In businesses large and small across every continent, there’s an adversarial relationship that has developed over the years. This relationship exists between two things that must find a way to work in symbiosis — and the primary reason they don’t currently is based on a big myth.
The big myth is that profitability and sustainability cannot coexist. This myth isn’t entirely unsubstantiated, but in most cases, it’s based on faulty information. It’s not that profitability and sustainability cannot work in symbiosis because of their inherent objectives, but rather that most legacy business models are not built to support both initiatives.
And in fact, when businesses begin to challenge old business models and evaluate them against their effectiveness in solving new-world problems, they may realize greater profitability and potentially new revenue streams. This is particularly true in the supply chain.
Misperceptions of Sustainability
There’s no escaping the sustainability conversation in business. And it’s no longer just an imperative among major corporations, it’s becoming a critical consideration for small and midsize businesses across the entire supply chain especially as large brands begin to look at their partners and vendors through the sustainability lens — many even requiring partners to have sustainability practices in place.
This, of course, hasn’t always been met favorably among the SMB community because of the long-held belief that it’s simply not as economically viable to implement sustainability practices as it is for large, enterprise organizations. This is primarily due to the two schools of thought that have dominated the business community.
The first school of thought is that a profit-first business model is a top priority to maintain business continuity, growth and longevity. In this business model, sustainability either may not be a consideration, is an afterthought or something to be tolerated, or even in some cases, simply a mechanism for driving profits or positive public relations.
The second school of thought prioritizes a sustainability-first model, putting sustainable practices at the top and even at the expense of profitability. With these as the only two options, it isn’t any wonder why an adversarial relationship exists.
But what if there were a third path? One that reimagined the business model so that profitability and sustainability could not only coexist, but also thrive?
The 'Third Wave' Model
In reality, businesses of all sizes — large and small — can’t afford not to look at how to make their supply chains more sustainable. For instance, return logistics has become a major issue for businesses that sell goods online. Not only does the transport of that item eat into profit margins, but often that item isn’t even resellable.
The problem is, in most legacy business models, return logistics is simply written off as a cost center. There’s a certain loss that’s factored into the budget and the way to shore up dwindling margins is to reduce costs rather than taking a hard look at where waste and process inefficiencies are occurring. As long as costs stay within that predetermined number, this “leakage” rarely comes into question.
This is seen in service-based businesses as well where field technicians often make multiple trips to service or repair equipment — first to diagnose, then to repair it once the part arrives — wasting time and money.
By looking under the hood, and questioning the way things have always been done, businesses can begin to tighten up waste and take a step toward sustainability and profitability in the process. For instance, optimization of transportation legs, frequency of trucks, wait time, fuel consumption, carbon emissions, etc. can turn return logistics into profit centers rather than expenses that are simply tolerated.
Looking at the supply chain through a sustainability lens can tighten up waste, whether that’s time, money or product, and help increase profitability while creating “cleaner” practices.
Integrating Sustainable Practices
The first step to building more sustainable practices into the business is to map key processes. Start with one process, and get a clear understanding of every step involved in the end-to-end completion of that process. How many people are involved? How many times does it trade hands? How many touches does it require? How much time does it take? Are there any potentially duplicative efforts? Where are the major expenses?
By first tracking every step of the key processes in your business, you’ll be able to see where potential waste is occurring. To make sustainability stick, however, there also have to be some fundamental shifts in the business model:
With this roadmap, it’s possible to create more sustainable supply chains and also build a more sustainable, equitable and profitable business in the process. Get rid of the myth that ethical and sustainable supply chains are cost centers. A sustainable supply chain is a profitable supply chain, and businesses large and small that realize that sooner will have the strategic advantage.
Hitendra Chaturvedi is a supply chain management professor of practice at Arizona State University's W.P. Carey School of Business.
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