Sustainability intersects with supply chain in driving profitability
Companies are scrambling to take action on sustainable practices in response to investor pressure, customer demands, and regulation, but — many executives admit — they are also carefully considering the impact that their company has upon the planet.
Sustainability — within a business context — refers to minimizing the negative impact on the environment and society. The supply chain can account for half of a business’s environmental and social impact, and every element of a company’s supply chain creates some kind of ecological, social, and economic impact. Companies must form a holistic view of their entire organization’s processes, logistics, technologies, and components to create a sustainable approach to any business’ supply chain.
Since the start of the COVID-19 pandemic, the world has seen the disruption of the global supply chain. This disruption has highlighted how sustainability is more critical than ever, and the need for businesses to operate sustainably and responsibly has increased. To become more robust and sustainable, many organizations are streamlining their supply chains and, as a result, are minimizing the risk of operational failure due to regulatory, environmental or societal disruption.
The Sustainable Procurement Barometer, which is based on a survey of buyers and sellers from more than 350 companies, found that businesses negotiated the challenges of the pandemic by making their supply chains more sustainable. The Sustainable Procurement Barometer found that 63% of buyers and 73% of suppliers reported that sustainable procurement practices helped them endure the pandemic. Integrating sustainability into their supply chains proved to be a worthwhile investment, as it helped companies that prioritized values like labor rights and environmental protections weather the pandemic.
A greater emphasis on sustainability benefits organizations across the board. Sustainable procurement leaders have reported that these practices helped them mitigate risk. Leaders also saw greater resiliency in their supply chains, reduced costs, and improved talent retention and productivity. And, despite prioritizing the planet over profit, 59% of leaders reported increased sales revenue based on their improved reputation.
Corporate sustainability is not a fad
Profit has long dictated how companies operate. In contrast, sustainable procurement encourages companies to consider their suppliers’ environmental impact, human and labor rights records, and business ethics. As more companies chase sustainability, they are valuing the common good over growth and profitability.
Sustainability is not a fad. Sixty-three percent of businesses report that “delivering on corporate sustainability goals” is a key desired outcome of their procurement programs. This is nearly triple the number of companies that prioritized sustainability just two years ago.
This upward trend is demonstrated by both large corporations and mid-size companies. Despite having fewer tools and less capital to make those investments, mid-size companies also reported increased interest in sustainable supply chain practices.
Establishing sustainable supply chain practices benefits companies
The research is clear: sustainable practices benefit companies, and more and more companies are adopting such practices. All types of business stakeholders — from employees to customers, suppliers to investors — are starting to consider sustainable supply chain practices when measuring a company’s success.
To establish sustainable supply chain practices, organizations must use sustainability criteria throughout their engagement with suppliers. From their first interaction with a prospective supplier through annual assessments, leaders must continue to use a wider variety of tools and strategies to ensure their sustainability goals are reached.
Putting effort into sustainability has the potential to improve a company’s performance. A 2019 survey by Hotwire found that 47% of internet users have ditched products or services that violated their personal values. It turns out that making a positive impact can increase a company’s appeal to existing and potential customers and attract new market opportunities.
In addition to pleasing sustainability-minded customers, companies must also consider regulatory requirements. In the coming years, regulations will be applied to businesses with regard to social and community responsibility. Already, governments worldwide are implementing sustainability regulations across a range of industries. In order to get ahead of these regulations, businesses must proactively anticipate legal requirements.
Even if a business leader cared about social responsibility and environmental issues, companies often viewed sustainability as a trade-off. In the past, many thought “doing the right thing” would come with a heavy loss of cost efficiency and profits. Fortunately, tech innovations have made it possible for companies to control their social and environmental impacts while remaining competitive in their industry.