Executive Briefings

Supply Chain Sustainability Continues to Drive Business Value

Analyst Insight: SCM World's 2014 CSCO Study shows health and safety is the number one sustainability issue for the fourth straight year. With ethical issues and product integrity coming in a close second and third, it is clear that disconnected sustainability efforts have truly evolved into integrated social and environmental responsibility (SER) initiatives. – Matt Davis, SVP Research at SCM World

Supply Chain Sustainability Continues to Drive Business Value

The Shift from Image to Impact. Sustainability in supply chain continues to progress and by all accounts appears to be getting stronger.  The good news from a global wellness perspective is obvious, but from a business perspective there is both threat and opportunity.  The threat, especially in light of the fast-rising role of social media impacting supply chain strategy, is sudden negative brand impacts can seriously affect sales on the downside, even if little reward has been seen for good behaviour on the upside. 

The opportunity, however, is closely related.  Consumer consciousness is rising, especially among the young, but consumer knowledge is still virtually non-existent.  Supply chain visibility at the point of sale could include not only price as always, but increasingly other elements of total cost, including service features as described above, and ultimately, social or environmental impact. 

Giving consumers a clearer picture of what happens when they pull on the global supply chain by choosing one product over another may well end in meaningful revenue bumps for those who can show positive social and/or environmental impact. Work in three areas is separating leaders and laggards.

Creating the smarter business case. Since 2011, the percentage of companies stating that board’s primary motivation for sustainability investments is cost reduction has grown from 32 percent to 51 percent. Eighty percent say the motivation is positive brand image, but cost reduction has steadily progressed in importance. Start by developing the business case that explains potential cost savings as well as enhancement to image. As early movers are showing, the payback on investment may be net-neutral from a cost perspective but the net effect generates high value for suppliers, customers and business performance.   

Extending efforts down the chain. Forty-seven percent are currently implementing SER activities with key suppliers and 32 percent are doing so with the entire extended supplier network. Only 23 percent have no plans to implement SER initiatives across extended supplier networks. As ethical issues and product integrity have emerged as two of business’s key priorities, an integrated value chain approach to SER should be a key priority.  

Going bold with supplier incentives. Companies have stepped up their action in response to SER violations by suppliers. A third do not give suppliers warnings before reacting and, often, taking punitive actions. And these punitive actions have shifted to a more severe kind – immediate termination of the business relationship is now more common than it was two years ago. Positive incentives are still necessary to improve SER performance in the long run. 

                                               The Outlook

As Paul Polman, CEO of Unilever, shared at SCM World’s Leaders Forum in July, SER strategy and business strategy can no longer be separate entities. Unilever, along with Ikea, Intel, Diageo and many others, have embedded SER messaging directly into overall corporate mission statements and strategy plans. With more and more organizations realizing hard cost savings, SER will prove to be a supply winner on all fronts.

The Shift from Image to Impact. Sustainability in supply chain continues to progress and by all accounts appears to be getting stronger.  The good news from a global wellness perspective is obvious, but from a business perspective there is both threat and opportunity.  The threat, especially in light of the fast-rising role of social media impacting supply chain strategy, is sudden negative brand impacts can seriously affect sales on the downside, even if little reward has been seen for good behaviour on the upside. 

The opportunity, however, is closely related.  Consumer consciousness is rising, especially among the young, but consumer knowledge is still virtually non-existent.  Supply chain visibility at the point of sale could include not only price as always, but increasingly other elements of total cost, including service features as described above, and ultimately, social or environmental impact. 

Giving consumers a clearer picture of what happens when they pull on the global supply chain by choosing one product over another may well end in meaningful revenue bumps for those who can show positive social and/or environmental impact. Work in three areas is separating leaders and laggards.

Creating the smarter business case. Since 2011, the percentage of companies stating that board’s primary motivation for sustainability investments is cost reduction has grown from 32 percent to 51 percent. Eighty percent say the motivation is positive brand image, but cost reduction has steadily progressed in importance. Start by developing the business case that explains potential cost savings as well as enhancement to image. As early movers are showing, the payback on investment may be net-neutral from a cost perspective but the net effect generates high value for suppliers, customers and business performance.   

Extending efforts down the chain. Forty-seven percent are currently implementing SER activities with key suppliers and 32 percent are doing so with the entire extended supplier network. Only 23 percent have no plans to implement SER initiatives across extended supplier networks. As ethical issues and product integrity have emerged as two of business’s key priorities, an integrated value chain approach to SER should be a key priority.  

Going bold with supplier incentives. Companies have stepped up their action in response to SER violations by suppliers. A third do not give suppliers warnings before reacting and, often, taking punitive actions. And these punitive actions have shifted to a more severe kind – immediate termination of the business relationship is now more common than it was two years ago. Positive incentives are still necessary to improve SER performance in the long run. 

                                               The Outlook

As Paul Polman, CEO of Unilever, shared at SCM World’s Leaders Forum in July, SER strategy and business strategy can no longer be separate entities. Unilever, along with Ikea, Intel, Diageo and many others, have embedded SER messaging directly into overall corporate mission statements and strategy plans. With more and more organizations realizing hard cost savings, SER will prove to be a supply winner on all fronts.

Supply Chain Sustainability Continues to Drive Business Value