Rethinking Supply Chain Sustainability
- June 19th, 2012
- By: Loraine Lawson
Chief procurement officers (CPO)s who think supply chain sustainability is about cutting costs or dealing with regulations, may want to rethink the issue.
Sustainability in the supply chain is about one thing: Competing, contends Steve Hall, deputy editor of Procurement Leaders.
“The arguments over sustainable practices have often been a short-vs-long-term discussion,” writes Hall. “But perhaps that’s a source of misconception; in the long-term many businesses will, I believe, have to get good at sustainable practices –but they’ll still have to be competitive and they’ll be fighting to make their investments in sustainability cost-effective in the short term.”
Hall took this topic up after an Accenture report that surveyed 250 senior executives in both leading and emerging economies about sustainability. The findings reflect a bit of a love/hate relationship with sustainable products.
There’s no doubt that they see it as important for the future — 78 percent said it’s vital to their future growth and 83 percent view it as an investment rather than a cost.
But they seem unsure about the payoffs. While two-thirds said their sustainability efforts are motivated by customer expectations for sustainable products and services, almost half felt consumers aren’t willing to pay a premium for these products. Then again, 60 percent of them do, in fact, charge a premium for sustainable products and services, with the majority charging anywhere from 5 to 20 percent markup.
Add to that the finding that one-third charge higher prices and still say they can’t keep up with customer demand and discussing sustainability as a business strategy becomes very, very confusing.
But, as Hall points out, these are obviously the customer-facing customers. What does it have to do with the supply chain?
What happens at the cashier’s counter inevitably impacts the supply chain — call it trickle down supply chain sustainability, if you want. But it’s why the smart supply chain management strategy is to take action on sustainability now.
“By setting sustainability, businesses are able to use sustainability as a means to boost their appeal by making big claims as a sustainable brand; but they’re also able to reduce cost, improve supplier capabilities and, most importantly steal a march on any businesses that are lagging, or perhaps waiting for the sustainability to stop being a cost,” Hall writes. “This is the key divider between pro-active and late adopting businesses. Just like with technology adoption, those with a ‘wait-and-see’ approach are doomed to be forever behind, forever outdated and forever looking at something they’re increasingly aware as a key driver of growth, as some kind of nice-to-have accoutrement.”
This isn’t just a theoretical assertion. Already, some companies conducted environmental impact studies and found most of the problem lies with their B2B partners, rather than their own manufacturing plants. New government regulations are also requiring more companies to take a hard look at whether their suppliers are socially responsible.
Monitoring both sustainability and social responsible business practices will become easier, too, as more companies adopt technology that provides visibility into the supply chain.
All of which supports Hall’s point that it’s no longer worth debating the short- and long-term expense of sustainability. While you debate, your competitors are moving ahead, laying the groundwork for the future, while making sustainability a strategic advantage now.