Research

Sustainability in the supply chain: A new competitive advantage

Professor Kevin Dooley leads a global research team that works with more than 100 of the world’s largest brands, providing science-based metrics and tools to help them better understand where their materials come from and influence the social and environmental impacts of their products.

2018-01-31

A cup of coffee. A dining room chair. A leafy green vegetable. When a consumer buys one of these items, they may not know that the supply chain cycle that delivers their piping hot mocha latte, fresh bundle of kale, or other consumer good contributes to 60 percent of greenhouse emissions, 75 percent of forced and child labor, 80 percent of water withdrawal, and 60 percent of tropical deforestation on the planet.

But the companies that manufacture these end products are starting to pay more attention. That’s because there are real business reasons for doing so. Those shoppers that do care tend to be the most vocal and visible about environmental sustainability and are demanding more transparency and stewardship from retailers.

Ignorance is not bliss

But even beyond the public relations factor, there are strategic motivations for improving the sustainability of the supply chain. Not the least among these is the reliability of supply itself. Companies that fail to analyze and understand where the materials come from that make their products are exposed to greater risk of supply interruption, cost inefficiencies, and missed opportunities for gaining competitive advantages in their markets.

Consider coffee for example. If a company makes products relying on coffee, it had better be concerned with not just where that coffee comes from, but how climate change might be impacting its cultivation, as well as the politics in the regions where it’s grown. For such a company, taking steps to protect that environment is not only good community citizenship, it’s savvy business strategy.

Retail giants Walmart, Amazon, Kroger, and Walgreens have taken note and are leading the trend toward deeper engagement into the social and environmental impacts of their product supply chains. It’s not only good for the planet, it’s good business as well.

Data-driven change

Supply chains have grown increasingly complex, so questions of where materials come from and how sustainable they are, are not that simple to answer. That’s why The Sustainability Consortium (TSC) has developed science-based metrics and tools to help retailers such as Walmart better understand and influence their own supply chain practices. These help companies prioritize meaningful action. For example, Walmart’s Sustainability Index currently assesses suppliers to identify and address “hot spots,” or areas where rapid positive change is most needed.

Over the past several years, TSC’s Chief Scientist Kevin J. Dooley, Distinguished Professor of Supply Chain Management, and his team have developed data-driven surveys, key performance indicators (KPI), standards, and toolkits for several major product categories.

By sharing clear diagrams of industry supply chain cycles, the consortium team helps businesses visualize the larger, interconnected picture of product origin, production, packaging, intermediate agents, delivery to the retailer, consumer use, and product end of life.

Each industry has a different level of complexity. Leafy vegetables, for example, involve a short chain from grower to broker to retailer, while computers require more complex production processes.

Dooley likens the retailers to a central pivot point with millions of touchpoints on both the consumer side and the manufacturing side.

“By sharing sustainability measurement tools with large, well-known brands at the hub of the $14 trillion global economy, we’re on an exciting track to influence social and environmental stewardship involving $1 trillion of consumer sales,” he says.

What’s in the soup?

Until recently, most businesses have focused on sustainability improvements within their own four walls, such as using energy-saving light bulbs or reducing paper consumption.

The good news, according to TSC’ 2017 report, titled “The Call for Collective Action across Supply Chains,” is that consumer goods companies are making progress in engaging suppliers to complete sustainability surveys, with an 80 percent compliance rate. This accounts for a combined $200 billion in retail sales.

The bad news is the majority of manufacturers are still in the dark. Another key report finding is that most companies simply don’t know what’s going on in their supply chain, with 70 percent of the 2,000 survey respondents in 2016 reporting that they were “unable to determine at this time” scores for many key performance indicators (KPI).

“A tomato soup brand can tell you exactly where they source their tomatoes, but ask them where the salt comes from and they can’t name the country of origin,” says Dooley.

There were bright spots. Product categories that scored the highest (more than 64 percent) in the TSC surveys were diapers, computers, household papers, leafy vegetables, and automotive batteries — meaning that these suppliers provided more data. Some have their own sustainability standards in place. Computer companies, for example, are used to delivering metrics to comply with eco-certifications such as ENERGY STAR, while household paper retailers undergo sustainable forest certification.

However, of the 64,000 responses to KPIs, more than half scored less than 10 percent, as most companies are still at the beginning of the journey of mining information about their supply chains.

“It’s OK that a company reports a zero because they honestly don’t know about the environmental impact, such as the amount of energy or water they use,” he says. “Just the fact that they are participating in the process is a valuable start. Scoring a ‘zero’ just tells us they have more work to do.”

For the past five years, the TSC team also has developed a toolkit library with research insights for nearly 130 product categories, from adhesive tapes to toys, root vegetables to refrigerators, wine to wild-caught shellfish.

Each industry has specific issues that the consortium works to address. For example, fishing companies may experience “hot spots” related to animal welfare and biodiversity, while corn oil production impacts smallholder farmers, forced labor, land, and climate.

Emerging blockchain technology, which creates a transparent, public, online ledger, will help retailers better verify the chain of custody for specific items, such as a jewelry retailer being able to track a single diamond from a legitimate mining operation in Africa through all stages of processing and transfer.

Certified palm oil, which is one of the leading causes of deforestation, is another product that will benefit from transparent accounting.

A ripple effect

Dooley is optimistic about The Sustainability Consortium’s future impact, although results may at times be difficult to quantify.

“Changing a process or product in the supply chain is a complex endeavor that can take from two to four years,” says Dooley. “We shouldn’t expect drastic changes, but large retailers with multiple supplier touchpoints will drive positive sustainability outcomes on an increasingly global scale over time.”

Yet, progress is being made today, according to 40 percent of TSC survey participants, who reported that they had already worked to raise their KPI scores by:

• Improving their internal data collection systems
• Engaging their own supply partners in understanding sourcing
• Changing their processes or packaging
• Publicly communicating their goals and ongoing progress

Although the consistency year to year in the survey results validate their accuracy, some systemic shortcomings in KPI exist still across industries. In the textile industry, the waste water KPI was a key focus area, leading brand manufacturers to collectively create a Waste Water Challenge. In agriculture, there was lack of visibility into certain crops, which spurred service providers to create more transparency for downstream providers.

In most cases, social issues have taken priority over environmental, with labor rights and child labor concerns more frequently addressed. Deforestation remains a hot topic. Coffee is a new agricultural category and growth segment.

“Our theory of change is that measurement and reporting place attention on leaders and laggards,” says Dooley. “You induce change by incentivizing and rewarding leadership, and educating those who fall behind about the business benefits of managing risk, cost reduction, and market growth opportunities.”

Opportunities for improving sustainability abound not only in the upstream supply chain for products but also in the downstream of consumer use. Many companies choose to work with their suppliers to redesign an item or packaging to be more environmentally friendly, have a longer product life, or be recyclable.

“Extending the product life in consumer goods is one of the most important things a company can do,” Dooley says.

TSC plans to increase momentum by delivering more training for consortium members and sharing scientific tools with the broader global economy.

“It’s exciting to know by the increased survey participation that we’re creating an ever-expanding ripple effect in an ocean of $14 trillion consumer goods,” says Dooley. “This is real progress in sustainability stewardship that we can feel now, even if it will take time to measure the full effects.

“To create true social and environmental change and assess the true risk and business opportunity, all companies really need to delve deeper into their supply chains — extending to the farm, to the forest, the mining sites, and intermediary factories.”

To learn more about TSC, visit sustainabilityconsortium.org.

Supply Chain Faculty Sustainability