Understanding Sustainability in the Supply Chain
Sustainability is no longer an extra, but a necessity in companies' operations. In particular, sustainability in the supply chain has become vital to mitigate risks, protect companies' reputation and promote ESG business practices.
What is Sustainability in the Supply Chain?
Sustainability in the supply chain refers to managing production, logistics and distribution activities in a way that minimizes environmental, social and economic impact.
Why is Sustainability in the Supply Chain Important?
Sustainability in the supply chain is crucial to ensure that resources are used efficiently and ethically, while protecting brand integrity and reputation.
The Biggest Reputational Risks
According to McKinsey's 2021 report on "Risk and Liability in an Era of Climate Change", 90% of the damage to a company's reputation is caused by supply chain challenges. These risks are even higher when we consider specific aspects of sustainability.
Environmental Risks
According to a survey by Nielsen, 66% of global consumers are willing to pay more for products from companies committed to environmental sustainability. Thus, as consumers' environmental awareness grows, supply chain operations that do not consider Greenhouse Gas (GHG) emissions and pollution jeopardize company growth as consumers tend to reduce consumption of environmentally harmful materials. In addition, the use of non-renewable resources results in scarcity and supply problems.
Social Risks
Poor labor practices, such as human rights violations, can result in poor working conditions and exploitation, leading to significant reputational damage.
Consequences of Lack of Sustainability in the Supply Chain
The consequences of a lack of sustainability can be drastic. A study by Harvard University demonstrated that "negative supply chain incidents resulted in a 6% to 10% reduction in the value of companies' shares"..
Loss of Customers and Decreased Brand Loyalty
With growing awareness of sustainability, consumers are increasingly willing to change their purchasing preferences. Futerra research in 2018 showed that 88% of consumers in the US and UK want brands to help them be more sustainable. Therefore, an unsustainable supply chain can lead to loss of customers and decreased brand loyalty.
Legal Challenges and Fines
Companies that do not adhere to environmental and social regulations can face legal challenges and heavy fines, which damages reputation and finances.
Loss of Business Opportunities and Partnerships
Lack of sustainability can result in lost business opportunities and partnerships as other companies seek to collaborate with organizations that adopt sustainable practices.
Enhancing Sustainability in the Supply Chain
Supplier Assessment and Monitoring
Companies can improve sustainability in their supply chains by regularly assessing and monitoring suppliers for environmental and social practices.
Incorporation of Sustainable Practices
Companies can also improve sustainability by incorporating sustainable practices into every step of the supply chain, from the procurement of materials to the delivery of the final product.
Conclusion
Sustainability in the supply chain is crucial to mitigate reputational risks and promote responsible business practices. Companies should take steps to improve sustainability in their supply chains in order to protect their reputation and ensure long-term success.
Frequently Asked Questions (FAQs)
What is sustainability in the supply chain?
Sustainability in the supply chain refers to managing production, logistics and distribution activities in a way that minimizes environmental, social and economic impact.
Why is sustainability in the supply chain important?
It is crucial to ensure that resources are used efficiently and ethically, while protecting brand integrity and reputation.
What are the environmental risks associated with a lack of sustainability in the supply chain?
They include pollution, carbon emissions and unsustainable use of natural resources.
What are the social risks associated with a lack of sustainability in the supply chain?
They include poor labor practices and human rights violations.
How can companies improve sustainability in the supply chain?
They can do this by evaluating and monitoring suppliers, and incorporating sustainable practices at all stages of the supply chain.
