor, but integral to the foundation of their supply chain and core to their aligned business and procurement objectives. It is important to fully integrate environmental data into procurement processes and tools, using environmental and sustainability metrics alongside cost and quality measures as they identify, evaluate and select suppliers.
Organisations should also include specific sustainability and environmental performance measures in contracts and tender documents. Some organisations need to provide supporting learning and development related to sustainability to their own procurement professionals and suppliers to assist the embedding of relevant thinking and practices.
Organisations are increasingly recognising sustainability as a strategic priority in the supply chain that involves significant opportunity, and risk. They face a pressure to reduce their impact on the environment, address social and ethical concerns, and meet the growing demands of consumers, citizens and stakeholders for sustainable products and services.
4C are well placed to deliver all your sustainability requirements:
- We partner with organisations to develop strategies that address their sustainability challenges and support the transition to a low-carbon economy.
- We work with clients to identify and implement opportunities to reduce their carbon emissions profile and transition to a low-carbon footprint, whilst creating long-term value for stakeholders.
- We help clients to transform their business models by integrating sustainability into their core business strategy and operations, to become more sustainable, resilient and adaptive to emerging ESG challenges.
Sustainable Procurement Consultancy
At 4C Associates, we ensure the best sustainability practice is observed and applied to projects across all industries and subject matter. This is particularly important as building sustainability into your procurements is crucial to meet the 2050 net zero target set by the UK Government.
Engaging with 4C means tapping into a wealth of expertise and a commitment to sustained transformation. If you would like to learn more about our sustainability service offering and how we have helped companies achieve their sustainability goals, please feel free to get in touch. We’re always happy to share thoughts and learn from you as well.
If you need help with your strategic sourcing strategy please get in touch with 4C Associates today.
Also, make sure to read our related insights, ‘What Is Sustainable Procurement? A Comprehensive Guide’ and ‘The Advantages and Benefits of Sustainable Procurement’.