How to build a sustainable supply chain

A supply chain manager goes through her daily work routine

As the clock ticks on climate change and the need for conscious consumerism becomes even more urgent, sustainable supply chains are a critical business imperative.

Research from the National Online Retail Association found 81 per cent of Australian consumers see climate change as a major cause for concern, and 86 per cent feel that businesses have a role to play in reducing this impact. Online retail giant Amazon has received negative press for being the largest polluter of the ‘Big Five’ tech companies, which each have considerable carbon footprints in their own right.

Yet at the same time research from SOTI shows that 63 per cent of Australian consumers will only continue to shop with brands who make the quickest deliveries.

Undoubtedly, the shape of best practice in supply chain management is shifting. What are the possibilities and realities of supply chains that meet the increasing consumer expectations for speed and reliability, whilst leaving a minimal footprint on the environment? And - perhaps most importantly - how can they be achieved?

Here, we’ll explore strategies that future-focused supply chain managers can implement to create sustainable supply chains.

What is a sustainable supply chain?

As the name implies, supply chain sustainability describes an organisation’s efforts to improve the impact their organisation has - but there’s more to it than some may expect. Unlike a green supply chain, which focuses exclusively on environmental impacts, or an ethical supply chain, which focuses largely on social and community impacts, a sustainable supply chain considers three core pillars to address corporate impact holistically:

Economic sustainability

Economic sustainability refers to the company’s long-term financial viability and profitability, including the role the supply chain plays.

Environmental sustainability

Environmental sustainability refers to the footprint and overall impact the business has on the environment, including production, packaging and delivery.

Social sustainability

Social sustainability refers to the support and overall positive impact a business provides to its stakeholders -– including customers, employees, shareholders, suppliers and wider community.

How to improve supply chain sustainability

Consumption is becoming more globalised and digitised at a rapid pace, making supply chains more complex and prone to disruption. They’re also more prone to public scrutiny, as the spotlight shines on corporations to reduce their impact.

While the composition of supply chains is ever evolving, one thing is certain: the future for forward-thinking and well-trained supply chain managers looks bright.

This is not least because the global industry is projected to be worth $37.4 billion by 2027. But to meet the consumer demand for responsible business, supply chains must reduce their impact - without reducing their speed and quality - wherever possible.

Improving supply chain sustainability takes more than a shift in operations. It requires strategic planning and a deep understanding of the business environment and green practices. While it may sound complex, with the right thinkers and leaders at the helm, it’s achievable. It’s also critical.

Here are some of the core strategies to cultivate a supply chain that not only meets today’s standards, but paves the way for a greener tomorrow:

Establish long-term sustainability goals

The first step towards building a sustainable future is knowing what that future looks like. Setting impactful and achievable long-term goals for your organisation, that align with global sustainability goals, should be a high priority for tomorrow’s supply chain leaders.

Depending on the nature of the business, these goals can relate to carbon reduction or neutrality, diverse hiring targets and workplace support, sustainable sourcing of materials, waste reduction, community service, material reuse and more.

Find current pain points across the supply chain

They say you’re only as strong as your weakest link; and the need to bolster each link is imperative in effective supply chain sustainability. Identifying the most detrimental gaps for sustainable supply chain practices requires a critical and methodical analysis of your organisation’s operations.

Managers should conduct life cycle assessments (LCAs) to examine the impact of each step of the production process from sourcing and manufacturing right through to post-delivery. Pain points could be found in a number of places, including packaging and delivery methods, energy consumption, employee engagement, stakeholder satisfaction, suppliers’ sustainability practices and more.

Optimise transport

It’s no secret that the global transportation sector is a major polluter, producing more than seven billion metric tons of carbon dioxide (GtCO₂) a year. And it’s no surprise that transport is one of the most environmentally damaging links in supply chains. What is perhaps surprising is that online retailers are not the only culprits for transport emissions.

A study by the MIT Real Estate Innovation Lab - which factored in transport, returns, logistics and number of items purchased - found that carbon emissions from online shopping are 36 per cent lower than their online counterparts. It also found that transport is the largest source of in-store-related emissions, producing 2.5 times the carbon emissions from online shopping packaging.

There are strategies to improve this, including:

  • Electrification of delivery vehicles
  • Leveraging tech advancements to optimise route planning
  • Maximising load capacity to reduce trips
  • Changing from car or van travel (which accounts for almost half of global transport emissions) to rail or sea.

Reduce waste or by-products

Reducing waste and/or by-products can be an extremely effective method for achieving a more sustainable supply chain - and reducing business costs. Environmental-related legislation is forcing companies to take responsibility for their waste, and waste-disposal costs are rising rapidly.

Strong and sustainable supply chains will conduct regular waste audits to identify waste reduction opportunities wherever possible. This could be done by methods such as:

  • Reducing packaging or shifting to recyclable materials
  • Designing products with longevity and end-of-life in mind
  • Working with suppliers to reduce waste
  • Adopting just-in-time (JIT) inventory management strategies to reduce overproduction
  • Establishing upcycling, recycling or composting programs.

Introduce eco-friendly packaging materials

Humans currently produce more than 350 million metric tons of plastic waste per year, with a reported 40 per cent of it coming from packaging.

While switching to sustainable packaging can cost more in some cases, consumer research indicates it’s a worthy investment. More than 60 per cent of respondents to a McKinsey consumer sentiment survey said they’d be willing to pay more for a product with sustainable packaging.

If a complete packaging overhaul feels overwhelming or impossible, don’t underestimate the impact of making microchanges. Depending on the nature of your business and product, there are a wide range of eco-friendly packaging alternatives now available.

These include packaging made using peanuts, seaweed, ecological textiles, cornstarch, mushrooms, recycled plastics and more.

Collaborate with sustainable suppliers

The benefits of collaborating with sustainable suppliers are multi-faceted. Joining forces can improve efficiencies and product innovation to improve workflows for staff, reduce business costs and boost profits. It can also help corporations ensure they’re using the best raw materials to reduce waste and minimise their footprint. Collaborating with suppliers - rather than just monitoring them - can also be a far more effective way of ensuring they’re maintaining sustainable practices.

There are many ways businesses can improve their supplier relationships to improve supply chain sustainability. Adding specific criteria to the supplier selection process is a great place to start.

To improve practices with existing suppliers, businesses can create and implement a shared set of sustainability standards for suppliers to adhere to and conduct audits to ensure their effectiveness, implement sustainable practice metrics and key performance indicators (KPIs), and develop recognition programs to create or contribute to funds that support suppliers ‘going green’ wherever possible.

The benefits of sustainable supply chains

Businesses who want to not only survive but thrive with the next generation of consumers will make sustainable supply chains a strategic imperative. And there are many benefits to doing so.

A staggering 87 per cent of Australian shoppers say they’re more likely to purchase from products that are ethically and sustainably produced, and 85 per cent said they’d like to see brands and retailers be more transparent about the origins of their products and sustainable practices.

This trend extends to global markets, which are often big players in the supply chain game. A significant 78 per cent of US consumers say a sustainable lifestyle is important to them. McKinsey also found that over the past five years, products making Environmental, Social and Governance (ESG) claims accounted for 56 per cent of all growth.

But consumer spending isn’t the only area of increased profitability. Sustainable supply chains can cut costs by reducing waste, optimising resources, mitigating risks and increasing their long-term viability. Creating sustainable supply chains is more than good ethics; it’s good economics.

How to learn more about sustainable supply chains

If you’re excited by the idea of driving positive change for the planet and working in a strategic and high-impact role, a Master of Supply Chain and Logistics Management is worth considering. Designed for the gamechangers of tomorrow, RMIT Online’s postgraduate degree has a strategic focus on sustainable practices and equips students with everything they need to know to thrive in this growth industry.

Learn more about RMIT Online’s Master of Supply Chain & Logistics Management. You can book a 15-minute chat with one of our expert Student Success Advisors via our website or call 1300 701 171.