5 Ways to Design a Sustainable Supply Chain
Best-in-class organizations understand that sustainability drives long-term value for whatever form it takes within a business. Environmental, social, and governance (ESG) metrics are often used to determine how ethical and sustainable an organization is. Companies that deliver high ESG ratings consistently outperform the market in both the medium and long term, according to McKinsey research.
Companies are realizing that reducing greenhouse gas emissions can also help uncover hidden cost savings throughout the supply chain. A growing number of supply chain leaders are beginning to quantify sustainability metrics as part of strategic supply chain design decisions.
Planning with supply chain sustainability in mind delivers on the triple bottom line: people, profits, and the planet. Here are five elements to consider when designing a sustainable supply chain:
1. Start by measuring CO2 emissions.
The most common place companies start on their sustainability journey is by measuring and reducing carbon emissions. This element of sustainability is quantifiable across several supply chain processes—production, shipping, warehousing, and general operations.
2. Consider measuring water usage and other critical resources.
Best-in-class organizations are also evaluating their use of critical resources such as water, aluminum, steel, copper, and other commodities that for so long were considered unlimited in supply.
Supply chain design teams should be working with product design and manufacturing to quantify key resources used—beyond traditional bill of material items—and develop strategies to reduce, reuse, or find alternatives that are more sustainable.
3. Understand alternative power sources.
Understanding all available power sources can help drive more sustainable options.
For example, consider using wind or solar energy instead of electric to power office buildings, warehouses, and plants. Supply chain design teams can model investment requirements and the return on investment for these types of projects to understand what to take on and in what priority order.
4. Examine recycling flows and landfill impact.
To design a more sustainable supply chain, analyze recycling flows and contributions to landfills, from the cradle to the grave.
For example, Ingka Group, IKEA’s parent company, is committed to a circular business model. The company can now recycle every mattress disposed of in the Netherlands.
Forward and reverse supply chains can be part of the supply chain design workflow.
5. Quantify sustainability risk factors, including fair trade.
Supply chain design teams need to quantify how risky their supply chains are in terms of internal factors. They also need to understand and examine external risk factors, and identify alternative plans they can use as playbooks if/when disruptions occur.
With the right tools, any brand can begin to identify supply chain network changes that can start paying dividends in both sustainability and profitability right away.