Sustainable Supply Chain Management
Peter Senge, the founder of the Society for Organizational Learning, a faculty member at MIT Sloan School of Management, and the author of The Fifth Discipline and says “To make progress on environmental issues, organizations must first understand that they’re part of a larger system”.
Supply chains are critical links that connect an organization’s inputs to its outputs. Some challenges in the past included lowering costs, ensuring just-in-time delivery, and shrinking transportation times. However, the increasing environmental costs of these networks and growing consumer pressure for eco-friendly products has led many organizations to look at supply chain sustainability as a new measure of profitable logistics management. For many companies, the largest opportunity for improving sustainability performances such as reducing carbon emissions, water use, and toxic chemicals is in its global supply chain. For example, up to 60% of a manufacturing company’s carbon footprint is in its supply chain, for retailers, that figure is closer to 80%.
Companies must confront the reality that their supply chains can no longer be opaque. Stakeholders demand more accountability. If we add the financial benefits of energy and resource efficiencies to this mix, a sustainable supply chain makes long term business sense and creates a competitive advantage for companies worldwide.
Businesses leading by example: IKEA
The home furnishings giant IKEA is one company that works with suppliers on a variety of challenges, from energy efficiency to sourcing materials responsibly. IKEA has pledged to invest €1.5b in renewable energy technologies. With the cost of solar more competitive than ever before, IKEA is reaching out to Chinese suppliers to find efficient systems with the quickest returns on investment. The results not only lowered the carbon footprint of IKEA’s supply chain, but saved the company and suppliers money from reduced utility costs.
IKEA is also tacking the challenge of natural resource depletion. The company is seeking the advice of forestry specialists who work with suppliers on educating them about more responsible wood procurement practices. IKEA suppliers in turn must report the origin of their wood every four months and then are subjected to audits to which they have only 48 hours to report the origins of their wood. IKEA also conducts wider supply chain audits so the company can trace the origin of wood all the way back to the actual forest. In addition to wood, IKEA also trains suppliers and other stakeholders on issues related to waste, energy and water.
Cotton is the second most important raw material at IKEA, after wood. Ikea’s commitment began in 2005 as part of its overall environmental efforts and as a founding member of the Better Cotton Initiative (BCI), which works with a diverse range of stakeholders to promote measurable and continuing improvements for the environment, farming communities, and the economies of cotton-producing areas. Ikea’s goal is to ensure that consumers do not pay a premium for cotton products that are more sustainably farmed than conventional cotton — using less water and fewer chemicals and pesticides. Currently, 34% (51,000 tons) of all cotton used in Ikea products is produced in line with BCI standards. In 2012, the annual world production of sustainable cotton was only 250,000 tons, which Ikea seeks to increase through its holistic sustainability approach.
UN Global Compact
UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption. To assist companies in improving their processes, the Global Compact has provided a platform for identifying and promoting existing material, initiatives and business practices, exploring critical issues and developing guidance on how to integrate the Ten Principles into supply chain management systems. The Global Compact encourages signatories to engage with their suppliers around the Ten Principles, and thereby to develop more sustainable supply chain practices. With over 10,000 corporate participants and other stakeholders from over 130 countries, it is the largest voluntary corporate responsibility initiative in the world.
Innovations and technology drives sustainability in supply chain
The name of the game is competition. The playing field is global. The bottom line? – Better quality, high productivity, lower costs, and the ability to quickly respond to customer needs are more important than ever, and the bar is getting higher. Businesses are striving to develop solid supply chain strategies for dealing with these issues. Some companies are using cloud based systems to keep everyone in the system—from the source of material procurement to the point of sale-up to date on what’s selling, what’s en route, and what it all means for the bottom line. Companies that use advanced Demand Driven Supply Chain (DDSC) systems have improved delivery performance by 20% and cut inventories by 33%.
Cloud-based enterprise sustainability management platform like SupplyShift serves companies with many suppliers to reduce risk and enhance sustainability in supply chains using an interactive metrics-based system that encourages competition and information sharing to drive improvement. It is built on the concept that information transparencies can incentivize action. SupplyShift provides a system to collect supply chain sustainability information through scorecards based on existing standards such as GRI, The Sustainability Consortium, and Carbon Disclosure Project (CDP).
Creating a competitive advantage and reputation
By exhibiting a genuine commitment to corporate social responsibility and ethical business practices, corporations have the power to not only transform their organizations but also their supply chains. A robust corporate citizenship isn’t limited by the vision of its shareholders and customers, and its reach certainly doesn’t end with its company headquarters. The potential benefits of improved supply chain performance are every bit as compelling as those achieved through direct action on the companies’ own operations. By bringing sustainability improvements deep into supply chains, companies can better protect their reputations from environmental violations, increase productivity and save on costs related to energy, water use and waste.
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