Sustainable Sourcing in the Manufacturing Supply Chain

Climate change, the circular economy, ESG and sustainability have all become increasingly important over the past few years. And manufacturing and supply chains sit right in the center of that effort – both as a major contributor to some of the issues, and as an area where we can take real action to drive change.

Because according to McKinsey, the supply chain accounts for more than 90% of most consumer goods companies’ environmental footprint. It has a similarly big impact in other sectors. So how do we drive greener, more sustainable ways of operation into our sourcing, manufacturing and supply chain strategies?

Customer expectations changing

It was a huge talking point at the recent GDS Supply Chain Summit – not least because that is where customer demand is headed. Research from Nielsen suggests that 66% of customers will pay a premium for products with sustainable credentials, while nearly half of all US consumers say they would change purchasing habits to reduce their impact on the environment.

“Customers now expect suppliers and manufacturers to think and operate with sustainability in mind,” explained Eduardo Adame, VP for Business Group Global Supply Chain at manufacturing giant 3M. “We are also increasingly seeing regulatory bodies and governments mandating and enforcing sustainable practices across the entire supply chain. This is no longer a choice. So the question we need to consider is this: how do we better integrate sustainability into our operating models?”

Understanding your environmental impact

It was a problem that drew plenty of thought-provoking responses. For Tonya Jackson, Chief Product Delivery Officer at imaging firm Lexmark, it’s all about understanding what you are trying to achieve. “It’s really important to benchmark against your peers – not necessarily to repeat what they are doing, but to understand what other organizations are identifying as having the biggest impact,” she said.

Jackson believes the only way to truly reduce your carbon footprint is to address your impact. “We’ve put a lot of attention into reuse and recycling, because we have a supplies business and that can have a big impact on both our manufacturing operations and our customers’ own sustainability goals. If you can’t understand your impact and where you can make a difference, you’ll struggle to draw the line between your business and sustainability efforts.”

Linking sustainability to the bottom line

Indeed, the idea of linking sustainability to your bottom line was a recurring theme. For Cyrus Hadavi, CEO at Adexa, measurement is key to that effort. “We have costs associated with every element of the supply chain: every operation, every raw material, every product, every supplier. And we can do exactly the same with sustainability,” he explained. “We can associate an absolute or relative value to every element in the supply chain regarding the carbon footprint of equipment, operations, suppliers – you name it. That means every time you plan your supply chain, not only do you know the cost and projected profit of that plan, but you also see the projected carbon footprint as well.”

One of the benefits of taking such an approach is the visibility it affords into both your operations and the operations of your suppliers. “Over time you’ll see if you’re trending up or trending down, and where the biggest carbon offenders are within your operations and your wider supply chain,” he explained.

Addressing the cost of ethical sourcing

According to the experts at the summit, making progress on sustainability is about shifting internal mindsets around legacy processes and ways of working. So how do we change our organizational cultures to reflect new customer attitudes?

Frankie Mossman, Chief Customer Officer at Overhaul, feels that we need to tackle the cost issue head on. “Cost is a traditional blocker to operating model change,” she said. “It’s the elephant in the room. And while there’s a lot of discussion with partners about how to build better relationships, how to become more sustainable, there’s not enough focus on the commercial realities of doing that.” She believes we need to be much more direct in how we talk about sustainability. “If we can have mature, practical conversations about the cost of doing what’s right for the planet, for our customers and for our businesses – and turn that into an ROI conversation – then that’s when we’ll start to see progress.”

Engaging the business and partner ecosystem

Ultimately, shifting attitudes and practices around sustainability is all about people. Geoffrey Fry, VP of Supply Chain at Dish Networks, felt success was all about engagement and how you bring people with you on the journey.

“Unless you can show how the change itself is going to help the people on the frontlines, those in the executive suite and your wider partner base get their jobs done more easily, you’ll never get traction,” he argued. “You need to demonstrate quick wins to get a flywheel of effective adoption, to make it real for people. Whether it’s sustainability or digital transformation, you need to show how it makes a difference and why it is worth doing.”

And while that’s a challenge on multiple levels, it also represents a huge opportunity. Because moving the needle on sustainability increasingly makes good business sense. According to Jason Meklir, VP & MD for the Chicago Office at Flock Freight, there is a stark difference between being a leader and a laggard.

“The companies that are doing this now are going to be in a much better position when stricter regulations do eventually come into place,” he told us. “Sustainability offers a real opportunity to optimize, to find cost savings opportunities, to make your business better. And that’s about finding the right partners to align with your sustainability goals.”