Supply Chain Sustainability: Critical Tools and Insights

Environmental performance is a top 10 CEO priority. Global chief supply chain officers (GCSCOs) must transform supply chain as it accounts for +90% of greenhouse gas (GHG) emissions.

But 11% don’t see the supply chain risk. How do you prove the value of green supply chain management?

Sustainability isn’t just another supply chain cost; it protects against disruption. Renewable energy and carbon offsets not only cut GHG emissions but can also extend to green initiatives such as green purchasing.

2023 is the year to demonstrate steady progress toward sustainability goals. Setting goals is one thing, but making progress toward them is much more difficult. Here are four actions Gartner recommends you take in 2023:

Use sustainability as a strategy to mitigate disruption. Sustainability is helping executives optimize and reduce costs. For many organizations, energy costs are significant, and 80% of business leaders we surveyed said that their sustainability programs help their organizations optimize and reduce costs in response to disruptions. Dynamic energy costs will be persistent and need an appropriate response strategy. Sustainability strategies not only offset costs but also create value. Moreover, Gartner research shows that 83% of business leaders agreed that sustainability is directly creating both short- and long-term value that helps their organizations recover from disruptions. Protecting sustainability investments during tighter economic conditions can make an enterprise more resilient.

Align sustainability budgets with goal delivery. Executive leaders fall behind on goal delivery, due — in part — to misaligned or insufficient investment. Eighty-seven percent of the business leaders we surveyed anticipate increasing their financial investment in sustainability over the next two years. Approximately 45% of these leaders expect to increase their investment by at least 10%. These budgetary gains are somewhat offset by inflationary headwinds.

Begin estimating supply chain GHG emissions. Significant GHG emissions are found in value chains. However, data measurement methods and associated confidence vary. Don’t let concerns about data quality hamper action. Start today. Undertake a Pareto analysis of supply chain GHG emissions using a spend-based or average data method. Target direct data collection with suppliers where it matters. Be clear on how suppliers will be supported and incentivized to improve performance and how this will shape procurement decisions.

Focus on “two for ones” — sustainability investments that deliver both financial and sustainability outcomes. For example, reducing energy consumption helps mitigate both costs and GHG emissions. Sixty-five percent of the business leaders we surveyed anticipate that energy consumption costs, including electricity, will be partly mitigated through sustainability programs during the next 24 months. Three-quarters of business leaders report that their organizations are already reducing energy demand through optimization activities.

Resource constraints make the circular economy critical. A circular economy decouples raw materials’ consumption from growth, driving efficiency and reducing environmental impacts. Future supply chains must adopt these green supply chain management practices to realize benefits: 

• Assess the environmental performance of materials.

• Retain control of materials without sacrificing customer value.

• Identify products fit for the circular economy.

• Share rewards with partners throughout the circular economy.

Embracing the principles of the circular economy cannot be done in isolation. It requires buy-in from executive leaders, partnerships to enable new business models, and changes to ways of working. Gartner analysts recommend investing in these three accelerators to advance the circular economy in supply chain:

Gain stakeholder buy-in by creating a solid business case.

• Include financial and nonfinancial benefits in the business case.

• Map value drivers to different stakeholders.

• Maintain buy-in by demonstrating progress.

Leverage partnerships to scale circular economy activities.

• Define how value will be created and distributed in partnership relationships. 

• Build strong contracts, with defined expectations, shared outcomes and agreed break clauses. 

• Establish principles and related governance mechanisms, such as voting and board structure, to reinforce decisions.

• Embrace more democratized decision making.

Be ready to make structural changes to the supply chain organization.

• Base structural changes on the nature of the products that are selected for circular strategies and the types of business models that are applied. 

• Identify changes needed to ways of working by mapping circular products, raw materials and associated data flows to how decisions are made today. 

• Test supply chain decision-making processes to determine if they help or hinder circular economy goals.

Customer, investor and regulator demands are driving public commitments on environmental, social and governance (ESG) matters.

A green supply chain can balance the enterprise’s profitability and purpose goals. Green supply chain management strategies like green purchasing conserve natural resources while still meeting business needs.

Being profitable is no longer enough; environmental and community welfare are also key. Consider ESG in strategic planning and supply chain planning workstreams.

Disruption to the energy supply chain may stem from ESG demands, climate change and/or trade policy. 

Energy shortfalls result in inflation, which may force production shutdowns. Clean energy commitments may be jeopardized, too. 

To combat risk to the green supply chain, CSCOs must strategically manage the energy supply chain: 

• Prioritize agility in supply chain strategy.

• Develop strategies to remediate future disruption.

• Account for energy as variable cost instead of fixed cost.