Organizations See Opportunities for Differentiation through Supply Chain Sustainability

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by | Jul 19, 2021

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Pressure for organizations to green their supply chains is coming from both internal and external forces, but has recently increased most significantly among investors and industry associations, according to a new report. Still, while external pressure is increasing, companies themselves are seeing supply chain sustainability (SCS) as an opportunity of their own to differentiate from competitors.

Specifically, interest in human rights protection, worker welfare and safety, and energy savings and renewable energy increased significantly over the last year. Supplier development was found to be the most common mechanism used by firms to deliver on their SCS promises, according to the State of Supply Chain Sustainability 2021 report.

Facing Challenges

However, there are formidable obstacles to overcome. For example, most of the momentum behind SCS appeared to come from large (1,000+ employee) and very large (10,000+ employee) companies covered by the research. Small- to medium-sized enterprises appear far less committed. More work may be needed to bring them into the fold through a better understanding of the barriers they face, the report found.

Another challenge is the need for financing. Momentum in companies’ net-zero journeys may slow as they face financial hurdles, a recent report from EY found: future development to achieve net-zero will require a further investment of $5.2 trillion and highlights the role institutional investors will need to play in financing the energy transition, EY said.

Still, SCS Interest on the Rise, Despite Struggles

Last year, when the impact of the Covid-19 pandemic was still escalating, some experts expected the crisis to dampen companies’ enthusiasm for investing in supply chain sustainability. However, the survey results suggest that Covid-19 did not significantly slow the push to make supply chains more sustainable. More than 80% of survey respondents in the State of Supply Chain Sustainability 2021 report claimed the crisis had no impact on, or actually increased, their firm’s commitments to SCS by bringing awareness and urgency to this growing practice.

Interestingly, external pressure, though still significant, is becoming less of a driving factor toward SCS. “We are […] sensing a shift in the drivers of sustainability from responding to external pressure to an opportunity for market differentiation,” says Rob Barrett, Principal and US Supply Chain Advisory Leader with KPMG, a sponsor of the report.

Pressure Rises, Too…

But while organizations may be recognizing the opportunity to differentiate themselves from other industry players through their SCS efforts, significant external pressure from investors, consumers, and industry groups still exists to improve the sustainability of their supply chains and logistics practices.

The Environmental Defense Fund (EDF), for example, just announced an ad campaign calling on the Biden administration and the EPA to make short-haul vehicles cleaner. “By moving to zero-emissions trucks and buses we can dramatically reduce the health risk to our families,” says Peter Zalzal, associate VP for Clean Air Strategies at EDF. “Building zero-emission vehicles in America will also create jobs, help us out-compete Europe and China and reduce climate pollution from our transportation system – the largest source of those emissions.”

Additionally, this external pressure is expected to bring more scrutiny of firms’ SCS track records, and less tolerance of token efforts to make supply chains sustainable, the report claims. Improved supply chain transparency and disclosure are critical to firms’ responses.

Now Is the Time

Now more than ever before, embedding sustainable practices from within a company’s supply chain can deliver real, tangible results, adds Mark Baxa, interim president and CEO of the Council of Supply Chain Management Professionals (CSCMP), which collaborated on the report.

But organizations must work together to help drive SCS. “We believe cooperation between sectors is vital to thoroughly understand the complexity and evolution of sustainability efforts more broadly,” says David Cornell, MIT Center for Transportation & Logistics (MIT CTL) research scientist. MIT CTL collaborated with CSCMP on the 2021 State of Supply Chain Sustainability report.

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