A sustainable supply chain is a system that moves goods from beginning to end while merging ethical acquisition and environmentally friendly practices with cost effectiveness to mitigate ecological impact and improve productivity. Namely, it is a supply chain that does not deplete more resources than it puts in or, in its least intensive form, brings the consumption of resources to a minimum. As companies evolve, so must the methods with which they procure, manufacture, and transport their goods to minimize their carbon emissions and meet international sustainable requirements.
In the past, such processes were daunting for most companies—more so when considering how much of a supply chain can fall outside the monitoring capabilities of a business. But today, thanks to the advancement of data acquisition, analytics, and the use of AI for interpretation, organizations can gain real-time insights about their overall performance. Such technologies enable companies to monitor emissions and optimize supply routes without compromising on ethics so as to enhance the competitiveness of sustainable supply chain management.
In this article, we define which are the crucial elements to make a supply chain environmentally sustainable, why these elements need to be different from those of a green supply chain, what are the main objectives of such structures, and what are the main strategies to make global logistics more environmentally sustainable.
Importance of Sustainability in Supply Chains
Environmental and Economic Impact of Supply Chains
Supply chains are a significant source of pollution on the planet. It is estimated that the shipping industry alone accounts for as much as 3% of global emissions of CO2. Meanwhile, it is estimated that the ineffectiveness of sustainable logistics and supply chain management could lead to a yearly loss of more than $120 billion across the globe. This is a key problem for companies where supply chain resilience includes environmental sustainability.
There are several arguments to make supply chains more sustainable from economic claims about inefficient use to moral arguments about the duty to protect the environment. However, there is one much bigger argument to be made here: the world is becoming increasingly conscious about environmental impacts and, as a result, countries are imposing harsh regulations to secure the future of our planet.
Businesses today have no choice but to comply with stiffening regulations. Regulatory bodies across the globe are in fact, learning to adapt to these changes and make it compulsory for organizations to comply with several directives, such as the EU’s Corporate Sustainability Reporting Directive (CSRD).
Green Supply Chain vs Sustainable Supply Chain
It is common to find green supply chains and sustainable supply chains being used interchangeably, but they have different functions. A green supply chain is more concerned with reducing negative environmental impacts through environmentally friendly raw materials, as well as energy-efficient means of transport. A focus of sustainable supply chains is on environmental, social, and economic activities such as responsible purchasing, fair business, and long-term profit. Knowing these differences can help businesses streamline their strategies for environmental well-being while achieving their objectives.
What Is a Green Supply Chain?
A green supply chain is one that focuses on mitigative measures to protect the environment. Namely, its key focus is reducing environmental impact even if it results in less efficient routes—a key difference with sustainable supply chains as we will soon discuss. While the specific design of a green supply chain will differ company to company, they often include process like the following:
Making use of renewable energy in manufacturing processes.
Utilizing biodegradable packaging to reduce waste.
Employing fuel-efficient means of transportation.
What Is a Sustainable Supply Chain?
A sustainable supply chain is one that involves environmental and social considerations, as well as financial ones in its design. Namely, it seeks to balance all aspects without prioritizing one—while green supply chains put the environment above all else. Often times, this includes measures such as:
Providing equity in employment relationships, and responsible procurement.
Cutting expenditures through effective management of the supply chain and finding the most efficient routes.
Ensuring there are offset programs that justify potential impacts from current practices.
Again, sustainable supply chains must be thought differently to green supply chains. While green supply chains mitigate environmental factors, sustainable supply chains consider social and financial factors as well. The latter, then, is a balancing act between many priorities, not just environmental.
Sustainable Supply Chain Elements and Responsibilities
There are three notable core responsibilities that must be integrated for a sustainable supply chain optimization. Implementation will look differently depending on the structure of an organization. But, in what follows, we provide an initial description of these common responsibilities.
Environmental Responsibility
Closely related to a green supply chain, this core pillar holds that corporations should actively seek to lessen their ecological impact by reducing the impact of their supply chain. This could include, but is not limited to:
Designing an efficient transportation plan that lowers emissions.
Using packaging that can easily decompose or is recyclable and repurposable.
Formulating and executing waste reduction plans like circular economy models.
Financial Responsibility
A responsible supply chain is considered well-designed, if it is not merely environment conscious, but also economically sound. Namely, that it does not result in a drastic increase of costs to the company just to meet environmental needs. This, in turn, is related to sustainability by ensuring a company does not consume more resources than it produces to meet its goals.
Again, the specific manifestations of financial responsibility will differ company to company. However, some common strategies include:
Using AI based routes optimizations can help save on logistics expenses.
Reducing waste from manufacturing processes to boost returns.
Social Responsibility
Finally, companies should also design their supply chains to mitigate social impact both within their structures but also including its suppliers. This could include, but is not limited to:
Reasonable remuneration and good working conditions for employees.
Using supplier networks free of child labor or any inhumane treatment.
Monitoring of suppliers with regards to human rights violations based discrimination.
Benefits of a Sustainable Supply Chain
Not only do sustainable supply chains improve a company’s reputation, but they also enhances efficiency, and lower operational costs.
Perhaps this is better explained when considering the processes needed to achieve a sustainable supply chain rather than looking at the process as a whole. To start, in order to have a sustainable supply chain, companies must gain a clear depiction of their processes through considerable data gathering. Incorporating data into business practices allows companies to reduce loss and deviance while also enhancing profit margins through strategic logistics processes. Similarly, ethical sourcing increases consumer trust while ensuring regulatory compliance which, in turn, avoids legal consequences.
In short, companies with sustainable logistics and supply chain management become more adept at overcoming disruptions and remain profitable in a world where the environmental crisis is a forefront issue for people.
While the specific benefits from implementing a sustainable supply chain will differ with each use case, there are some key advantages that are worth acknowledging:
Reduction in Costs
A sustainable supply chain is synonymous with an efficient supply chain. That is, an operation where resources are allocated with precision, reducing in less waste and, in turn, lower impact on the environment as a result. This is perhaps best exemplified by route selection. By finding the shortest route to transport goods, companies can (a) reduce costs from additional transport, and (b) reduce emissions from longer journeys.
Compliance with Laws
Given that social responsibility is a key component of a sustainable supply chain, companies will often have to invest into achieving legal compliance. This, in turn, results in a reduced impact from fines or fees from the government since the company has all operations under legal control.
Enhanced Brand Reputation
Once a company has a sustainable supply chain in place, it can make an active marketing campaign to share its key measures with clients. This, in turn, will create a strong brand reputation amongst consumers that will understand the company is taking great lengths to be sustainable.
5 Sustainable Supply Chain Management Strategies
While there are countless strategies to creating a sustainable supply chain, in what follows, we decided to outline five popular approaches companies often follow to achieve this goal:
1. Select Eco-Friendly Suppliers
A simple and low cost effort to improve your supply chain sustainability is to select suppliers that also value sustainability. You can rely on external certifications or a company’s own reports to ensure they are following the best practices and align with the goals you wish to put in place within your company.
2. Lower Emission Outputs
One common practice across companies is to aim to lower emissions, be it by finding the most efficient transportation routes, implementing environmentally friendly vehicles, or making major investments in your manufacturing process to reduce its carbon footprint. Other companies might also consider offset programs where they might address their carbon emissions by investing in other renewable projects outside of their supply chains.
3. Cutting Down Supply Chain Waste
Another good strategy companies follow is to cut down overall waste in their supply chains. This is usually after a careful analysis of all materials employed in a company’s logistics process which helps determine areas where over consumption is taking place. Then, companies can reduce needless waste in supply chains be it in the form of fuel consumption or excessive packaging materials.
4. Become More Open and Cooperative
A great path towards better social responsibility is to make a more open and transparent supply chain process. This means helping clients understand where you are sourcing materials and whether your suppliers meet rigorous ethical standards. This will help earn customer trust by identifying your product as a sustainable alternative to competitors.
5. Use of Big Data and AI
Finally, companies have seen great success in designing sustainable supply chains by implementing big data and AI tools. In essence, these tools enable operators to take in large amounts of data and make reasonable conclusions about areas for improvement. A great example is gathering information about current routes and then use AI to find the most efficient logistical routes for your use case.
Improving Your Supply Chain Sustainability with Desteia
In order to construct a robust and responsible supply chain, companies need timely information and advanced analytics. That is why we built Desteia. Our product helps companies achieve a sophisticated supply chain management structure with full shipment visibility and useful analytics to gain efficiency. Using AI-powered analysis, companies can achieve improvements in productivity, cost reduction and compliance with world sustainability targets. With Desteia’s technology—which has virtually no integration when compared to established alternatives—companies can enhance overall visibility and document management which leads them to improve operational efficiency in their supply chains.