Sustainable supply chains: why green is better for business

Companies are increasingly taking pains to reduce their exposure to economic, environmental and socio-political risks in their supply chains

 
A woman works in a thread factory. Green supply chains are become more and more crucial to businesses
The cost pressures of working in a global marketplace, coupled with the emergence of the so-called ‘conscious consumer’, means that companies can ill-afford to take an eye off their supply chains 

In the weeks and months preceding the release of Boeing’s 787, the much-talked-about aircraft was cast as a major breakthrough for the aviation industry and a master class in supply chain management. However, to bring the Dreamliner to runways as quickly and competitively as possible, manufacturing was shared between a patchwork of suppliers: wing tips were made in Korea, landing gears in the UK, cargo access doors in Sweden, movable trailing edges in Australia, and so on.

So when in 2013 a Japanese-made lithium-ion battery set alight and brought Heathrow Airport to a standstill, critics were quick to highlight cracks in Boeing’s knotty network of suppliers and the broader issues associated with global supply chain management.

Likewise, when in June unearthed the existence of slavery at the tail end of Walmart, Costco and Tesco supply chains, the implicated parties admitted that they were unaware of what was promptly dubbed the ‘supermarket slave trail’. Forced to work without pay and under threat of violence, the investigation cast a spotlight on untold measures of brutality, inflicted in the name of competitiveness, and again showed what knowledge, or lack thereof, companies had of their suppliers’ dealings.

Renouncing responsibility
The circumstances here offer a glimpse of what consequences an increasingly globalised supply chain can bring, and highlights just how much work is to be done before they are seen as legitimately responsible. If companies are to protect against financial, environmental and social collapse, they must take a more pro-active approach and employ greater risk management protocols to avert the pitfalls of an increasingly globalised supply chain.

“Modern supply chains have an extensive global footprint and this exposes them to differentiated economic, environmental and socio-political challenges,” says Aditya Sharma, Operational Director for Global Sustainable Supply Chain Services in Accenture Strategy. “Uncertain direction of regulations, regional macro-economic trends, changing political landscapes and varying focus on social development mean supply chains face disruption from diverse physical, regulatory and other sustainability risks.”

The business of supply chain management become an art unto itself

The nature of today’s global marketplace demands that corporations look to operations apart from their own to make certain cost savings and quality improvements. Globalisation has not only allowed businesses to capitalise on otherwise unreachable resources and expertise, but extend their influence to consumers beyond their own borders. And where once companies communicated with their suppliers face-to-face and worked out any issues in the here and now, customer-supplier relations have since stretched the length and breadth of the globe, and the business of supply chain management become an art unto itself.

According to a PwC report entitled , 45 percent of a 500 party sample – made up of supply chain experts – identified the supply chain as a strategic asset for their respective companies. And in a marketplace where strategic advantages are increasingly hard to come by and globalised operations subject to ever-evolving macroeconomic pressures, supply chains constitute a vital means of differentiation for businesses. Adaptability, therefore, is arguably the single most important quality for companies looking to wrap their heads around modern day supply chains and better understand what risks and rewards are contained within.

“Companies are now looking at sustainability not as a ‘good to have’ but as a way of doing business – supported by a very sound business case with tangible economic benefits – 80 percent of the 1000 CEOs interviewed for the UNGC-Accenture survey in 2013 view sustainability as a route to competitive advantage in their industry,” says Sharma.

Bangladesh garment industry monthly minimum wage (USD)
Bangladesh garment industry monthly minimum wage (2013 figures). Source: Research Initiative For Social Equity Society.

Don’t ask, don’t tell
In amid the clamour for global competitiveness, some firms are choosing – willingly or not – to sacrifice ethics and quality of service in favour of cost savings. for the British government’s Modern Slavery Bill found that 11 percent of firms believed it possible that slavery had occurred at some point in their supply chains. Speaking on the findings, David Noble, Group CEO of the Chartered Institute of Purchasing and Supply (CIPS) said “Consumers and business leaders have entered into a “don’t ask, don’t tell” pact on Britain’s supply chains.”

The cost pressures of working in a global marketplace, coupled with the emergence of the so-called ‘conscious consumer’, means that companies can ill-afford to take an eye off their supply chains for fear of the financial, social and environmental repercussions it could bring. While outsourcing can bring greater competitiveness to those who employ it to good effect, without taking into account how it might affect others, the immediate advantages will be outweighed by the repercussions in the long-term.

The pressure on companies to act as equal part profit-making machine and responsible corporate citizen has brought with it a focus on sustainable supply chain management, asking that they take into account the ramifications of any one single step in the supply chain. “Companies are increasingly extending their commitment to responsible business practices to their supply chains not only because of the inherent social and environmental risks and the governance challenges the supply chain poses, but also because many of the rewards supply chain sustainability can deliver,” says Ursula Wynhoven, General Counsel, Chief, Governance and Social Sustainability at the UN Global Compact. “Sustainable supply chain management can be a strong driver of value and success – for business as much as for society, with an enormous potential to contribute to more inclusive markets and advance sustainable development.”

Some firms are choosing – willingly or not – to sacrifice ethics and quality of service in favour of cost savings

Still accounting costs
The Rana Plaza factory disaster, for example, was part responsible for triggering a wave of socially responsible supply chain programmes, and its influence can still be seen more than a year and a half on (see Fig. 2). The collapse of the eight-story commercial building last year killed over 1,100 textile workers and was seen as a lesson in how inadequate supply chain management can bring with it gross financial and human costs.

Primark and Benetton were mainly implicated in the scandal, who were criticised for failing to uphold proper working conditions and address known structural weaknesses. And while the losses on all counts were devastating, news of the event succeeded in igniting discussions on the importance of corporate social responsibility in supply chain management and the role of companies in protecting against incidents of this sort.

In the months that followed, the garment industry, governments, trade unions and NGO representatives banded together to form the , with the support of the International Labour organisation (ILO). The ambition of ‘the arrangement’ was to help victims of the tragedy by providing much-needed financial and medical support, and while the initiative is far from a solution in itself, the participation of corporate names signals a willingness to make amends for any wrongdoing committed on their part.

What’s more important for socially responsible supply chains, however, is that companies, particularly post-Rana Plaza, are willing to carry out supplier audits to protect against sub-standard working conditions. Acutely aware of what failure on the part of any supplier can bring, companies are keen to implement the necessary tools to sniff out risks and protect against financial and reputational losses. And by creating a framework to expose risks before they become unmanageable, businesses can more easily build a resilient and responsible supply chain.

Unilever, for example, has been voted the best supply chain in Europe by for two years running for “demonstrating supply chain excellence and leadership year over year.” of labour issues in Unilever’s operations and supply chains likewise concluded “Unilever is committed to respecting and promoting human rights and good labour practices.”

The company pledged at its annual “Partner to Win Supplier Summit’ in September to look beyond its 200 biggest suppliers and to the one million plus individuals working on the lowest rungs of its supply chain. Building on its Responsible Sourcing Policy, “an illustration of Unilever’s commitment to increase its positive social impact throughout the entire supply chain,” the company, , is looking to bring the programme to underserved regions of Africa, Latin America and Asia.

Source: Solidaridad, 2014 figures
Source: Solidaridad, 2014 figures

The partnership with Solidaridad, an NGO that specialises in bringing sustainable best practices to supply chains, has already improved the lives of over 150,000 workers in India, Mexico and Colombia, and stands as a prime example of responsible supply chain intervention. “Together with Unilever we will engage suppliers and support them to address current and future business challenges,” said Nico Roozen, Executive Director of Solidaridad Network in a statement. “Suppliers need access to resources and to markets. We need to change market conditions to shift sustainable production from niche to norm.”

Similarly, HP has taken major steps to build a sustainable supply chain, beginning with the foundation of its in 2001. The scheme is also closely in keeping with the company’s , through which it aims to deliver human, economic and environmental progress and make a measurable impact on society (see Fig. 3 and Fig. 4).

With a presence in more than 45 countries and territories spanning six continents, HP’s complex operations go far beyond its own walls and come to bear on hundreds of thousands of people across the globe. Since 2007, efforts to improve sustainability have reached 460,000 workers, and a number of peer educator-run programmes have benefitted an even greater number of individuals. HP last year also became the first IT company to introduce guidelines for the responsible management of student and dispatch workers, and in 2007 was the first electronics company to publish a list of suppliers.

The examples of Unilever and HP are proof that companies are beginning to take a more pro-active approach when introducing benefits to the furthest reaches of their organisation and in pushing for greater sustainability in supply chains. Although a number of companies are looking to their suppliers for instances of gender inequality, inadequate pay and worker rights violations, the most pronounced development is the implementation of environmental best practices.

Environmental awareness
“Customers are increasingly aware of the environmental and social impacts of hazardous products or product ingredients and are known to pay premium prices for green products in many markets,” says Sharma. “In the latest CDP survey analysis for 2013-14, 56 percent of companies identifying climate change related opportunities say that consumers are becoming more receptive to low-carbon products and services.”

11 percent of firms believed it possible that slavery had occurred at some point in their supply chains

Optimising logistics networks for environmental purposes – otherwise referred to as greening the supply chain – has grown increasingly common, due largely to pressure from consumers to make clear how companies are working towards mitigating climate change. Beginning with matters as simple as reducing the use of plastic goods, recycling paper and even turning light switches off at closing times, businesses are today implementing all manner of complex environmental initiatives to appease consumers.

“The more corporations around the globe focus on sustainability, the more they realise that their greatest challenges and opportunities often lie outside their own offices and manufacturing plants,” according to a , entitled Greening the Supply Chain: Best Practices and Future Trends. “To make a truly significant lifecycle leap, large companies have to work on greening their supply chains.”

Aside from the immediate advantages, namely reputational gains and greater operational efficiency, the process of greening supply chains also brings with it a number of long-term benefits. Those committed to reducing their carbon footprint invariably find that sustainability comes hand-in-hand with fewer marginal pressures, improved supplier relations and, ultimately, material gains. And although the demands of implementing an environmentally responsible supply chain can be huge, the rewards are equal to the exertions.

For example, major American food manufacturer Kelloggs announced recently that it would impose carbon disclosure requirements on its suppliers in order to curb emissions. “We expect suppliers to support our corporate responsibility commitments by implementing sustainable operating and farming practices, and agricultural production systems,” wrote a company statement. “Suppliers must strive to reduce or optimise agricultural inputs; reduce greenhouse gas emissions, energy and water use; and minimise water pollution and waste, including food waste and landfill usage.”

Suppliers engaged in Supply Chain Responsibility programme graph
Notes: total, cumulative

The company has introduced the policy with a view to publishing a total supply chain greenhouse gas emissions reduction target and an accompanying action plan. By including the environmental contributions of suppliers – no matter how small – alongside its own, Kelloggs’ contribution to mitigating climate change can be more accurately charted.

Acutely aware of what wayward emissions could bring for global food production, the company’s climate policy is critical not just for the continued success of the business, but the viability of the industry as a whole. Knowing this to be the case, a number of programmes have emerged in recent months and years to combat what losses could come as a result of shrinking food production.

Making a difference
The initiative, pioneered by Oxfam, has seen numerous companies pledge to do right by their suppliers and commit to pushing social and environmental causes. With Coca-Cola, PepsiCo, General Mills and Nestle on board, the initiative allocates a score to each company, based on their contributions to areas such as women, workers, climate and transparency.

Tools like the Dow Jones Sustainability Index, GRI, CDP and the UN Global Compact’s 10 principles are also playing a key part in educating companies about how best to improve their supply chains. Focusing on matters such as human rights, labour, the environment and anti-corruption, the 10 principles outline a framework for those looking to eliminate any supply chain shortcomings they may have. “We see more and more companies extending their commitment to responsible and sustainable business practice throughout their supply chains,” says Wynhoven.

“Companies are starting to understand that their most significant impacts on the environment and society occur in their supply chains, and they are increasingly working together with their peers and other key stakeholders to improve their impact and to identify opportunities to promote human rights, improve labour conditions, protect the environment and support ethical business conduct.”

The biggest challenge for companies with a globalised supply chain, however, is not recognising and publishing corresponding environmental and social initiatives, but ensuring that these policies are enacted. An increasing number of companies are attuned to what issues have arisen, though the demands – financial or otherwise – associated with delivering on change can often prove too much to bear, as can be seen in the .

The examples of Kelloggs, HP and Unilever, therefore, are of the utmost importance if others are to gain an understanding of how pro-active supply chain management makes good business sense. For as long as competitors fail to deliver on the promise of progressive supply chain management, they will struggle to realise what benefits a holistic approach to corporate social responsibility will bring for their reputation and bottom line.

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