Driving Towards a More Sustainable Supply Chain
Written by John O’Connor and Miranda Braga, Deloitte
In recognition of both the severity of climate risks and the opportunities of a low-carbon future, more and more organisations are making “net-zero” commitments, changing social expectations and regulatory environments, and expanding their sustainability programs and policies. However, when it comes to delivering on these commitments, executives and supply chain leaders often lack visibility on how to translate corporate climate strategies into concrete planning decisions. This is an issue for the supply chain, as planning drives execution activities such as procurement, production, transportation, or warehousing, all of which are key contributors to greenhouse gas (GHG) emissions in value chains globally.
How can an organisation’s environmental and social performance be measured?
An organisation’s environmental performance can be measured in many ways, including its energy consumption, alternative material substitution, and waste reduction. The social context also includes many elements such as labour standards, modern slavery, community relations, and diversity, equity, and inclusion efforts.
The effects of external supply chains on a company's social performance are much larger and more complex to manage than those of internal operations. The integration of ESG considerations into the sourcing process should be focused on ensuring that product and supplier selection works in such a way that it achieves an equilibrium between cost, availability, and sustainability.
What steps should be taken to establish a sustainable supply chain framework?
No matter where an organisation is on its sustainability journey, ambitious targets can galvanise action when set within a clear and sustainable framework tailored to its needs. The key steps to help establish a sustainable supply chain framework for organisations today should include:
Vision: Organisations need to translate their corporate sustainability commitments into supply chain goals, ensuring that these areas contribute to the business’s overall targets. The sustainability initiatives being delivered by suppliers should be analysed as part of this process.
Policy and governance: A sustainable supply chain requires a mindset shift, with adapted policies, governance, and processes that balance the ESG aspects with cost reduction targets. Develop sustainable supply chain and procurement policies that clearly articulate the formalisation and implementation of all commitments (sustainable sourcing and procurement criteria along with an implementation plan).
Stakeholder buy-in: Demonstrate a clear business case for a sustainable strategy to enable stakeholder buy-in, both internally and right across the supply chain. It should highlight the benefits of responsible sourcing and procurement, such as the mitigation of risk factors, generation of cost savings, and the use of sustainability as a parameter in supply chain planning processes, allowing informed trade-offs between cost, quality, service and sustainability. Building a collaboration agenda with the main value chain players should also be a focus for organisations, as it can help surface innovation and solutions that address sustainability challenges.
Skills and competencies: Policies that drive awareness about sustainability – with support from committed leaders – are the key drivers of a successful organisational sustainability implementation. It's also important to develop staff understanding around the sustainability challenges an organisation faces and how they can contribute throughout the value chain to have an impact through sustainable practices.
Tools and technology: Enable minimised carbon emissions through optimised network and transport planning and sustainable, ethical sourcing and procurement using digital tools and technologies that monitor organisational sustainability metrics, both internally and externally. Digitisation is key to tracking the metrics and data that support a sustainable supply chain framework.
For example, D-Carb from Deloitte leverages supply chain planning in combination with product carbon footprint data. This enables businesses to make informed decisions on the journey to decarbonised value chains. D-Carb brings visibility on future CO2e emissions, compares emission scenarios, and triggers tangible actions across the extended value chain to operationalise climate strategy.
Facilitate responsible practices with sustainability metrics
Sustainability metrics quantify, measure, and benchmark environmental, social, and economic performance and help drive responsible sourcing in the supply chain. Metrics driven transparency also helps organisations to evaluate and reach their sustainability goals.
Environmental impact: It is important to integrate climate change considerations into all decision making, such as prioritising efficient product and vendor selection in their supplier assessment process. Joint efforts can help suppliers develop the capabilities they need to achieve carbon neutrality, enable a better environment for collaboration, and promote information sharing.
Social impact: Identify and measure activities that help develop supplier diversity and improve the well-being of society to make progress on ESG goals and objectives.
Economic impact: Identify how local communities and SMEs can be integrated into overall supply chains and promote sustainability by drawing from local resources and labour pools. This has a net positive impact on both social and economic measures.
Sustainable procurement: Monitor product innovation and manage the volume and value of orders placed with suppliers that comply with established sustainability strategies. Organisations can also articulate the commercial construct that promotes partnership in achieving common goals for the organisations involved.
Supplier management: Seek out external validation of GHG baselines and monitor response KPIs, including regular results from audits, such as percentage of non-conformance status in post-audit queries along with financial KPIs, such as percentage cost savings from carbon reduction.
Improving organisational sustainability and reporting on ESG are top of mind for today’s supply chain teams. While complex and evolving considerations and regulations mean there's no one way of getting it right, there’s a clear need for close monitoring of internal and external processes, with increased focus and transparency on suppler selection, product selection and the decision-making process in the supply chain. Developing and embedding sustainable supply chain frameworks can empower organisations to reach their sustainability goals and achieve full compliance.
Supply chain leaders face the challenge of translating these goals into actionable planning decisions. Leading organisations are rising to the occasion by integrating sustainability throughout their supply chain frameworks. They align their supply chain and procurement goals with corporate sustainability commitments, adopt enhanced or modernised policies and governance structures, and foster stakeholder buy-in. By emphasising collaboration, building skills, leveraging tools and technology, and implementing sustainability metrics, these organisations drive transformative change and pave the way for a sustainable future.
For more information on how your organisation can establish a sustainable supply chain framework, please visit: https://www2.deloitte.com/au/en/pages/operations/solutions/supply-chain.html