Making supply chain central to sustainability plans

CONSUMERS globally are becoming more socially conscious and making sustainable choices in how they spend their time and money in a post-pandemic world, according to the EY Future Consumer Index. For businesses and manufacturers, this shift in consumer sentiments deals another blow to their supply chain transformation plans, in addition to the disruptions arising from the pandemic and global geopolitical events.

Prior to this growing strategic imperative for sustainability, companies may have attempted to hop onto the sustainability bandwagon as a gesture of support toward calls for greener growth while meeting minimum sustainability compliance requirements. Yet upon further scrutiny, they fall short in ensuring continuity in the adoption of green practices in areas of materiality.

Governments are also driving regulations and policies that steer businesses toward more sustainable business practices. For example, the Singapore Green Plan 2030 sets a mission for Singapore to transit to a low-carbon economy and achieve its long-term net-zero emissions goal “as soon as viable”.

To this end, Singapore announced plans to increase its carbon tax, from the current S$5 per ton to S$25 per ton in 2024, then to S$45 per ton in 2026, with a view to arrive at S$50 to S$80 per ton in 2030.

At the same time, there are government support that companies can tap on. For instance, the Green and Sustainability-linked Loan Grant Scheme by the Monetary Authority of Singapore is the first initiative globally that supports local businesses in securing sustainable financing. The grant defrays up to S$100,000 of expenses per loan, incurred by businesses that employ sustainability assessment and advisory service providers to develop green frameworks and targets.

All in, what this means for organisations is that there is significant impetus to accelerate their sustainability agenda – within their own organisations and along their supply chains.

For many organisations, supply chain sustainability is primarily viewed as an effort to reduce waste and lower costs to improve their bottom lines and streamline operations. In fact, in a 2020 EY supply chain pulse survey of over 200 supply chain executives in top US companies, cost savings was cited as the top reason for adopting a more sustainable supply chain. Yet, the same survey also found that lack of budget, resistance from suppliers and lack of executive buy-in ranked as major obstacles to adopting more comprehensive supply chain sustainability programmes.

From our interactions with businesses across South-east Asia, the concerns and challenges are not dissimilar. With environmental, social and governance (ESG) and sustainability issues gaining higher visibility among stakeholder groups including consumers, regulators, employees, and investors, many of whom are increasingly vocal, there is greater urgency for companies to review the sustainability of their supply chain.

There are three key areas that companies should consider as they seek to build a more sustainable supply chain.

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Value chain decarbonisation 

A starting point for most companies embarking on this journey is to understand how sustainable their entire value chain is. This requires deep internal and external analysis with all stakeholders to understand their sustainability performance, measured against pre-defined standards. Performing this necessary step allows the companies to identify opportunities and prioritise them based on impact and feasibility, revealing key focus areas for change. Based on ambitions, targets and available resources, the company can begin to chart a roadmap and execute improvement plans. 

Sustainable sourcing transformation 

To meet the requirements of sustainable sourcing, organisations should ensure that their third-party vendors and their suppliers meet sustainability standards. Leading practices in sustainable sourcing focus on building trust with stakeholders, deepening supplier relationships, reducing business and reputational risks, and improving productivity. 

Organisations must be able to articulate clear standards on sustainability and establish the risk profiles of suppliers and categories. They should also review their category strategies – a means to drive sales of a specific product group, in this case, one that promotes sustainability. To that end, technology solutions can enable comprehensive supplier performance assessments and improve internal organisational alignment around supply chain performance metrics, procurement decisions and economies of scale.

Supply chain traceability, visibility, and reporting 

As with any projects, it is important to have the ability to monitor and measure progress, as well as manage supply chain performance and compliance. Having critical data points to provide traceability and investing in technological capabilities to enable visibility of upstream supply chain activities are key.

Such visibility will also help companies to enhance the resilience of their supply chain, allowing them to better weather disruptions that have become all too common in recent times.

Overcoming challenges for a better business

Transforming the traditional supply chain into a sustainable one will not be easy, and organisations will invariably face challenges.   

A common challenge is the lack of leadership buy-in and overcoming organisational inertia to accomplish transformative change. Without commitment from leaders to obtain financing, resources, and political capital to push through initiatives, many sustainability change programmes fall short of their ambitions. The lack of an appropriate level of motivation and emotional investment in adapting to new ways of working and new technologies may lead to organisational resistance that impedes progress. 

Adopting the right mindset and attitude towards sustainability – viewing it as an opportunity for growth instead of a burden – is key. Additionally, gaps in knowledge and competencies can hinder the development of implementation plans, or the execution of activities. Organisations should identify the prerequisite skills early – and “build or buy” the talents needed to drive supply chain transformation successfully.

The case to build a sustainable supply chain is clear. Organisations that embed sustainability in their supply chains can reduce costs, increase productivity, innovate, differentiate and improve societal outcomes. As organizations seek to transform their business for sustainability and resilience, it is time to put their supply chains central to their plans – and build a better business. 

The writer is EY Asia-Pacific Supply Chain Leader.

The views in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.