CSCMP's Supply Chain Quarterly
April 18, 2019
Forward Thinking

The green gap

Companies that take a systematic approach to supply chain sustainability are more likely to reap the benefits of their efforts than companies with a narrower focus, two research reports say.

In light of growing pressure from customers and consumers, more and more companies are looking for ways to make their supply chain more environmentally friendly. However, two recent reports suggest there is a big divide between those companies that are true leaders and those that are just dabbling in sustainable supply chain management.

DNV GL, a global quality assurance and risk management company, recently surveyed its customers in Europe, Asia, and the Americas on supply chain sustainability. Of the more than 1,400 respondents, 86 percent said that they feel pressured to show that they have a sustainable supply chain, and 81 percent said their company had taken at least one action to make their supply chain "greener."

While these statistics seem to indicate a general consensus among business leaders on the importance of sustainable business practices, there is a big difference on how these beliefs are being put into practice, according to the survey results. For most companies, these actions are mainly focused on their own internal operations or are limited to "tier 1" suppliers. Only 7 percent of the respondents say they have reached out to all tiers of their supply chain. Indeed 50 percent of all respondents acknowledged that they still considered themselves "beginners" when it came to sustainability.

On the other end of the spectrum, DNV GL has identified 60 companies from the survey that it considers to be leaders. These leaders are differentiating themselves from the rest of the pack by having a more structured approach to sustainability that reaches beyond first-tier suppliers, is defined by set policies, and involves outside third parties in environmental audits of their supply chain.

While the results from the DNV GL survey are compelling, it's important to note that the sample consists solely of the risk management company's customers and therefore should not be taken to be statistically representative of all companies worldwide. But the results do seem to indicate that only a small set of companies is taking a rigorous, disciplined approach to sustainability.

What might such a structured approach look like? A recent report Dr. René Schmidpeter and Patrick Bungard of the Center for Advanced Sustainable Management at the Cologne Business School in Germany and sponsored by DHL provides a few guidelines and best practices. In "Unlock the true value of your Supply Chain: Business Success through Sustainable Supply Chain Management," Schmidpeter and Bungard say that the companies that do sustainability the best have embedded it into their supply chain strategy and core businesses. To accomplish this, the report says that companies must first conduct a "materiality analysis" to determine which sustainability topics are most relevant to them and their stakeholders. According to the consulting group PGS Advisors International, a materiality analysis is "a tool that takes into consideration the company's financial concerns while foreseeing future risks and opportunities around environmental issues."

The next step is to establish key performance indicators for each sustainability focus area. These KPIs must have executive approval and should be regularly shared with all of the company's stakeholders, according to the report. The research shows that successful sustainability programs depend on continual data collection and analysis as well as audits conducted by outside third party organizations.

Both reports state that following such a structured approach—as opposed to implementing one-off programs—make it more likely for companies to realize both the economic and environmental benefits from sustainability. For example, the DNV GL survey found that 65 percent of the sustainability leaders said they had improved their brand's reputation, 58 percent said they had improved their ability to meet customer needs, and 32 percent said they had increased market share.

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