4 minute read 23 May 2019
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How supply chains can be good for the environment and the bottom line

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

4 minute read 23 May 2019

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When you bring sustainability into your supply chain reinvention program, the positive impact reverberates throughout your business.

Here is the hot news: there is a business case to be made for sustainability. Yes, that’s right; sustainability is no longer mostly about public relation opportunities and embedding sustainability statistics into your corporate social responsibility reports. It’s also about the bottom line. And this is particularly true when it comes to supply chain.

The common misconception is that there’s a lack of quantifiable metrics to establish sustainability as a contributor to profit. That may have been true at one time, but no longer. For example, the Beyond Supply Chains report by the World Economic Forum indicates sustainable supply chain practices can result in a 9% to 16% cost reduction. In this era of the interconnected society, supply chains that are powered by the internet of things (IoT) and fueled by data can help quantify the true benefits of a sustainable approach to the supply chain.

As you continue your journey toward a future-ready supply chain, here are three perspectives for sustainability to keep in mind:

The multiplier effects

If you apply system thinking to your supply chain, you quickly realize that the fully interconnected supply chain is subject to multiplier effects. Think of it this way: if you’re a big company, your supply chain ecosystem is so vast and touches so many aspects of your business that any sustainability goals you put in place will reverberate throughout your operations. And the sustainability mandates required of suppliers will multiply down the line from tier 2 to tier 3 suppliers and beyond. Sustainability is an area where big companies must lead – not only because they have the heft to require the necessary change, but also because efficient use of resources benefits all partners in the supply chain.

Emerging technologies have fully emerged

The IoT has become far more than a futurist prediction. It’s now a fundamental component of how the modern supply chain works. In today’s supply chain, sensors now populate shop floors, warehouses and transportation networks. Data flow from thousands upon thousands of sensors to corporate data stores where well-trained teams deliver reports, run predictive analytics and populate dashboards for supply chain decision-makers. IoT deployments can start capturing data from across the manufacturing shop floor and all the way through the supply chain. This means that you will now capture data on variables that you might have previously missed, such as lighting, machine utilization, water and energy usage, fuel efficiency, facilities temperature, and much more. With IoT, we can start to measure what matters with additional granularity.

Blockchain has a role in the sustainable supply chain too. For example, how can you track whether suppliers are behaving in a sustainable manner? With blockchain everyone, from supplier to the Original Equipment Manufacturer (OEM), shares a distributed ledger where they can track and trace the provenance of goods from origin to final production. This can help authenticate sourcing of raw materials and production processes, offering insights to all participants. For example, there is more than one European EY client using blockchain to certify the authenticity and quality of products. This serves a dual goal of allowing consumers to be sure they get genuine products, while helping manufacturers understand from where their raw materials are sourced.

Sustainability is more than a "green" movement

Even if some corporate executives still think of sustainability in largely environmental terms, the rest of the world is starting to take a broader view. Consumers, investors and regulators are expanding their perspectives to include ethical workforce issues, like human and labor rights, and governance issues involving corruption and bribery.

57% of respondents said good sustainability practices reduced overall risk, while 55% said sustainable supply chains were a competitive differentiator.

EY research shows that many enlightened companies have embraced this broader perspective. In our 2019 Supply Chain Reinvention research, which surveyed over 500 C-level and EVP/SVPs across the Americas. For supply chain executives specifically, sustainability came in as the number two priority over the next three years, just behind increased efficiency.

Disruptions to the production and delivery of goods caused by natural disasters (up 29% since 2012) is another factor in the sustainable equation. The tsunami in 2011 that triggered the nuclear accident in Japan jumpstarted a move toward supply chain disaster-proofing – and not just in Asia. Some US manufacturers didn’t even realize that they had tier 3 suppliers in Japan that had been devastated until their production line ground to a stop.

Other EY research has revealed a growing importance of these ESG factors – environmental, social, governance – in determining financial-risk assessments. In our 2018 survey of 220 institutional investors, 97% of respondents indicated they conduct an evaluation of target companies’ nonfinancial disclosures, with 96% of respondents saying such information has played a pivotal role in the investment decision-making process.

A comprehensively sustainable approach to supply chain transformation presents an opportunity for more efficient use of natural resources and consequently can lead to a stronger bottom line for your company. In our connected society, increasingly powered by IOT, we can measure the financial impact of a sustainable supply chain. Sustainability should no longer be considered an "add-on" to your supply chain; instead, it needs to be part of how you do business every day. This is how we create a better working world – when everyone in the supply chain is thinking and practicing sustainability, benefiting companies, people and ultimately our planet.

Summary

As organizations look to bring sustainability into their supply chain, there are three key perspectives to keep in mind. A comprehensively sustainable approach to supply chain transformation presents an opportunity for more efficient use of natural resources and consequently can lead to a stronger bottom line for your company.

About this article

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.