Why is your supply chain the key to achieve your sustainability ROI?

July 15, 2020 Chetan Peryagh

No business wants environmental controversies or forced labor allegations levied at their door. As covered in EcoVadis’ study on Return on Sustainability: The Value and ROI of Sustainable Procurement – this reputational and financial damage can happen to a business even when just one of their suppliers is tainted. COVID-19 has not diminished consumers’ interest in these issues, making it urgent for businesses to invest in sustainable procurement. 

 

COVID-19: (Re)Learning a Lesson

An Accenture survey, published in May 2020, found that 45% of consumers said they are making more sustainable choices when shopping and will likely continue to do so. And a recent survey by AMC Global has shown that 26% of US consumers are planning to increase their purchases from brands that are committed to being environmentally friendly. This suggests, despite the COVID-19 crisis, there is a sudden and accelerated shift in public habits towards responsible consumption. 

COVID-19 has reinforced the case for sustainable procurement. The pandemic has exposed the vulnerability of the global supply chains. The shockwave has led to a decline in production and trade in China, strongly impacting countries further up and down the supply chain due to cross-border movement restrictions. Such disruptions are not new as in the past global economies witnessed shifting of supply chains due to wars and cyber attacks. Firms suffering from supply chain disruptions experience between 33 to 40% lower stock returns relative to their benchmarks of over a three year time period (starting one year before and ending two years after the disruption date). 

 

Engaging in Sustainable Procurement Creates Value

Managing the sustainability of internal operations solely is not enough since the external sources greatly influence the sustainability of business operations. Business volatility and insecurity can be reduced only if companies invest strategically in the value chain, more precisely, in the supply chain. Analyzing and monitoring the supply chain can provide the business with an integrated perspective of value creation across their product’s or service’s lifecycle. 

A systematic supply-chain risk management approach becomes more relevant as the stakes are rising. According to a McKinsey & Company report, supply-chain risk leaders can be motivated to develop a set of reactive and proactive response strategies, and foster general risk awareness among their employees, by creating an openness to address potential shortages and failures.

 

Return on Sustainability Is Real and Tangible

A Deloitte survey showed that 79% of organizations with superior supply chain capabilities ("supply chain leaders") achieve revenue growth that is significantly above average. Without a doubt, the prosperity of a business is connected with the sustainability performance of its supply chain. Companies taking the leadership role in influencing the sustainability of their supply chains are more capable of creating a competitive advantage, lowering the costs in procurement activities and improving profitability. The time is ripe, more than ever, to extend responsible business practices commitment to the entire value chain by investing in the supply chain sustainability, not only as a source of increasing the positive impact on people and the environment, but also as a driver to improve profitability. 

A well-built crisis management and a sound sustainable supply chain management are interlinked. Successful approaches include proactively working with suppliers and executing corrective action plans, as the damages and expenses of these disruptions tend to surpass the costs of prevention. Companies can gain by nurturing the practice of using supply chain sustainability as a key leverage to enhance their responsible business practices as well as the mutual value for themselves and their suppliers.

 

What’s Measured Improves

As management guru Peter Drucker said, we cannot improve on something if we cannot see or measure it. A World Economic Forum’s survey demonstrated that supplier visibility ranks among the top 5 global supply chain vulnerabilities and this can be mitigated through information sharing and development of standardized risk assessments and quantification tools. The risks of sustainability in supply chain management requires a robust mapping tool to identify not only prospective suppliers, but also which products or purchasing categories can expose a company to sustainability risks. Harvard Business Review concluded that after the COVID-19 crisis, firms who learn from the lessons of supply chain disruptions will make investments in mapping their supply chain networks to have a better visibility and know exactly which suppliers and products are at risk. And they will be the winners in the long run. 

Is your brand transparent and sustainable? Where do your raw materials come from? Who are providing your services? Consumers ask these questions when making choices and thereby compelling businesses to add supply chain sustainability into their  picture of corporate social responsibility agenda, crisis or no crisis.

With a strong supply chain risk management, companies can be more resilient against the disruptions by realigning their key strategies to achieve reliability in providing consumers with products and services at the right time and place no matter what interference is in the supply chain. Corporate leaders who provide capital for building risk mitigation and resilience in the supply chain tend to recuperate rapidly and gain a new competitive edge for their businesses when the storm passes.

About the Author

Chetan Peryagh

Chetan Peryagh is a Senior Sustainability Analyst at EcoVadis. Prior to joining EcoVadis, he worked as composting process head in a waste management company and volunteered with environmental NGOs in Mauritius. Chetan holds a bachelor's degree in Chemical and Environmental Engineering from the University of Mauritius.

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