In the recent past, businesses have had a lot of discussions about ESG (environmental, social and governance) and CSR (corporate social responsibility). Customers, employees, lawmakers and stakeholders have companies to take further action and ensure they have a net positive impact on the environment and society. At the same time, the business case for more sustainable operations is as strong as it ever has been.
For businesses looking to improve sustainability and mitigate carbon emissions, supply chains are often the first place to start. The World Economic Forum found that the international ambition of net zero emissions will be helped in large part by decarbonizing the supply chain, not least because eight supply chains make up more than 50% of global emissions.
As a small business or startup struggling to manage working capital, maintain growth or simply keep things running, the pressure to embed sustainability into operations can feel daunting, and with good reason. In this article, we’ll explain the key facts about making supply chains more sustainable and key tips to make it happen.
What is Supply Chain Sustainability?
Supply chains are the backbone of business activity. They are crucial to the production and delivery of goods and services, and often account for a large proportion of outgoings and resources. The network of people and organizations involved in making products and transporting it to the end-consumer can also have a significant contribution on waste, energy usage, and emissions levels.
Why is Supply Chain Sustainability Important?
Beyond preserving and maintaining the environment, consumers are becoming more conscious of the impact of their purchasing decisions. They also want to get more value out of their spending by buying durable or easily repairable goods and, according to Deloitte, for businesses and institutions to, “take the lead in supporting them in their adoption of more environmentally sustainable habits.”.
More and more manufacturers, suppliers and vendors are working to make each stage of the network more environmentally and socially responsible, and sustainable in the long-term. That way, businesses can minimize this impact and provide a net-benefit to the environment and society.
Five reasons you should have a sustainable supply chain
1. Climate change
Thanks to carbon emission and the increase in other greenhouse gas (GHG) levels, the global climate has seen record extremes for many years now. Producers and consumers are becoming more aware of the business impact on society and the rest of the planet: it’s estimated that over 90% of environmental damage caused by consumer packaged goods (CPG) companies comes from the supply chain.
Sustainable supply chains are also more resilient. A 2022 survey conducted by the Business Continuity Institute found that 42% of businesses cited supply chain disruptions as an effect of extreme weather. By strengthening the sustainability of the supply network, a business is better prepared for the ongoing impact of climate change.
The significant rise in carbon emissions and extreme weather events in the recent past has led several countries across the international community, including the US, to create hard reduction targets for businesses and individuals.
Public sector companies in particular need to abide by a series of codes and regulations to ensure supply chains are sustainable. Private sector businesses, however, are not legally required to meet targets—but often create self-governed rules that require them to assess their suppliers’ and partners’ sustainability credentials.
3. Consumer interests
As we mentioned earlier, consumers are growing increasingly climate-conscious and aware of the social value of their purchases. It’s important to therefore work on practicing supply chain sustainability from the get-go, especially as a startup or small business.
Unethical and damaging practices are under more scrutiny from customers. US consumers are becoming more interested in protecting the environment, reducing emissions, and preventing harmful labor practices. Surveys show they are now willing to pay 11% more for sustainable products.
4. Reduced costs
Tight budgets and financial pressures make sustainable supply chain management seem like a costly investment on the surface. But green supply chains, less waste, and lower energy consumption can be positive for the bottom line.
Reusing and recycling materials can lead to an overall reduction in the cost of packaging products, which helps to bring down the cost of packing and shipping—a cost reduction that can then be passed on to the consumer. Not only does energy efficiency minimize the environmental impact of emissions, it can also lead to less total energy consumption by the business, and therefore, smaller overheads.
Energy efficiency and streamlined supply chains can also have a significant impact on productivity. Businesses all over the US use sustainable practices to bring down their carbon footprint across the links in the supply chain: factories, logistics, warehouses, etc. For example, inventory management, diversified suppliers and data planning can all serve to prevent wasted resources and equipment at each stage. This can help boost the efficiency of production.
What is Sustainable Supply Chain Management?
Among other factors, sustainable supply chain management looks to reduce CO2 and other GHG emissions, ensure fair labor practices, and health and safety. Research has shown that, despite being largely committed to sustainability, what can be often daunting overhead costs of business operations mean that start-ups and small businesses struggle to keep to their aims.
Ensuring supply chains are sustainably managed comes with financial trade-offs, and is often time-consuming and expensive. Even larger multinational companies are finding that just because you are committed does not mean that your supplier partners are, and this is harder to control as a small business with fewer affordable options.
How Can Small Businesses Make Supply Chains More Sustainable?
5 ways to improve carbon footprint as a small business
Here are some of the ways startups and SMEs can work towards greater sustainability across their supply networks:
1. Calculate your current impact
Before you can start reducing CO2 emissions, it helps to know what their immediate sources are and where they belong in the supply chain. There are internationally-recognized metrics and regulations to help businesses do this, such as the carbon footprint calculator, or the Greenhouse Gas Protocol. The latter is used by organizations for grouping and measuring both direct and indirect emissions under the following categories:
Scope 1: Direct emissions, e.g. gas to heat facilities, fuel for road transportation.
Scope 2: Indirect emissions from electricity used by the business across the supply chain.
Scope 3: Indirect emissions which arise from wider activities beyond the business’s control: business travel, waste, water use, and procuring from many types of supplier.
2. Review your supply chain
Once you understand where your business sustainability is at its weakest, look at where this can be improved throughout the supply chain. Carbon emissions, wasted resources (such as single-use items and refuse), transport, energy consumption, health and safety, and labor conditions are some of the key criteria that supply chain management can focus on.
To evaluate the entire chain it’s important to use proper procedure. This will give clarity and consistency to staff when reviewing which suppliers to use. Systematic evaluations—e.g. A checklist of outcomes or requirements—will help team members understand the long-term goals and track progress towards it.
3. Communicate with suppliers
To be a sustainable business you need to make sustainability fundamental to the tender process. When procuring new supplier partners to work with it is worth communicating this loud and clear—in both actions and words. That means searching for the right suppliers, checking if they meet recognized standards, and asking if they use environmental management systems, such as ISO14001. This data can be used as part of the sustainability criteria in a supplier scorecard.
Often the dilemma comes for small businesses with trusted partners who, unfortunately, do not have a strong performance when it comes to CSR. It is difficult, if not impossible, for startups and SMEs to control their suppliers’ behavior. They can certainly act to influence it by sharing information on how to improve supply chain sustainability, and/or encouraging them to provide an environment policy. If not, it may be a better use of time to end the relationship and only partner with accredited suppliers.
4. Measure with technology
The single best way to understand if your business is making improvements to its sustainability is by accurately monitoring it. Otherwise, there’s simply no way to understand what actions to take over the long-term. From the supply chain review, gather all data on emissions, waste and supplier partners’ sustainability, and find the most relevant metrics and KPIs: i.e. carbon footprint, energy consumption, supply chain miles, recycling rates, waste reduction social impact.
Innovations in ESG reporting are also making sustainability measurement more insightful and productive. For example, cloud technology leverages AI to identify trends and model more eco-friendly logistics networks. Machine learning is also being used to predict demand, and use those insights for more efficient (and less wasteful) inventory management.
As we explore in a separate piece, reshoring (also known as onshoring, inshoring, or backshoring) is the opposite of offshoring: all manufacturing of goods is brought to a business HQ location. This brings down the length of products’ journeys across the supply chain from producer to customer. Small businesses can better meet sustainability targets by shrinking the supply chain.
Optimize your supply chain with Setscale
The upfront investment in a sustainable supply chain can often feel unaffordable—especially if you’re trying to scale as a small or growing company. Setscale’s purchase order financing solution gives you the flexibility you need to use your working capital differently across the supply chain. Find out more about how we can support your business on our solutions page. Or, sign up today to get started.