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How to create a more sustainable, ethical supply chain

BlogIndustry By Duncan Khoury – 23 March 2022
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Sustainable, ethical business supply chains are no longer a ‘nice-to-have’ in today’s modern economy. Instead, they’re now a ‘must-have’, as shown by a recent European Commission proposal to change EU laws to crack down harder on companies with unethical supply chains. 

The EU draft law would require any companies operating in the region to do due diligence on their suppliers concerning any human rights abuses or environmental breaches. Non-compliance could mean fines and compensation claims, even for companies based outside the EU. 

These draft laws align with a developing global and local focus on more ethical and sustainable supply chains. In a growing trend over recent decades, consumers, investors, international bodies and governments alike have demanded that companies do more to:

  • protect human rights
  • ensure worker welfare and safety
  • reduce environmental impacts 
  • improve environmental credentials by increasing energy savings and shifting to renewable energy

Given all the complex variables at play, you may be wondering how your business’ supply chain can be improved. The good news is that with the right strategies, it’s possible to make your supply chain more sustainable while still generating healthy financial returns. 

Here’s what you need to know. 

Why improving supply chain sustainability matters

The importance of environmental, social and governance (ESG) standards (also known as corporate social responsibility or CSR) in supply chains is forecast to continue growing.  

A 2021 survey of 2,400 global supply chain professionals and leaders found that:

  • 47% of companies had received pressure to improve their supply chain sustainability
  • there was widespread agreement among survey respondents that interest in sustainable supply chains would continue to increase

And with increasing scrutiny, improving supply chain sustainability matters even more for these five key reasons.

  1. Tightening regulations 

In recent years, the Australian Government has introduced waves of regulations to improve supply chain sustainability. For example, the Modern Slavery Act 2018 introduced mandatory reporting on modern slavery risks in the supply chain for larger companies. It also required them to report on any preventative actions they’d taken. 

And, as mentioned earlier, ethical supply chain regulations aren’t limited to Australia. Companies that fail to comply with certain regulations in the markets in which they do business can face fines, lawsuits and even prison time for executives. 

  1. Reputational risk 

In addition to any financial penalties they incur, unethical supply chains can create significant reputational damage for your brand. Remember, for example:

  • the horsemeat saga of 2013
  • the tragic loss of life in the Rana Plaza factory collapse. While no Australian companies were directly linked to that factory, local brands such as Just Jeans and Myer received negative press about not signing an accord on fire and building safety in Bangladesh
  • When Rip Curl sold clothes made by workers enduring ‘slave-like’ conditions in North Korea, despite labels saying ‘Made in China’

More recently, fashion retailer, Boohoo came to the world’s attention. Allegations of unethical factory working conditions wiped £1 billion off Boohoo’s value overnight. 

And the reputational damage lingers today. 

  1. Investor relations and competitive advantage

Recent research from Boston Consulting Group (BCG) indicates that companies could, “enhance their investment attractiveness, and – in turn – total shareholder returns, by embracing greener operations”.

The researchers found that consumer packaged goods companies with reputations as ESG leaders had, “an 11% valuation premium over their competitors”.

What’s more, companies with lower carbon emissions in the chemical and steel sectors had valuation premiums of 14% and 12% respectively. 

  1. Consumer confidence

A growing number of consumers are choosing to buy from companies whose social and environmental values align with theirs.  For example, a 2021 Gartner report identified that 54% of customers would only do business with companies that practised environmental and social sustainability.

Additionally, a 2020 IBM research study of more than 18,980 consumers worldwide found that:

  • 57% were, “willing to change their purchasing habits to help reduce negative environmental impact”
  • 71% indicated that supply chain traceability was, “very important,” and that they were, “willing to pay a premium for brands that provide it”.
  1. Employee attraction and retention

According to a BCG study, brands that invest in sustainable supply chains tend to find it easier to attract and retain talent. That study revealed that 58% of employees consider sustainability when making employment decisions. 

supply chain sustainability

How to improve sustainability in your supply chain

The experts working on MIT’s Sustainable Supply Chains initiative recommend taking five steps to implement greener, more ethical supply chain management practices in your business. These steps focus on improving traceability, and really emphasise the importance of supply chain analysis. 

  • Do a risk assessment and set goals

The first step is to take stock of where your company’s supply chain is now in terms of sustainability. This also helps to identify key risk areas such as:

  • regulatory requirements
  • potential supply chain disruptions 
  • supplier liabilities

It’s important to work out what your key stakeholder interests are, and select matching supply chain improvement goals that can create business value. 

At this stage in the process, it can be helpful to develop or review your supplier code of conduct practices

  • Map out your supply chain

Create a visual representation of your supply chain that shows where your suppliers are, and how goods flow between them. This step aims to identify any information gaps you may not be aware of. 

The MIT experts give the example of apparel and footwear group, VF Corporation’s online traceability tool for their Vans Checkerboard Slip-on shoe. It helps to see an actual supply chain map in action for your own visualisation efforts. 

  • Track and assess every component

Actively trace your products through the supply chain to confirm each component’s source of origin and then assess every supplier against your supplier code of conduct practices. 

Of course, it’s easier said than done if your supply chain involves multiple supplier tiers across hundreds of locations. This is where technology can really shine. 

To improve the traceability of the supply chain, organisations are turning to blockchain technology. For example, the Australian wool industry uses blockchain to verify claims about origin and sustainability. It means that retailers and consumers have a credible way of knowing the garments they are about to buy are actually made from Australian wool.    

  • Work together with your suppliers

Now that you know what needs to happen, engage your suppliers to address any problem areas. This step involves significant collaboration, monitoring and support to make change happen.  

  • Promote your revamped supply chain practices

Once you’re satisfied with the improvements you’ve made, it could be time to go public via paid and organic advertising channels with your new, improved sustainable supply chain. This may have some financial benefits for your company by helping to increase consumer and investor confidence in your brand.

For example, a current food and beverage industry trend involves the health-conscious consumer segment driving increased growth. In response, industry players might adopt sustainable manufacturing practices, and publicise their actions to effectively capture this growth. 

green supply chain management practices

Create a more sustainable supply chain with Octet

As we’ve discovered, some of the critical components of sustainable supply chain management involve traceability and the relationship your company has with its suppliers

Our Supply Chain Management Platform and innovative Trade Finance solution can help with improving your supply chain sustainability in four key ways.

  • Track each critical step of the supply chain process, from procurement to payment, order to cash. Our platform stores and validates all of the important documents that are required at each stage, giving you and your supplier full transactional visibility. 
  • Reduce misunderstandings. The platform has some multilingual capabilities so you can communicate in your preferred language, while your supplier uses their preferred language too.
  • Make strategic purchases from your suppliers at the right time. Our Trade Finance facility gives you access to a convenient, revolving line of credit to pay suppliers in over 65 countries. You can accelerate business growth and strengthen relationships with local and international suppliers – without the cash flow challenges, whilst taking advantage of in-built competitive FX rates.
  • Work with the best suppliers. The best suppliers for your business don’t always offer the best payment terms. The good news is that our Trade Finance line of credit means we pay your suppliers immediately, while you pay us back over time. Take advantage of any available early payment discounts, whilst receiving your goods quicker than the competition. 

how can supply chain be improved

Powering sustainable supply chains

Get in touch today to discover how we can help power your supply chain visibility and sustainability, in addition to accelerating your supplier payments.

 

 

Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.

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