Supply Chain Governance for Sustainability

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By Megan Young | 4Q 2022 | IN-6746

Companies are declaring their net-zero ambitions within their own operations, and across the entire supply chain. How are they able to govern their supply chain partners’ sustainability efforts?

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Decarbonization for the Entire Supply Chain

NEWS


Apple recently declared plans to decarbonize its entire supply chain by 2030. It aims to curb carbon emissions across the supply chain through governance, setting targets, and conducting regular audits on its partners. Apple has been carbon neutral in its own operations since 2020 and is now focusing on decarbonizing its entire supply chain. More than 200 of Apple’s suppliers, which account for more than 70%, have committed to using renewable energy for any Apple production.

Many companies have similarly declared supply chain sustainability ambitions, though, for some, little has been implemented to reach these goals. In recent joint report from Oxford Economics and SAP investigating supply chain sustainability across 1,000 different companies, 88% of the respondents had created a sustainability mission statement or were in the process of writing one. However, not all these companies had developed long-term plans to meet their sustainability targets outlined in their mission statements, and more than half were not willing to sacrifice profitability in the short term for meeting long-term sustainability goals.

The Carbon Disclosure Project (CDP) estimates that of all companies that have disclosed sustainability targets, the declared reduction in emissions will account for only 0.7% of global emissions, and only half of these companies are on track to do so. In 2021, the suppliers that disclosed through the CDP reported 1.8 billion tons Carbon Dioxide Equivalent (CO2e) in emissions reductions.

The SME Climate Hub’s 1.5°C Supply Chain Leaders initiative was founded by Ericsson, IKEA, Telia, BT Group, and Unilever. These companies, along with others that have since joined the initiative, are aiming to reduce their Greenhouse Gas (GHG) emissions across the entire supply chain in line with the 1.5°C ambition, in the hopes that they will inspire other businesses to follow suit. This means halving GHG emissions by 2030, to achieve net-zero status by 2050, while reporting efforts and emissions data as accurately as possible.

Supply Chain Visibility

IMPACT


Supply chains have been hit hard by many global events in recent years, and many are considered to have not fully recovered. The pandemic saw labor shortages, increased wait times, limited availability in products and services, and bottlenecks in distribution due to mandated lockdowns. More recently, the conflict between Russia and Ukraine has caused issues across supply chains, particularly in Europe, causing diversions for transportation routes and some production plant closures in affected regions. While these supply chain issues resolve, most companies are focused on recovering losses over these difficult periods, rather than ramping up sustainability efforts.

Extending a company’s sustainability strategy to the entire supply chain requires visibility into the operations of every partner involved, and implementing a plan to manage resources, waste, and carbon emissions for each. Limited visibility into the operations of suppliers is a hinderance to attaining sustainability goals. If companies do not know the full extent of these processes, they cannot accurately report on the sustainability impact these processes have on the products and services.

Implementing sustainable changes to the supply chain will not happen overnight; it will take careful planning, time, effort, and money to set in motion. Some necessary changes will need to be made, which can initially make processes more complex, though in the long run, these processes will become second nature and easier to manage. As the supply chain adjusts to these changes, the ability to meet customer demand at the required speed will be achieved; careful preparation will ensure the transition goes smoothly. There may be limitations to the availability of resources required, although sourcing these through multiple suppliers to avoid reliance on a single supplier can alleviate this issue.

Creating a Long-Term Strategy for Decarbonization

RECOMMENDATIONS


The first step is to create the company’s sustainability mission statement(s) and then set targets that align with these. Validating targets through organizations like the Science Based Targets Initiative (SBTI) and the CDP will ensure the company is on the right track for its decarbonization strategy. Once the company’s targets and initiatives are set, these targets must be expanded across the entire supply chain, and the supply chain partners should be governed to align with these targets. Engaging with suppliers to identify risks, and to provide training and support for finding the right solutions for partners, and frequent audits on partner operations, including resource usage and waste management, must be conducted to ensure they are on track meet targets.

Increasing renewable energy usage, investing in, or building renewable energy power plants to provide clean energy for suppliers will reduce energy-related carbon emissions. General Motors (GM) recently announced its ambitions to run on 100% renewable energy for all its production plants by 2025 and estimates that 1 million metric tons of Carbon Dioxide (CO2) emissions that would have been produced between 2025 and 2030 will be avoided due to the switch to greener energy sources.

In the product planning phase, using digital twins to model performance, and life cycle assessment (LCA) tools to make conscious design decisions will reduce Operational Expenditures (OPEX) and optimize the manufacturing processes. This will enable manufacturers to make sustainable choices for resource usage and manufacturing techniques, and to choose the suppliers that can provide ethical sourcing of materials and labor to align with the company’s sustainability initiatives.

Implementing cloud computing, automation, and Internet of Things (IoT) devices in manufacturing processes can reduce energy usage and generated waste in production plants. Monitoring and managing resource usage and implementing reuse programs, such as water conservation and recycling, will contribute toward attaining sustainability goals.

Selecting suppliers local to the company’s manufacturing plants will reduce the transport-related carbon emissions when shipping goods to other business sites. Using hybrid or fully electric delivery vehicles, along with IoT devices to track shipments and telematics platforms to optimize logistics, will vastly reduce transport-related carbon emissions.

Implementing circular practices, including take-back, recycling, and refurbishment schemes, will reduce the associated carbon emissions for the end of products’ lifecycles and for downstream supply chain partners. Some companies are including maintenance fees in the total product cost, refurbishing old products to sell again, and recycling as much of the product materials as possible at the end of its initial lifecycle.

Unforeseen circumstances, such as resource shortages, disrupted transport routes, and other global-scale events, can be combatted by implementing long-term sustainability initiatives. For example, deploying renewable energy solutions on-site will reduce the reliance on external energy sources, and can give back to the grid when energy shortages occur. Using LCA tools in the design phase means if certain resources cannot be acquired, products can be quickly redesigned, and new suppliers can be sourced before the manufacturing process begins.

Investing in sustainability initiatives now will see a quicker Return on Investment (ROI). Long-term sustainability goals for the company can also be met faster and the entire supply chain has a better shot at achieving net-zero status in line within the 1.5°C ambition before 2050.

 

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