Supply chains play a crucial role in moving goods along to the end user. Without them, many businesse simply couldn’t exist. But as simple supply chains grow into vast and complex networks, how do you make sure yours remains ethical, profitable, and viable in the long term? Here we’ll look at what a sustainable supply chain is and why it’s important, and in particular:
- Elements of a sustainable supply chain
- 6 benefits of a sustainable supply chain
- Practical sustainable supply chain management tips for SMEs
- Where to get certified
What is a sustainable supply chain?
Supply chain sustainability is about making sure your business and suppliers operate responsibly, ethically, and legally. A sustainable supply chain is one where no matter where you or your suppliers operate, employees are treated and compensated fairly, local laws are followed, and the surrounding environment is protected.
Why is a sustainable supply chain important?
Today’s consumers want more from a company than just their products. They want the peace of mind knowing that what they are buying hasn’t harmed the environment, the people who’ve made it, or the communities they were made in. A company that can’t give its customers that confidence could be putting its brand and reputation at serious risk.
Likewise, many governments demand certain standards for companies that want entry to their markets, meaning many businesses must prove their supply chain meets those standards or risk losing access to important markets.
But what about your longevity? The world is changing rapidly and climate change could have a huge impact on businesses in the future, if they aren’t already. Making sure your supply chain is future-proofed against those impacts could be essential to your viability.
And of course, in order to keep your business running, it’s important that you are accepted by your customers, your peers, and the countries and cultures you operate within. By building in sustainability goals to every element of your supply chain – from producers to end customers – you will be giving your business the best chance to gain and maintain this acceptance.
Aim for beyond making your business sustainable — your supply chain should reflect your mission
What are the elements of a sustainable supply chain?
The three elements of a sustainable supply chain are social, environmental, and financial responsibility. Knowing what each element means is the first step in making your chain more sustainable.
Social responsibility in a supply chain is about making sure the people who work for you and your suppliers are treated fairly, and whose safety and wellbeing is protected.
This means treating workers in line with human rights laws and labour laws. Where local laws fall below par, suppliers should adhere to international benchmarks.
National and international guidelines will specify how employees should be treated and what their rights are, including that workers should be:
- Treated with dignity and respect
- Compensated fairly
- Provided a work environment that is safe and free from safety risks and hazards
- Free to exercise their rights – for example, joining a union, assembling peacefully, and negotiating pay increases
- Free from harassment and violence – sexual and otherwise
- Free from discrimination of any kind, including discrimination based on gender, religious views, sexual orientation, age, and race
- Compensated fairly for overtime and not made to work excessive hours (usually no more than 60 hours a week)
Social responsibility is also about making sure local people, laws, and customs are respected. Some companies also choose to give back to local communities by donating to local services, funding local programmes (such as sport and education), or volunteering.
Whether you or your suppliers take this step may depend on the opportunities available, but it can be a good way to demonstrate goodwill to local communities and governments, and to maintain support for your operations there.
Environmental responsibility is about protecting the environment from the potential harm caused by a business’ operations and those of its partners.
Whether it’s deforestation from farming grains or livestock; carbon emissions from transport and production plants; or chemical waste produced manufacturing household products, it’s important for a business to understand all the ways in which it impacts the environment – and to take action to minimize its footprint.
It’s also important for companies and their employees to understand basic international laws and standards around protecting the environment, like those of the UN’s Paris Agreement, to which many countries around the world are signed up, and the Carbon Disclosure Project (CPD).
Some of the key things to consider about the lifecycle of your products are:
- The amount of waste, gases, and hazardous material produced
- The amount of water used, and how it is treated before going back into the environment
- The scale of disruption operations have on the environment, animals and local ecosystems
Financial responsibility is also key to your supply chain’s sustainability and fulfilling your obligations to partners, employees, and the communities in which your supply chain operates.
Broadly, this covers long and short-term financial planning, compliance with laws and regulations around financial activity, adequate risk management and insurance coverage, and activity to maintain profitability.
Some of the typical financial responsibilities of businesses across a supply chain are:
- Paying employees and suppliers on time and in full
- Paying into employee pensions
- Operating responsibly and within a company’s means
- Regularly auditing and reviewing company finances
- Paying national taxes in the countries you operate within
- Having the necessary insurance coverage and reserve funds to keep your business afloat in unexpected events or emergency situations
- Staying abreast of legal changes around financial activity, and remaining compliant
- Not engaging in bribery or corruption activity
- Not engaging in illegal or fraudulent financial activity
Benefits of a sustainable supply chain
A sustainable supply chain is a healthy one. By ensuring employees are treated and compensated fairly across your supply chain, you will be better placed to retain key employees (along with their knowledge and experience). By protecting the local environment, you will foster goodwill with your local communities. And by prioritising your fiscal responsibilities, you will build trust with your stakeholders.
Meeting your ethical responsibilities will also gain you favour with your workers and help you land quality recruits. Studies have shown that employees want to work for companies with genuine corporate social responsibility programmes.
The benefits are far-reaching. Here are a few more of the key ones:
Consumers want to know their brands operate ethically. They often boycott them when they don’t, but stay loyal to them when they do.
Brand and reputation
Human rights violations, environmental disasters, corruption – these might be the sins of your suppliers, but your stakeholders mightn’t see the difference. Making sure your partners meet the highest standards is key to avoiding hits to your brand.
Competitiveness and profitability
Sustainability is about more than ethics, it’s about staying competitive. Businesses that don’t prioritise sustainability risk losing out to competitors that do.
Waste, lawsuits, fines, loss of customers – these can all cost your brand big money. Sustainability efforts will help you avoid these pitfalls.
Creativity and innovation
Meeting the standards of sustainability often require thinking outside the box. This can lead to new and improved ways of working, more efficiencies, and new product and business ideas.
A disrupted supply chain can be a painful experience. Using suppliers with poor practices puts your company at risk of issues like high staff turnover, lawsuits, or bad press, so bear in mind that sustainability and continuity go hand in hand.
Examples of sustainable supply chain management
Many businesses have seen the value of sustainability over the last decade and have pledged to meet higher standards throughout their supply chain. The International Seafood Sustainability Foundation (ISSF) for example has big-name members like Clover Leaf and Rio Mare (along with others) helping fund sustainability research and advancements, and taking direct action within their own companies and supply chains to improve fishery practices.
Other well-known brands have taken similar action. Bodies like the CPD track companies making significant strides in sustainability practices. Last year it picked out companies like Toyota, Mars, and HP as ‘A List’ companies for their achievements.
Carbon emissions are top of mind when it comes to environmental sustainability, so car manufacturers are often a big part of the discussion. Toyota has been making strides throughout its operations – according to the CPD, all of the car giant’s plants across Europe, along with a handful in South America, now use 100% renewable electricity.
The environmental impacts of palm oil have been a big-ticket news item over the past few years, and candy bar manufacturers have felt the heat. Mars seems to have taken the message to heart and spent the last several years making changes to its supply chain as a result. It has reported reducing the number of mills to make it easier to hold its partners accountable, and saved contracts for suppliers with strong environmental practices. It is also monitoring deforestation with satellite tracking and is working with non-profit fair labour organisation Verité to improve human rights for workers along the chain.
Timber production has also been closely scrutinised recently, and computer giant HP – which is a major producer of printer paper – has made big strides according to the CPD. Since 2009, HP has increased the percentage of its paper approved by the forest certification system Forest Stewardship Council (FCS) from 3% to %100 last year.
Practical tips on how you can effect change in your supply chain
How to achieve a sustainable supply chain
Whether you sell clothing, food and drinks, or electronics, there are many ways to make sure your supply chain is sustainable and ethical. Below we’ll look at some practical steps you can take, but before you take action, it may be worth asking yourself these questions:
- What does sustainability in your industry mean?
- Where does sustainability fit in with your values and mission?
- How will it benefit your business and your supply chain?
It’s important for you, your employees, and your suppliers to buy into sustainability in order for your efforts to work, so make sure you buy into it first – then, take the steps you need to make it happen.
Practical sustainable supply chain management for SMEs
Define your vision
Once you understand what sustainability means in your field and how it can help your business, build a vision for your supply chain. Do this with key stakeholders to get their buy-in early on. You may find many of them are interested in sustainability for personal reasons, so harness that passion and let fuel your mission.
Know the lay of the land
Before you get going with a plan of action, understand where you stand. A number of certifiers offer self-assessment tools to help you determine how sustainable your current activities are. Take the time to identify where the challenges to sustainability are in your supply chain, and why. It may be political reasons, demanding targets, or a lack of visibility over second and third-party suppliers. Get a handle on where potential pitfalls lie to help you work out viable solutions.
Make a plan and communicate it
With your vision in hand, lay out a comprehensive roadmap to achieving sustainability across your chain. Include key actions and assign responsibility for them. Lay out timelines, milestones, and key performance indicators to help measure your success along the way. Don’t forget to communicate the plan to your stakeholders across the supply chain – and be open to taking on board their thoughts and feedback – it will help keep them engaged and motivated.
Train your staff and your suppliers
Once you’ve set out your vision and plan, get your stakeholders on board and provide them the training they need to make the plan a success. Make sure you include teams like procurement which play a significant role in choosing suppliers. And treat training as an ongoing activity. As new developments emerge in sustainability, it will be important to keep staff up to date and to train new employees.
Get help and get certified
No one can be expected to become a sustainability expert overnight. If you need outside help, look into consultants and other means of support, as well as supply chain management software to help monitor supplier activities, compliance, areas of risk, and tracking activity around waste and carbon emissions. Find a credible certifier to sign-up with (we look at some options below). Certifiers often provide courses, guidance, and other tools to get you on the right track.
Avoid putting unrealistic expectations on your suppliers
Once you’ve committed to the process, remember that suppliers have external pressures that can affect how they do business. If a company places unrealistic timelines or production targets on a supplier, they may in turn put the pressure on their employees or lower their environmental standards rather than turn down the job. Help your suppliers achieve sustainability by giving them fair targets with reasonable deadlines. Likewise, where you see suppliers continuing bad practice despite your standards and support, cut your ties or take a break until they improve.
Test and monitor
Once your plan is in motion, make sure you test different elements to see how they are working and monitor progress – for example, around supplier compliance, and waste reduction. Change won’t happen overnight, but knowing what’s working and what isn’t will help you make the tweaks needed to get things back on track.
Certification adds credibility to your business
Who certifies supply chain sustainability?
Having your supply chain certified for sustainability can be a useful way to strengthen both your brand and your operations.
There are many internationally recognised standards, including:
- Fairtrade and Fair for Life, which certify fair labour and trade practices
- Social Accountability International, which certifies Human Rights in the workplace
- The Marine Stewardship Council, which certifies sustainable fishing and traceability
- And as we looked at above, the Forest Stewardship Council for land and forestry protection
There are also certifiers specific to different countries and regions around the world:
Sustainable supply chain certification in New Zealand & Australia
- Biogro – An organic food certifier for farmers, producers, and manufacturers across Australia, New Zealand, and the pacific. It also certifies environmental sustainability, animal welfare, and labour practices
- AsureQuality – A food production sustainability certification in New Zealand owned by the federal government. It covers elements like food safety, animal welfare, and sustainability
Sustainable supply chain certification in North America
- National Organic Program – A U.S. public-private partnership between the USDA and third-parties to certify organic standards – useful for food producers as well as clothes manufacturers wanting the seal of approval for organic cotton
- Green-E – A scheme for businesses looking for clean energy and carbon offset certification across North America. It lets customers know which businesses are using methods like wind and solar energy, and how much of their energy is derived from these sources.
Sustainable supply chain certification in the UK & Europe
- Business in the Community – A UK membership body created by the Prince of Wales in 1982. Members, which include Deloitte and Rolls Royce, pledge to do good in the communities they work in, and operate with environmental sustainability
- Soil Association — a UK organic certifier across food, health and beauty and textiles. Members include Marks & Spencer, Waitrose, and beauty brand Lush
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.