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How sustainable supply chains are driving business transformation

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5 minute read 20 Sep 2022
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A survey of supply chain leaders shows the need for visibility on sustainability performance and a holistic business case to drive results.

In brief

  • EY teams surveyed 525 executives about their sustainable supply chain practices. Many have long-term strategies but struggle to measure their progress.
  • Business case initiatives for sustainability stretch beyond cost savings to increased revenue, customer loyalty and share price.
  • To reap the benefits now and in the long term, companies should align to science-based targets and begin work to define and achieve those goals. 

Supply chains are sustainability’s new frontier. They are core activators for organization-wide sustainability goals and commitments. With sustainability in mind, supply chain executives are forging ahead, taking steps to protect their access to resources and bolster resiliency, and yet finding challenges to overcome and new opportunities to further explore.

Download the report: Building supply chain sustainability that can drive revenues and reduce operational risks

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EY teams conducted a survey about the sustainable supply chain approaches at 525 large corporations across Argentina, Brazil, Canada, Mexico and the United States (US). The various sectors included retail, consumer packaged goods, health providers, life sciences, government, technology, energy, manufacturing, mobility, and food and agriculture.

The research shows that while many executives have long-term sustainability goals for their supply chains, few have the visibility, technology and comprehensive programs in place to measure their progress. Challenges to their initiatives include upfront costs and a lack of a clear business case to support the expenditures.

Focusing on supply chains is key to overall environmental, social and governance (ESG) efforts because more than 90% of an organization's greenhouse gas emissions,1 and 50% to 70% of operating costs, are attributable to supply chains. Beyond risk avoidance and compliance, organizations are seeking ways to create long-term value by embedding sustainability into supply chain operations.

EY teams research found that eight in 10 supply chain executives are increasing their efforts toward sustainable supply chain operations. Executives are working toward efficient use of natural resources, decarbonization, ethical sourcing and fair trade as part of their larger focus on ESG initiatives. They are also looking to reduce risks, increase innovation and generate a stronger return on investment for their sustainable supply chain initiatives.

This article explores the top three findings from the survey to support executives in achieving their sustainability goals.

1. Despite a long-term vision, organizations struggle with a lack of visibility and ROI backed sustainability initiatives

As consumer, investor, regulatory and employee expectations heighten and pressure for supply chain disclosures increases, so has the focus on visibility in supply chains. Consumers are asking sophisticated questions about sustainable sourcing, labor conditions, and why they can’t find basic needs on their grocery store shelves.

EY teams 2022 survey reveals that visibility throughout the supply chain is this year’s top priority for supply chain executives, having been a top-two priority for them in 2021 and 2019. Further, there is a critical need for executives to assess risks, plan for disruptions, and even better, to avoid them. And although increased end-to-end supply chain visibility is a top priority, it remains a work in progress—only about four in 10 respondents (37%) have seen increasing visibility.

Digital tools, data analytics and collaboration platforms help organizations capture metrics, set key performance indicators and establish governance. While visibility is a wide undertaking, a holistic end-to-end view of the supply chain helps companies track materials and supplies, understand supplier working conditions and collect data to measure their program effectiveness. Technology offerings can also identify and introduce efficiencies in operations and resources.

In one notable finding, EY teams research revealed that 33% of companies lack a business case for sustainable supply chains and nearly half of respondents said their companies are struggling to measure the return on sustainable supply chain activities. A lack of business case to support expenditures and processes to track sustainability improvements may stall funding support for future initiatives.

2. A sustainable supply chain roadmap looks beyond procurement toward end-to-end supply chain transformation

Cost savings and efficiency were cited as the top motivators for embarking on supply chain sustainability by 61% of companies. However, financial performance is not the only benefit to expect.

In a Harvard Business Review Whiteboard Session,2 Andrew Winston suggests that companies should focus on four components to redefine return on investment for supply chain sustainability:

  1. Cost reduction: reducing material waste, improving efficiency and reducing their carbon footprint
  2. Revenue growth: examining how a sustainable supply chain can affect market share, stock price and profitability
  3. Risk management: managing regulatory and compliance risks, and building resilient sourcing strategies
  4. Intangibles: exploring how sustainability improves customer loyalty, brand reputation, innovation, employee quality of life and retaining talent

As a result of their ESG initiatives, 55% of supply chain executives say they expect to see better management of operational risks within the next one to three years, adding to the 20% who have already seen these reductions.

While 31% have already experienced enhanced efficiency and productivity, 51% expect to see that in the next one to three years. In the longer term, three to five years, 54% of respondents expect increased share price or other indicators of shareholder value.

How EY can Help

3. Companies should play the long game but start their supply chain sustainability initiatives now

 

While supply chain sustainability goals will look different for each company, EY teams offer five actions to get started.

  1. Determine how sustainable supply chains fit into your organizational-wide commitments and goals to help prioritize your efforts. EY teams recommend first looking at organization materiality, supplier risk assessments and organizational commitment, for example science-based target (SBT) activation, supplier diversity, human rights, etc., and then determining which goals the supply chain activates.
  2. Improve the visibility and traceability of your supply chain.
    Deploy technological capabilities to help improve Tier-n visibility and supplier engagement. Communicate often with stakeholders through broader data sharing and collaboration tools.
  3. Expand your ROI measurement to include intangible impacts and sustainability outcomes.
    Think about business-case drivers beyond cost savings, including revenue, market share, reduced risk and improved customer and employee loyalty.
  4. Move beyond a sourcing and procurement focus to capture benefits across the end-to-end supply chain. Enterprises should take an end-to-end approach, including planning, sourcing, manufacturing, and logistics and distribution. Cross-functional collaboration with other functions such as finance, risk and more can broaden opportunities for business benefits.
  5. Leverage available tax incentives and grants.
    Review your sustainability initiatives for cost benefits and tax impact. Only 11% of companies are looking to tax incentives, grants and rebates to fund their programs.

What can companies learn from the leaders?

Supply chain executives who have made progress in the sustainability frontier can offer additional insights about leading practices. Roughly 10% of our survey respondents stood out in these areas and are reaping significant benefits.

Trailblazers have an extreme focus on transparency. They can significantly or moderately peer into Tier 2 and 3 supply networks. They are concerned with public opinions: 57% have public-facing sustainability goals for their supply chain, compared with 42% of companies overall. In terms of sustainability program ROI, nearly half of these trailblazers have already seen improved employee quality of life (compared with 37% of companies overall).

Compared with the whole, trailblazers are less focused on cost savings as a motivator for supply chain sustainability, although they are gaining financial benefits. Twenty-five percent have already experienced increased revenue because of their supply chain sustainability efforts. Moreover, 43% expect increased share price from their efforts in the next one to three years.

Finally, they are most likely to use sustainable supply chains to safeguard their corporate brand (33% compared with 14% of the group overall).

Lauren Rogge, Principal, Ernst & Young LLP, Cate Mork, Senior Manager Ernst & Young LLP, and Paul Barsch, Assistant Director, Ernst & Young LLP, also contributed to developing this article.

Download the report: Building supply chain sustainability that can drive revenues and reduce operational risks

PDF (1 MB)

Summary

Survey responses from 525 senior supply chain executives show how global organizations are approaching a frontier of financial and nonfinancial opportunities in supply chain sustainability. Nearly half struggle to measure the return on their activities, and many are focused primarily on savings and efficiency. However, the business case benefits for some companies stretch beyond cost savings to increased productivity, profitability and better management of operational risks. Executives who know what to measure and which KPIs to track are already making gains on their competition.
 

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