In this article, we explore the topic of supply chain sustainability and how action is required to address the heightened expectations of consumers, stakeholders, and society alike. Our previous posts highlighted the shift toward more customer-driven supply chain models and the increasing focus on supplier relationships to achieve greater transparency and resilience.
The evolving supply chain ecosystem presents opportunities and challenges for decision makers seeking ways to fulfil ever-growing demand and shifting customer expectations. Among this is the topic of sustainability, whose importance continues to magnify at pace. Organisations are needing to rethink how more products and services travel from A to B, while minimising their negative externalities. A key driver of change in supply chain practices is the increasing importance of sustainability as a strategic and operational driver, as the impact of climate change and poor human rights records in many places heightens.
A recent Deloitte global survey found that 80% of global executives are concerned about climate change, with the majority acknowledging that the world is now at a tipping point to act if we are to mitigate its effects. And while COVID-19 and immediate economic headwinds stalled ambitious actions—65% said their organisations needed to cut back sustainability initiatives in some way—most believe that their businesses have central roles to play. So, while momentum may have slowed, efforts remain firmly on the agenda.
As organisations plan their futures, sustainability needs to be a priority to counter risk and future shocks. The supply chain is a key lever for action as it touches on a range of sustainability topics such as decarbonisation, circularisation and humanisation.
Responding to heightened public expectations
2021 marks the start of a new decade to deliver on the UN’s Sustainable Development Goals and the Paris Agreement. While organisations are finding innovative ways to meet their long-term objectives, society is expecting greater outputs from supply chains, at the same time emphasising the need to drastically evolve towards more sustainable practices. As external pressures continue prioritising sustainability-conscious actions, business leaders should be aware of these shifts and understand how growing stakeholder expectations may shape their organisation’s future.
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Understand your supply chain’s carbon impact
The increasing scrutiny encourages organisations to understand and demonstrate their ESG (Environmental, Social & Governance) activities, while complying with regulatory reporting requirements. Analytics can play an important role in tracking and monitoring against regulatory settings, allowing organisations to build their own models and action insights.
Deloitte’s Carbon Planning Model in Workday Adaptive Insights enables organisations to plan and generate ’what-if’ analyses for key carbon-reduction strategies. Using an enterprise planning solution integrates financial and emissions planning to highlight the cost implications of any emission-based decisions on the financial statements, as well as highlighting reductions in CO2. As organisation’s establish and understand their baseline and impact of their actions, they will need to determine emission ownership boundaries, as emissions associated with goods or services may span multiple departments and entities. Organisations who understand these boundaries will be able to better capture and reduce their carbon footprint across their entire supply chain.
Assess and plan your transition
A key first step is gaining insight into your direct and indirect emissions, to enable a clear view of gaps and opportunities for transition. When planning, determine ways in which processes and systems can uplift outcomes while lowering emissions. Consider co-creating a plan with partners to ensure that the end-to-end supply chain is fit for purpose towards your sustainability targets and actions, ensuring there is sufficient transparency across the entire network.
Work with your partners to shift from linear to circular
Supply assurance has been a major challenge, and organisations are grappling to procure and maintain resources that run their supply chain. Our 2021 global CPO survey found that 32% have lost revenue to supply shortages in the last year alone. As organisations compete for natural resources, many do not have processes in place to circularise their supply chains with most taking a linear take-make-dispose approach. Awareness goes a long way to ensuring waste is minimised at every step.
When procuring, consider supplier policies that include expectations for products to be low-emitting and ethically derived. Understand the lifecycle of your assets, to balance both sustainability and whole-of-life cost implications. Explore ways to encourage consumers to embrace a second life approach to repurpose goods or dispose of them responsibly.
Alongside the supply network, consider a transition plan to mitigate emissions and keep materials in play. Understand the regulatory forces at play and assess alternatives that bring you closer to a circular supply chain. Work with suppliers and help them identify sustainable upstream and downstream standards, and drive activity in line with these.
Broadening the measures of success
Supply chains were traditionally set up for cost and time efficiency, but now increasing environmental and social responsibilities demand a redesign in response to shifting stakeholder expectations and changing regulatory environments. These changes force supply chain management to adapt—responsibilities extend beyond their own operations, with waste now a reputational and societal risk.
Despite reverting to their core BAU during the pandemic, organisations need to keep sustainability on their agenda and creatively use the resources at their disposal to support objectives. This requires a collaborative and coordinated effort across a diverse range of stakeholders. Once a plan has been formalised, organisations can look to broaden accountability strategies to ensure they are connected to triple bottom line with holistic definitions of benefits, KPIs and accountabilities.
I take immense satisfaction from working alongside clients to help them achieve more and be better tomorrow than they are today. From improving service delivery and enhancing the customer experience, through to reducing operating costs. I work with clients to design and implement changes to the way they operate in order to increase enterprise value and to deliver better results. I specialise in strategic cost transformation, sourcing and procurement, and service outsourcing, across both the public and private sectors.
Vili Tuipulotu is an Analyst in the Operations Transformations team at Deloitte New Zealand.