Introduction

How can we use materials left over from the manufacturing process? Does our manufacturing partner use ethical labor practices? Which delivery companies use electric vehicles? These are the types of questions that may arise when building supply chain sustainability.

To achieve supply chain sustainability, companies must consider the environmental, social, and corporate impacts their products have throughout all parts of the supply chain, from raw material acquisition to final disposal or reuse.

Background

The UN Global Compact defines supply chain sustainability as “the management of environmental, social, and economic impacts and the encouragement of good governance practices throughout the lifecycles of goods and services” (Supply Chain Sustainability: A Practical Guide for Continuous Improvement, Second Edition). Similarly, the World Economic Forum describes sustainable supply chains as “those that embed environmental, social, or corporate considerations as raw materials are sourced, converted to products, and delivered to market."

In other words, businesses with sustainable supply chains effectively manage the operations at each phase in the supply chain to maximize the beneficial impacts and mitigate the harmful effects on people, the planet, and profit.

Supply chain sustainability can improve an organization’s environmental and societal impact as well as produce additional benefits such as:

• Greater operational efficiency,
• Lower costs,
• Consistent regulatory compliance, and
• Enhanced brand image.

Connection to ESG

Environmental, social, and governance (ESG) factors provide the framework that businesses use to implement and measure sustainability strategies, including those for the supply chain. The supply chain offers the greatest opportunities to impact sustainability because it affects all three ESG factors.

A business, for example, can lessen its environmental impact by:

• Sourcing raw materials locally to reduce transportation distance and, therefore, emissions;
• Redesigning products to incorporate recyclable materials; or
• Using vendors that deliver products to consumers via electric vehicles.

A company can improve societal impact by working with suppliers or vendors that abide by certain standards. It may choose only Fair Trade Certified^™ producers or certified ENERGY STAR^® manufacturing plants.

Effective governance requires transparency between a business and its suppliers. Advanced technologies (like tracking sensors and blockchains) allow organizations to track nearly every supply chain activity, revealing how a product is handled from origin to final consumer. Companies can use the data to hold vendors accountable for their sustainable (and sometimes unsustainable) actions. They can also share the data with customers to meet increasing consumer demand to know not only what’s in a product but also how a product is made.

Circular economy

Organizations frequently incorporate circular economies into their supply chains to support sustainability efforts. A circular economy, according to the Environmental Protection Agency, keeps materials and products in circulation as long as possible by:

• Reducing the amount of materials used,
• Redesigning products to use lower levels of and fewer resources (like energy), and
• Recycling or reusing waste to manufacture new materials and products.

Businesses evaluate the entire lifecycle of a product (from raw materials to waste management methods) to identify ways to prevent materials and products from becoming waste as long as possible.

Best practices

Consider these best practices for internal operations to achieve supply chain sustainability:

• First, understand how each part of the supply chain process affects the environment, society, and economics of the business.
  • Identify the most unsustainable operations to address.
  • Search for sustainability opportunities not yet leveraged in the supply chain process.
• Set measurable goals to improve sustainability.
  • Determine the data needed to measure progress toward the goals.
  • Develop procedures for tracking the data.
  • If possible, gather sustainability data from similar businesses for industry comparisons.
• Develop a plan to achieve the sustainability goals.
  • Consider how to adjust existing operations.
  • Consider how to add new sustainability initiatives into the process.
• Communicate the supply chain sustainability plan and initiatives with workers and other stakeholders.
  • Share the sustainability goals and how the company plans to achieve them.
  • Define employees’ responsibilities in the initiatives and any accountability methods that will be used (e.g., internal quarterly reports).
  • Train employees with a foundational knowledge of sustainability.
  • Encourage employees to share ideas for improving sustainability (whether adjusting an existing operation or adding new activities).
• Frequently assess sustainability data to gauge progress toward the sustainability goals.
• Adjust supply chain operations where needed based on data results.
  • Identify ways to improve operational efficiency and lessen negative environmental and societal impacts.
  • Update the plan and corresponding policies as needed.
• Change the design of products to support a circular economy.
  • Use sustainable materials for products when possible.
  • Design products that can be recycled and reused.
  • Don’t overlook product packaging! Opt for more sustainable packaging options.

Keep these best practices in mind when choosing external suppliers:

• Establish a policy for choosing supply chain partners.
  • Base selections on cost, quality, and sustainability criteria.
  • Prioritize vendors committed to sustainable practices.
  • Consider adding sustainability requirements to vendor contracts.
• Regularly audit suppliers to ensure continued alignment with sustainability goals.
  • Use consistent criteria to evaluate suppliers (like creating a standard checklist).
  • Develop procedures to respond to suppliers that are out of alignment with the sustainability goals. Make sure to add this process to the overall supply chain sustainability plan.
• Collaborate with supply chain partners.
  • Maintain regular communication with vendors.
  • Recognize and learn from vendors’ successful sustainability efforts.
  • Share ideas with vendors for ways to improve sustainability.

Applicable laws & regulations

None

Related definitions

Supply chain sustainability means managing environmental, social, and economic impacts and encouraging good governance throughout the lifecycle of a product or service.

Sustainability refers to managing a company’s triple bottom line of people, planet, and prosperity. It considers the connection between environmental considerations and social and financial effects.

Key to remember

Supply chains have major effects on people, the planet, and profit. Supply chain sustainability helps maximize positive impacts while minimizing negative ones.

Real-world example

An American multinational retailer implements a wide range of initiatives to achieve and maintain sustainability across its multiple supply chains. Examples include:

• Setting compliance policies that suppliers must meet, like a policy on forced labor prevention;
• Contracting with vendors to recycle rigid plastics produced by the company’s operations;
• Donating unsold food;
• Conducting third-party audits of distribution centers to ensure compliance with internal standards and regulations; and
• Training merchandising teams on the company’s responsible sourcing requirements, processes, and resources.