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What is a sustainable supply chain?
A sustainable supply chain is designed around ethical, environmentally friendly, and socially responsible principles. Integrating sustainability into supply chain management aims to reduce potential negative impacts caused by the movement of raw materials and products through the supply chain.
Although there’s no firm consensus on what exactly constitutes a sustainable supply chain, the United National Global Compact initiative outlined ten core supply chain sustainability principles in their Practical Guide for Continuous Improvement, stating that businesses should:
Support and respect the protection of internationally proclaimed human rights
Make sure that they are not complicit in human rights abuses
Uphold the freedom of association and the effective recognition of the right to collective bargaining
Uphold the elimination of all forms of forced and compulsory labor
Uphold the effective abolition of child labor
Uphold the elimination of discrimination in respect of employment and occupation
Support a precautionary approach to environmental challenges
Undertake initiatives to promote greater environmental responsibility
Encourage the development and diffusion of environmentally friendly technologies
Work against corruption in all its forms, including extortion and bribery
However, what a sustainable supply chain actually looks like depends on each business’s approach to the task. Some businesses aim to reduce negative impacts in a specific area, like greenhouse gas emissions. Others take a broader view, aiming to improve sustainability at large.
There are diverse ways businesses can go about improving supply chain sustainability, including:
Reviewing suppliers based on their sustainable practices
Reducing inefficiencies in transportation to decrease carbon emissions
Using more recyclable materials in materials and goods packaging
Committing to responsible handling of manufacturing waste products
Ensuring all suppliers in the supply chain are paid fairly
By focusing on sustainable supply chain practices, businesses can mitigate or minimize any detrimental effects their supply chain has on the world. In most cases, however, supply chain sustainability efforts aren’t designed solely to reduce negative external impacts but also to ensure the long-term efficiency of the supply chain itself.
Sustainable supply chains vs green or ethical supply chains
Sustainable supply chains are somewhat similar to green supply chains and ethical supply chains, but there are some key differences between the three terms.
Green supply chains tend to focus primarily on adherence to environmental principles. They are designed to reduce environmental impacts like pollution, emissions, water usage, and deforestation caused by supply chain operations but might not factor in social or ethical issues.
Ethical supply chains, on the other hand, focus on ensuring high standards of human rights and labor practices with less emphasis on environmental issues. Ethical supply chain principles include exclusively partnering with suppliers that are highly rated for their working conditions, for example.
The importance of sustainability in supply chains
A more sustainable approach to supply chain management is one of the best ways businesses can tackle climate change since supply chain emissions are more than 11 times higher than operational emissions for the average business.
However, sustainable supply chains aren’t only important because they protect the planet. The benefits of supply chain sustainability to businesses that focus on it include:
Cost efficiency
Sustainability is fundamentally correlated with efficiency. Focusing on reducing emissions from the transportation of goods through the supply chain, for example, necessarily involves thinking of ways to improve the efficiency of current transportation infrastructure.
So, by integrating more sustainable principles into their approach to supply chain management, businesses can also improve their supply chain’s overall efficiency, which can reduce operational costs. In other words, sustainability can drive positive ROI, as well as environmental and social ones.
Brand reputation
A joint study carried out by McKinsey and NielsenIQ posited that consumers are increasingly concerned with the sustainability practices of the businesses that they engage with. Increasing supply chain sustainability is one of the most effective ways for businesses to work towards environmental, social, and governance (ESG) goals.
Whether this manifests in consumer-facing ways, like clearly recyclable product packaging, or through evidenced claims of reduced environmental impact, it can boost a business’s reputation in its customer base. With a better reputation, businesses are more likely to benefit from loyal customers.
Minimized risk
Supply chain sustainability is incidentally also a supply chain risk prevention measure. Since many of the principles involved in the practice relate to efficiency, legality, and futureproofing, adopting a more sustainable approach to supply chain management can minimize the likelihood of future supply chain disruptions.
Implementing a more stringent supplier selection process that prioritizes suppliers based on their labor standards or risk of being involved in corruption, for example, makes it far less likely that those suppliers will be unable to meet commitments in the future due to legal troubles.
Achieving supply chain sustainability with technology
Companies looking to boost their supply chain’s sustainable credentials often turn to technological solutions, which can help them achieve diverse outcomes. Popular solutions include:
Supplier management software: used to simplify and streamline changes to the supplier selection process and monitor supplier KPIs relating to sustainability on an ongoing basis.
Inventory management software: used to increase visibility throughout the supply chain to identify inefficient or fragile processes and remedy them with features like vendor-owned inventory or safety stocks.
Sustainable supply chain finance solutions: used to create meaningful incentive schemes that reward suppliers who meet sustainability goals with preferential early payment rates.
AI-powered analysis tools: used to analyze large datasets and uncover opportunities to improve efficiency throughout the supply chain management process to drive sustainability.
These tools, tied together through a central ERP system and used in the context of a concrete supply chain sustainability plan, can help businesses significantly boost the sustainability of their supply chains.
And, with an ongoing commitment to reviewing progress towards achieving supply chain sustainability goals and making strategic changes to improve performance, that boost can be transformed into a long-term effect.
FAQs
Flexible Funding 2.0 is designed to help you meet your short-term cash objectives. Use Flexible Funding when you need to:rnrn • Make DPO or CCE improvements for financial reportingrn • Free up cash for an unplanned initiative (not forecasted)rn • Avoid running short on cash payment accounts (due to early payment demand)rn • Leverage a low-risk investment option for idle cashrn • Maneuver as market conditions shiftrn • Improve supplier relationships with access to reliable cash flowrnrnrn
Generally speaking, no. Flexible Funding offers a blended experience of Taulia’s Supply Chain Finance and Dynamic Discounting solutions. Whereas Supply Chain Finance permits one early payment offer per day, Dynamic Discounting presents multiple offers on a sliding scale the user can review on a digital calendar. Selecting fixed or variable-rate financing with Dynamic Discounting will influence whether suppliers receive one or multiple offers per day in certain situations when Flexible Funding is activated. Consistent pricing between funding sources — structured in advance through collaboration by all parties — also ensures a unified experience for suppliers.rnrnrn
Rate parity concerns the consistent cost of supplier financing between funding sources. Traditionally, companies have sought to maximize their yield on dynamic discounting while insisting banks keep their margins thin on accelerated payments for suppliers. This rate disparity incentivizes suppliers to “shop” for the best price when both funding sources co-exist in a Flexible Funding-enabled program. A better approach is fair and consistent pricing between funding sources so that suppliers feel like they get a good deal on needed liquidity and buyers optimize the return on their investment with high supplier participation.rnrnrn
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Read our full guide to sustainability in supply chain management, covering what a sustainable supply chain actually means and how it can benefit a business.
Accounts receivable automation (or AR automation) is the practice of automating parts of the accounts receivable process in a business. Learn more here.
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Working capital funding, also known as working capital financing, is a method of business financing. Learn more about the types of working capital funding here.
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