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Suppliers and Sustainability – Making Commerce Greener Makes Good Business Sense


“The earth, the air, the land and the water are not an inheritance from our forefathers but a loan from our children. So we have to hand it over to them at least as it was handed over to us.” – Mahatma Gandhi

As the alarms bells on climate change are ringing loudly, manufacturers and suppliers of goods are increasingly paying attention. According to the UN Global Compact, supply chain sustainability is about managing environmental, social and economic impacts, and encouraging good governance practices throughout the lifecycles of goods and services.[1] Suppliers are increasingly focusing on where they fit into the picture, because they see the writing on the wall: embrace sustainability or lose business, reputation – or both.

Fortunately, they can take a page out of the playbook of multinationals like Wal-Mart, Procter & Gamble, IKEA, Samsung, HP, Honda and Alphabet (Google), among over 120 global concerns pushing for a greener supply chain.[2] These companies can attest to how greening the supply chain helps increase efficiency, reduce resource costs, enter new markets, and make supply chains more resilient to the impact of climate change. It can also improve public perception and build credibility with industry and consumers.

And suppliers have the support of their larger counterparts: Walmart launched an online tool to help thousands of its Chinese suppliers make their factories more energy efficient, while Unilever has one it offers for free that tells farmers whether they are using sustainable practices – not only reducing environmental impact but saving money, too. A Carbon Disclosure Project (CDP) report published in 2018 found Walmart and other major companies’ supply-chain emissions reduction initiatives saved suppliers a combined $12.4 billion in 2016. Nike, for instance, reduced material usage by 20% and cut labor costs by over 50%, resulting in 0.25% higher margins, by changing the way it makes its cross-trainers.[3]

Using digital technologies like blockchain and artificial intelligence (AI), new concepts and innovations are taking root among suppliers and helping them ‘go green’. Suppliers can use blockchain, artificial intelligence and other digital tools to analyze, measure adjust and optimize their processes like inventory, order, distribution and transportation management. Fintechs are also playing a role in making suppliers more sustainable in a variety of ways, like using state-of-art tools that encourage and reward transparency in the supply chain.

How Suppliers Benefit from Joining the ‘Green Wave’

Suppliers big and small understand how taking positive action can lead to many benefits, such as:[4]

Reduced costs and increased productivity: Sustainable business practices help streamline operations and conserve resources, reducing costs while boosting employee productivity. Even simple tasks like turning off unneeded lights or idle computers and recycling paper go a long way towards curtailing a supplier’s carbon footprint while boosting its ‘green’ image. UK firm John Mitchell invested in driver training, saving over £650,000 in fleet costs while increasing worker output – benefiting supplier and client alike. Emerging innovative technologies, new data and machine learning tools can be leveraged to lower costs and create new operating efficiencies while embracing sustainability.

Reduced environmental impact/waste: Reducing waste and increasing building, vehicle and machinery efficiency can yield fast, visible returns. For example, freight carriers under competitive pressure to reduce operating costs – and get ahead of the regulatory curve for government’s fuel efficiency standards – have switched to more efficient fuel types like natural gas or ‘gone electric’, improving their bottom lines while reducing their environmental impact.

Better access to markets and clients: Buyers and consumers award suppliers that ‘go green’, increasingly interpreting those sustainability efforts as a sign of strong managerial commitment. Embracing sustainability in product design, manufacturing rationalization and distribution optimization also helps drive pricing and market innovation, benefiting buyers and end users via lower prices and improved service levels. Internationally recognized ‘green’ certifications such as ISO 14001 also help: accreditation of environmental efforts shows a supplier is serious about embracing sustainability, increasing attractiveness to a broader range of existing and potential clients.

Strengthening supply chain continuity: In addition to streamlining operations and conserving resources, creating a diverse network of partners among the supply chain attracted by a supplier’s green credentials can help ensure that goods keep flowing when needed. Floods in Thailand in 2011 caused by a typhoon show why: the auto parts supply industry was brought to a halt, idling factories worldwide, because of the lack of alternative suppliers in the chain. Minimizing business disruption from environmental, social and economic impacts can help defend the bottom line as well when things go awry.

Enhanced reputation – protecting against damage to image: Suppliers that tout a green label protect their reputation and brand value while managing business risks. For instance, the clothier Ralph Lauren now traces the source of wood-based fabrics like rayon to eliminate those associated with rainforest destruction or human rights violations.[5] Increasingly, buyers and consumers do not want to be linked to companies associated with environmentally- or worker-unfriendly behavior. A survey by the National Marketing Institute of over 53,000 U.S. consumers shows they consider a company’s environmental footprint when deciding who to buy from and are more likely to patronize companies that embrace sustainable habits. An improved image also helps with recruiting future employees, attracting the caliber of people companies want onboard.

Unbeknownst to many, Mahatma Gandhi – the champion of India’s freedom movement – was an innovator and supporter of sustainable science. Strongly opposed to “commerce without morality”, he actively promoted protecting the earth’s fragile ecosystems resources lived an exemplary, sustainable life. One could imagine that it would make him smile to see his message spreading rapidly throughout the supplier world to embrace commerce with morality – so that “we can hand over an earth to our children that is at least what was handed over to us.”

 

[1] United Nations Global Compact ‘Apply sustainable practices throughout the supply chain’ website

[2] McKinsey & Co. Report: Starting at the source – Sustainability in supply chains (Nov. 2016)

[3] Carbon Disclosure Project Report 2018: Closing the Gap – Scaling up sustainable supply change practices

[4] Environment + Energy Leader Magazine: 6 Benefits of Becoming a Sustainable Business (Mar. 2016)

[5] Environment + Energy Leader Magazine: Sustainable Supply Chains: Ralph Lauren Is Latest Corporation to Commit to Sourcing Materials from Responsible Suppliers (Jan. 2017)