The Expert View: Sustainability in the supply chain

The supply chain is responsible for around 80 per cent of global greenhouse gas emissions, said Matt Spooner, Industry Thought Leader at Kinaxis, opening a recent Business Reporter Breakfast Briefing at The Goring Hotel in London. He told the audience of senior executives from a range of sectors that, although this is a major challenge, it also represents a significant opportunity. Supply chain leaders have the potential to bring about major change.

 

Western Europe is ahead of much of the world when it comes to sustainability, Spooner said. This could be because the region’s relative wealth means that it can invest in sustainable initiatives, while in other parts of the world the urgent need to meet daily necessities trumps long-term planning. Nevertheless, supply chain executives in Europe can build on this foundation.

 

Supply chain composition

 

The challenges faced by every business will vary depending on the nature of the companies making up its supply chain, attendees said. Small businesses may require immediate financial support to bring about change, while sectors such as shipping might have greater resources but will take longer to implement change because of long asset life-cycles.

 

Some suppliers wield so much market power that they can dictate terms, some attendees said. If these companies have different sustainability goals, it was argued, there is very little opportunity to shift their priorities. Smaller, more vulnerable suppliers, meanwhile, might be hesitant to invest in sustainability initiatives without signing longer contracts to ensure they recoup some of their investment.

 

Meanwhile, suppliers of all sizes can be cautious about sharing too much information, according to attendees. While transparency is an important component in reaching sustainability goals, many businesses fear that too much transparency could weaken their bargaining position.

 

This can create a problematic lack of visibility. Just 4 per cent of companies can look beyond the second tier of their supply chain, but a typical coffee supply chain, for example, has nine tiers. 

 

Aligning incentives


 

Within any business, aligning incentives is a challenge. Someone working in procurement, for example, might be judged on their ability to deliver cost savings, which is likely to conflict with sustainability goals. Different businesses have different objectives, too. For instance, one might focus on Net Zero, whereas another will aim to be carbon neutral. Attendees argued that we need better standards that everyone can work towards.

 

Even so, when most of your emissions are tied to the key ingredients of your main products, making improvements can be very difficult. One attendee, from a chocolate manufacturer, said that cocoa and milk both have a large carbon footprint, but his business being so reliant on them made rapid change difficult. Other attendees suggested that in these cases it is useful to prioritise sustainability elsewhere, such as in packaging.

 

Despite these challenges, there is a strong business case for sustainability. Sustainable businesses are more resilient, said Spooner, and they are good at minimising risk because of their experience with regulatory compliance. Furthermore, sustainability requires cutting waste, which brings the added benefit of increased cost efficiency.

 

Securing leadership

 

Strong though the business case may be, buy-in from the top is essential. Once the CEO says that sustainability is a goal, attendees agreed, then every part of the company will start to work towards it. That requires a clear plan that identifies the organisation’s targets and explains how it plans to achieve them.

 

Sector-wide progress can be assisted by industry bodies, such as the Responsible Business Alliance, which sets out a code of conduct for members and audits them to ensure compliance.

 

Technology plays a crucial role in reaching sustainability goals, too. Some attendees described using technology for supplier due diligence, with systems that can collate information from suppliers and create lists of approved suppliers that meet the standards set by the business. Others discussed using technology to improve decision-making. The Kinaxis dashboard, for example, tracks the supply chain, including Scope 3 emissions, and can show the difference in emissions between two proposed plans.

 

However, technology is not a magic bullet. Demand management technologies can save energy, for example, but, as one attendee warned, sometimes electrifying a process can increase energy demand.

 

The key message from the briefing is that supply chain sustainability is an immensely complex problem. The stakes are high, but so is the potential impact. By integrating sustainability into the fabric of their business strategies, businesses can make significant strides towards a more sustainable future.

---

For more information, please visit kinaxis.com.