5 minute read 11 Oct 2021

Sustainable supply chains require strategic partnerships.

Three steps towards a sustainable supply chain

Authors
Tom Van Herzele

EY Belgium Consulting Executive Director

I have an engineering background combined with strong insights in business strategy and performance improvement supported by innovation and disruption.

Sophie Chirez

EY Belgium Climate Change and Sustainability Executive Director

Climate change is a reality: we need to act now to adapt and mitigate. Passion, trust and team work will enable us to get there!

5 minute read 11 Oct 2021

Sustainable supply chains require strategic partnerships.

In brief

  • To meet their sustainability goals, companies have to take a close look at their supply chains and expand strategic collaboration across their networks.
  • Making an entire supply chain more sustainable calls for an integrated approach.

Companies face the herculean task of becoming more sustainable. But the necessary change-around does not stop at the company itself, the entire supply chain has to be examined. EY has already guided countless companies through this process with a step-by-step approach.

Sustainability is a driver to change and to make a difference
Sophie Chirez
EY Belgium Climate Change and Sustainability Executive Director

Three-step approach

Step 1: Measure the impact

You need to measure not only your own footprint but also that of the entire supply chain. While a clear grasp of your impact is essential, often companies don't know how to calculate it.

Step 2: Set priorities

Then it's time to set priorities. If you’ve measured your impact properly, these will immediately become clear. If raw materials account for eighty percent of your footprint, then you know where to start. Which materials are critical and for which are alternatives available? This way you can identify your strategically important suppliers.

Step 3: Develop strategic relationships

This then gives you your third step: developing strategic relationships with those suppliers. Such relationships go much further than just ordering and paying. They include, for example, thinking together about restructuring the supply chain. Something that calls for quite some adjustment.

If you’ve measured your impact properly, then the priorities will immediately become clear.
Tom Van Herzele
EY Belgium Consulting Executive Director

Pressure

This is not an optional exercise. Companies might have had a choice before, but not anymore. Europe wants to be climate neutral by 2050, and that requires everyone to contribute. Companies must change now.

For example, from 2023 all larger companies must include non-financial sustainability information in their financial reporting. Some have yet to start, while others already collect certain data but report in different ways, with different names and degrees of detail. From now on everyone will have to use the same standards and formats. Even the largest companies are not ready for that.

EY Future Consumer Index

84%

of consumers say sustainability is important when making purchase decisions.

EY Global Institutional Investors Survey 2020

72%

of investors look at sustainability goals before investing.

Companies are also feeling social pressure, as recent figures from EY show. From customers: 84 percent of consumers consider sustainability important in purchasing decisions. And investors are also attaching importance to it: 72 percent take sustainability goals into account.

And of course, companies are encouraging each other to adopt a more sustainable approach. More and more large companies want to be net emission-free by 2030. This forces other companies in the chain to participate. This waterfall effect is clearly visible in the transport sector. If multinationals want to reduce their impact, they look to their logistics partners, these in turn to the fleet operators, and they to the truck builders. These all now want to switch to electric engines.

Scope 3

All this exposes the biggest challenge: tackling one’s own activities is not enough, companies have to take a close look at their entire supply chain. Saving energy, making their processes more sustainable: many companies are already doing this. But where do they source their raw materials, and how do their products reach the end customer?

In the jargon, this is called 'scope 3': the emissions generated outside the perimeter of the company itself. Scope 3 covers the entire value chain, with all activities at both the supplier and customer ends. Scope 3 usually accounts for more than 60 percent of the footprint. For example, the impact of packaging is often underestimated. It is impossible to be climate neutral without taking scope 3 into account.

But often good data is missing. To calculate the impact of scope 3 you need data from suppliers, which is not always available. As a result, in estimating their emissions, companies build in margins of error that would never be accepted in financial reports. 

Strategic collaboration

All this tells us that companies need each other and will need to collaborate. For this collaboration, you need to set up the right structure. For example, you can build sustainability considerations into your purchasing policy. Suppliers are weighed up against each other in terms of quality, price or punctuality. In the case of a call for tenders, sustainability conditions can also be added as a criterion.

However, it’s better to partner strategically with suppliers or customers to achieve certain goals together. A company that only puts pressure on its suppliers, is pushing the problems away. It’s better to sit down as partners and think together about how you develop products and ensure that the impact is reduced throughout the entire supply chain.

That can lead to drastic changes. In such a case, EY can help redesign an entire logistics network. Companies cannot review every year where they produce their products or where they locate their distribution centers. But many are already trying to make their supply chains more resilient to disruptions like trade wars or a pandemic. Why not tackle sustainability as well? 

Sit down with your suppliers as partners and think together about how to develop products so as to reduce the impact throughout the entire supply chain.
Tom Van Herzele
EY Belgium Consulting Executive Director

Integrated approach

Making an entire supply chain more sustainable calls for an integrated approach. We help our clients not only with the strategy but also with implementation. We also think together with our clients about investments and help them apply for subsidies. Or we accompany the mental shift towards new forms of working. EY offers a decarbonization and energy transition roadmap, including a Life Cycle Analysis, or in other words, an analysis of the entire lifespan of a product. We can then help re-develop a product with sustainability in mind based on a circular model.

Sustainability is a unique opportunity to innovate. It is a driver for change, for bringing something new to the market and making a difference. Companies that pro-actively work on this increase their chances of survival.

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Summary

More and more large companies want to be net emission-free by 2030. To meet their sustainability goals, companies have to take a close look at their supply chains and expand strategic collaboration across their networks.

About this article

Authors
Tom Van Herzele

EY Belgium Consulting Executive Director

I have an engineering background combined with strong insights in business strategy and performance improvement supported by innovation and disruption.

Sophie Chirez

EY Belgium Climate Change and Sustainability Executive Director

Climate change is a reality: we need to act now to adapt and mitigate. Passion, trust and team work will enable us to get there!