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The need for sustainability in supply chain

Jonas Mehrhoff
Jonas Mehrhoff
June 1, 2022
5 min read

Note on the authors

Heiner Murmann is the founder and CEO of Orkestra SCS, a logistics, technology and services company. In addition, Heiner serves as Executive Chairman for Evolution Time Critical and President of The Five Inc., and as an Advisory Board Member for both Metro Supply Chain Group and Black & McDonald Limited. Notably, Heiner previously held various senior executive roles at DB Schenker, one of the top three global logistics companies, as a Member of the Board of Management responsible for Air and Ocean Freight, and as CEO of the Region Americas.

Arnold da Silva, Senior Ocean Freight Advisor for Orkestra SCS, is head of an ocean freight consulting company where he actively advises global shippers on ocean freight strategy and execution. With 40 years of experience in the ocean freight industry, Arnold served as Executive Vice President for Ocean Freight Region Americas for DB Schenker. Arnold's passion is to conceptualize and implement innovative ocean freight solutions that transform one’s supply chain and promote a shipper's success.

Achieving sustainability means addressing environmental, socio-economic and legal challenges across the entire supply chain. This goes beyond being environmentally friendly - a sustainable supply chain requires the adoption of practical solutions that streamline every link of the supply chain to increase productivity overall.

A company’s entire supply chain can make a significant impact in promoting human rights, fair labour practices ,environmental progress and anti-corruption policies. However, UN Global Compact participants rank supply chain practices as the biggest challenge to improving their sustainability performance.

– UNGlobal Compact

Sustainability in modern business is imperative, as it requires decision makers to consider the long-term impact of every business path taken. Within the logistics industry, implementing sustainable measures has become both incredibly difficult and equally necessary. Part of the reason for the challenges has been the enormous spike in global mass production as consumer demand has increased. This has resulted in the rise of global corporations and emerging economies with cheaper sourcing often not correlating with the most sustainable option. 

Then there are also the challenges related to the Covid-19 crisis, geo-political conflicts and trade limitations, making sustainable practices that much more difficult. Cost must always be factored in, but short-term savings can be detrimental to future business operations. To ensure longevity in any market, responsible procurement and best practices must form part of the business ethos. 

Diversify the supply chain

One of the ways to achieve sustainability is by procuring goods and services from various suppliers better positioned to meet business objectives. By diversifying the supply chain, businesses are also able to minimise -disruption to the supply chain when an unprecedented event occurs, such as a pandemic, war or natural disaster. This was evident in 2011 when a monsoon led to flooding in Thailand – the primary supplier of hard drives globally. This resulted in massive price spikes, shortages, delays and ultimately unhappy customers (Source: NewYork Times).

Mitigating the climate crisis

The Paris Agreement, reached by195 countries at the United Nations climate-change summit in December 2015, aims for reducing global greenhouse-gas emissions enough to prevent the planet from warming by more than two degrees Celsius. To cut their emissions in line with the Paris target while increasing sales at the projected rate of 5.3percent a year, CPG [consumer-packaged-goods] companies would have to lower their carbon intensity—the amount of greenhouse gas emitted per unit of output—by more than 90 percent between 2015 and 2050.

- McKinsey


A report by the United Nations Development Program found that climate change could lead to more than $2 trillion in productivity losses by 2030. It’s not only a moral responsibility, but a financial responsibility for businesses to minimise the carbon footprint of the supply chain. This can be achieved by implementing sustainable business practices.

 

Sustainable Operations

Protecting against reputational damage 

According to the UNGlobal Compact, when supply chains do not take into consideration the environmental, social and governance performance of suppliers, they expose themselves to significant reputational risk. Consumers and businesses want to buy from and work with organisations that adhere to best practice. Those that do not, will undoubtedly suffer severe reputational damage. One example is Royal Dutch Shell which has suffered recent reputational damage for putting profit over best practice. A recent court case outcome has brought significant damage to the company reputation and profit with Shell ordered to pay a group of farmers in the Niger Delta region whose livelihoods were affected by oil spills in 2006 and 2007. The company also lost a court case in South Africa preventing the oil giant from performing seismic testing for oil and gas along the country's coastline.Rather than considering long-term socio-economic implications, the company prioritised immediate profit and bypassed local consultation. 
 

More opportunities for business 

When done right, a global supply chain can deliver significant benefits to companies in the form of reduced costs and enhanced profitability and shareholder value. It can also contribute to much-needed economic and social development, resulting in higher standards of living for millions of people.

The flip side of reputational damage are the vast opportunities that await businesses that implement best practices in supply chain execution.Businesses and consumers are performing thorough background research online before buying or partnering with organisations. Those that adhere to internationally recognised standards, that source materials and labour ethically, and that leverage innovative techniques to reduce waste are more likely to secure emerging business opportunities. 

Long-term cost savings

There’s a misconception that sustainable solutions are inherently more expensive - when in reality these solutions lead to significant cost savings. Using data-based technologies, companies are better positioned to predict inventory demands which results in a reduction of raw material waste and oversupply of finished goods. Innovative technologies also optimise supply response by sourcing faster routes and responding quicker to delays in the supply chain. Modern printers create lightweight products which lower transportation costs. Sustainable supply chain practices in fact result in companies achieving sustainable cost savings through technology and boosting profit margins. 
 

Key takeaways

Supply chain sustainability requires managers to consider best practice across the entire operation. It’s about the careful consideration of the long-term impact of every business decision, all of which will have lasting effects on socio-economic, environmental and governance factors across the supply chain. The recent global upsets have shown how quickly the market can change, which is why diversifying procurement and creating an environment conducive to growth, development and innovation will set a company apart from competitors. 

Adopting innovative technologies is key to increasing sustainability in the supply chain. AI, IoT and other data-driven systems provide insights into ways to streamline operations therebydecreasing excess waste and improving overall profitability. 

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The need for sustainability in supply chain

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