As the world is witnessing the early signs of sustainability triggers, business leaders increasingly acknowledge that compliance with sustainability extends far beyond their organizational boundaries. This shift in mindset brings us a step closer to the vision of achieving high ESG standards and fostering a sustainable future for the planet.
Recognizing that sustainability goes beyond internal operations, business leaders now emphasize the importance of tracking their supply chain at various levels to ensure responsible practices. These include:
- At the supplier level: Ensuring suppliers adhere to sustainable practices, including responsible sourcing, ethical labor practices, and environmentally conscious operations.
- At the organizational level: Embedding sustainability into operations by adopting environmentally friendly practices, promoting social responsibility, and maintaining good governance.
- At the distribution level: Assessing and optimizing the environmental impact of transportation, logistics, and product distribution.
This research byte sheds light on how enterprises are increasing their reliance on digital platforms and IT in their supply chain management processes to drive green and sustainable practices. By harnessing the power of IT, businesses are gaining the ability to track, analyze, and optimize their supply chains, resulting in reduced environmental impact, improved social responsibility, and enhanced overall sustainability.
At the Supplier Level
For many years, companies have been under pressure from regulatory bodies, customers, and activists due to their procurement of goods from suppliers engaged in unsustainable practices. These practices include discharging toxins into rivers, subjecting employees to unsafe working conditions, and neglecting to monitor carbon emissions. These companies encountered multiple challenges when consumers became aware of their supplier activities. The most significant was the damage to the organizations’ reputation, leading to a loss of customer trust and diminished brand value. Additionally, they had to grapple with supply chain disruptions caused by operational shutdowns, protests, or legal issues, resulting in skyrocketing operational costs for the company.
For instance, Apple faced public backlash in 2011 when reports revealed labor rights violations in its Chinese supplier factories. This revelation triggered widespread criticism against Apple, tarnishing its reputation as a socially responsible company. Of course, later, Apple settled by paying $53 million to workers who claimed to have been underpaid and overworked.
Given the increasing complexity and scale of global supply chains, tracking supplier sustainability activities in real time is daunting for supply chain leaders. When faced with such scenarios, business leaders lean toward digital platforms to address the missing components and overcome these challenges. Platforms, such as GEP SMART™, EcoVadis, Supplyshift, and Socialsuite, are gaining prominence in assessing supplier sustainability performance. These platforms enable enterprises with a range of capabilities, such as:
- Data collection and reporting: Collecting ESG-related data from suppliers through self-assessments and surveys or by uploading relevant documentation and allowing companies to generate ESG reports and share the information with stakeholders, including customers, investors, and regulatory bodies.
- Performance monitoring for supplier qualification: Tracking and monitoring the environmental data and metrics, such as carbon emissions, energy consumption, waste management, and water usage, and social metrics, such as diversity of the supplier base, supplier adherence to labor standards, fair wages, workplace safety, human rights, and community engagement, as well as supplier compliance with relevant governance regulations and standards, including legal requirements, corporate governance, anti-corruption policies, and data privacy regulations.
- Risk management: Leveraging data analytics and risk scoring models, companies can assess the sustainability and ethical performance of suppliers, flag any red flags or noncompliance issues, and take appropriate actions to address the risks.
- Supplier collaboration: Facilitating communication and collaboration between companies and suppliers by providing a centralized platform for sharing best practices, conducting training programs, and establishing sustainability goals.
These platforms also integrate with ERP and supply chain management systems, giving businesses a holistic view of sustainability data across the supply chain and enabling better decision-making and risk management.
The above use cases of sustainability platforms are wider than the supplier level and stay relevant even at the organizational level.
At the Organization Level
Effective planning plays a crucial role in driving sustainability initiatives at an organizational level. It often starts with an eye on back-end operations as they hold a high potential for improvements. Operations in warehouses are often energy-intensive facilities that consume significant amounts of electricity for lighting, heating, ventilation, and cooling systems and generate considerable waste, including packaging materials, pallets, and damaged or expired goods. To have control of these resource-intense operations, the dependence on warehouse management systems to track and monitor environmental performance and prevent social hazards is gaining momentum among enterprises. These systems also enable efficient inventory management for reducing overstocking and waste and algorithms to optimize picking routes and warehouse layout, reducing travel distances, and minimizing fuel consumption.
In addition to the above systems, providers have designed solutions specific to industry problems. For example, the Honeywell Versatilis™ Signal Scout™ gas detector solution leverages gas detection technology to monitor methane emissions across industries. The usage of this solution goes beyond emission monitoring to assist enterprises with analytics, visualization, and proactive insights to cut down emissions.
There is also a growing trend among consumers interested in knowing the carbon emissions data associated with the products they purchase. Some companies voluntarily disclose carbon emissions data for their products to meet this growing demand. IBM Blockchain Transparent Supply, part of the IBM Supply Chain Intelligence Suite, enables these companies to track and disclose the product-based carbon emissions across the supply chain and verifies the accuracy of Scope 1, 2, and 3 emissions.
At the Distribution Level
The distribution phase of the supply chain involves moving goods from one place to another. By tracking sustainability in distribution, companies can identify opportunities to reduce carbon footprint, optimize transportation routes, minimize fuel usage, and implement eco-friendly packaging and handling practices.
Supply chain network modeling tools can help overcome these problems by enabling businesses to design, analyze, and optimize their supply chain networks. These tools consider facility location, transportation routes, inventory placement, and demand patterns to minimize costs, reduce carbon footprint, and improve efficiency.
Proper network optimization helps a company reduce the number of vehicles and trips to transport goods and choose the best transportation route to lower fuel consumption and emissions. For example, UPS, an American multinational shipping and supply chain management company, deals with over 18 million deliveries daily by leveraging its routing software On-Road Integrated Optimization and Navigation (ORION). This software calculates the best possible routes for each truck by favoring the right turns and rarely taking a left turn. This enabled UPS to save $300 million to $400 million in fuel and vehicle running costs. As left turns are more likely than right turns to cause a crash, and with this routing, it avoided the crashes and ensured the safety of the drivers.
Also, the need for sustainable packaging is underpinning the demand for packaging optimization software. For example, Esko’s Cape Pack software helps businesses design packaging, minimize waste, and maximize space efficiency during transportation and storage. The software assesses products’ dimensions, weight, and stacking capabilities to find the most efficient packaging solutions.
The Way Forward: Embracing Sustainable Practices and Responsible Digitalization
Irrespective of the nature of the business process, sustainability holds a crucial role, presenting opportunities for improved metrics. Currently, discussions around sustainability are confined to boardrooms but should permeate conversations at all levels, and if there is something more important than IT, then it is finding ways to enforce a sustainable culture. CXOs are determined to achieve sustainability by any means necessary, as we are only beginning to scratch the surface of this mission. With increasing awareness, push from regulatory bodies, and ever-changing supply chain shocks, the dependence on digital platforms and IT will reach its pinnacle in the next five years. However, supply chain practitioners and executives should be cautious about the overreliance on digital tools. All tools have limitations and potential biases, which must be understood and managed as part of the company’s supply chain and ESG ecosystem. When implementing these tools, it’s extremely important to understand the regulatory and privacy regulations associated with the information gathered. This is especially true when dealing with suppliers from regions with strict data protection regulations.
By Mike Wheeler, Avasant Supply Chain Practice Leader, Joseph Martinez, Avasant Distinguished Fellow, and A. Tarun, Avasant Senior Research Analyst