Sustainability is a common topic of debate in boardrooms and executive suites, as manufacturing leaders seek to understand the value of investing in sustainable strategies. One area of particular focus has been sustainability in the supply chain.
According to a 2015 World Economic Forum study¹, organizations can increase revenue up to 20 percent and boost brand value up to 30 percent by investing in supply chain sustainability.
But are organizations taking action to realize these benefits? And if so, how?
West Monroe Partners and the Supply and Value Chain Center at Loyola University recently surveyed North American supply chain executives to understand their views and actions with respect to building a sustainable supply chain. Many of those surveyed represented consumer packaged goods and other manufacturing and distribution enterprises ranging from $100 million to more than $120 billion in revenue. Barely one half (51 percent) said they consider developing a “green” supply chain to be a current strategic priority. An additional 36 percent said they have plans to incorporate sustainability into their operations; but of this group, just 22 percent plan to do so in the next three years.
In contrast, last year, West Monroe’s consumer survey found that many people are willing to pay more and wait longer for products they buy to be delivered sustainably.
So why are consumers willing to put their money where their morals are, but organizations have yet to do anything about it?
One reason is the lack of a compelling business case for supply chain sustainability.
North American companies lag European counterparts—both in priority and in action.
Although some state and local governments are enforcing stricter supply chain standards, the United States still lags European countries in terms of regulatory pressure. BearingPoint, our global network partner, conducted the same survey of supply chain executives in Europe—where regulations are more prevalent—to understand whether practices and attitudes vary by geography—and found some marked differences. More European companies (59 percent) said that a green supply chain is a strategic priority.
Our research shows that North American organizations have an opportunity to shift toward more environmentally, economically, and socially responsibility supply chain operations. Three exercises can help build a stronger case for change:
Assess carbon footprint. Assessing carbon footprint measures the organization’s current environmental impact and frames the benefits of a sustainability strategy in a big-picture context. This is critical to winning the C-suite’s support.
Understand customer sentiment. It also is important to understand how certain changes may affect the organization’s customer relationships and sales. Demonstrating how sustainability can grow a brand and strengthen customer loyalty is essential to earning executive support.
Calculate bottom-line savings. Stakeholders will want to understand revenue and profitability potential before committing their support. The two studies above—carbon footprint and customer sentiment analysis—provide input for illustrating the dollar savings available from more sustainable operations.
These analyses are vital for building support for meaningful action toward a green supply chain.
Manufacturers willing to evolve their supply chains have a few avenues for beginning to deliver tangible change.
Adopt renewable energy. Integrating renewable energy sources into supply chain operations can happen on any scale—large or small. Small changes, such as installing energy-efficient lighting in warehouses and switching to fuel-efficient vehicles for last-mile delivery can have a measurable impact on carbon footprint.
Utilize smart procurement strategies. With input from other departments, procurement teams can set sustainability criteria to evaluate current and future suppliers. These criteria could range from labor practices to carbon emission levels to location for sourcing raw materials. Some larger organizations are adopting automated capabilities for evaluating potential suppliers against sustainability criteria and ensuring those considerations are part of supplier contracts from the outset.
Consider facility sites. Real estate can factor into sustainable operations. For example, many companies are foregoing large logistics facilities in suburban or rural locations in favor of smaller buildings closer to population centers. And many retailers are beginning to locate warehouse and distribution facilities close to intermodal transportation hubs to minimize reliance on truck shipping and to take advantage of “greener” rail options. These strategies maintain delivery speed while reducing the environmental impact of transporting goods to consumers.
Turn Potential into Value
Until regulations force action, or there is greater consideration of the circular economy effects, more companies won’t devote the resources and funding necessary to make significant changes—even if they do acknowledge that a sustainable supply chain is a priority. Pioneering manufacturers, though, have a tremendous opportunity for differentiation and to drive both business and societal value—positioning their brands as industry leaders and customer favorites.
David South, senior manager and leader of West Monroe Partners’ sustainability practice.
Yves Leclerc, managing director and leader of West Monroe Partners’ supply chain practice.