By Khushboo Hanjura, Consultant, GEP, a leading provider of procurement and supply chain solutions to Fortune 500 companies.
With the rise in public pressure and platforms that track environmental impact, sustainability is now a board-level topic. Moreover, investors — led by BlackRock, the world’s largest investment management firm — are compelling companies to track and report sustainability priorities and impact. While regulators all around the world are also increasingly requiring companies to disclose their greenhouse gas (GHG) emissions in their annual reports.
The problem: Exponential growth in home deliveries is creating massive amounts of additional waste and carbon, which is adding to the ongoing strain on global supply chains. The stark reality is this development has pushed sustainability goals to the back burner at most companies. Moreover, many companies aren’t tracking the emissions from their operational activities, nor validating suppliers’ sustainability declarations. This lack of visibility into supplier compliance with sustainability requirements completely undermines companies’ commitments.
Walmart, in contrast, has for years been successfully holding its suppliers accountable for their carbon footprint. Walmart’s Project Gigaton was established to eradicate one billion metric tons (a gigaton) of greenhouse gases from the retail leader’s supply chain by 2030. Hundreds of suppliers are on board and have committed to reducing emissions. The key to Walmart’s approach is actively seeking suppliers with sustainable solutions rather than passively auditing incumbents.
As supply chains account for up to four times an organization’s operational emissions, as supply chain leaders, we have the leading role to play in reducing companies’ carbon footprint. Drawing on insights from companies successfully driving sustainability across their entire supply chains, we need to:
- Create six top KPIs to evaluate suppliers. Before awarding a contract, use the key performance indicators — carbon dioxide emissions, product recyclability rate, water consumption per ton, product produced, packaging materials recycling rate, and waste recycling rate — as part of a scorecard to evaluate suppliers on a sustainability scale. Providing benchmarking, reduction goals and performance tracking will ensure your suppliers take charge of their environmental responsibilities. To drive good behavior, condition the award upon continuous improvement. Doing this also fosters collaborative action, such as aligning sustainability commitments toward sustainable procurement of materials to reduce carbon emissions across the entire value chain. If you are looking to differentiate your procurement process through environmental leadership, association with more environmentally conscious suppliers can boost your customer credibility.
- Attract new suppliers with sustainability solutions to unlock savings. In most instances, organizations have relied on an existing pool of suppliers that were selected by evaluating materials, products, price, and technical expertise. Instead, create an extended list of suppliers with a sustainability-oriented mindset and assess where efficiencies can be generated. Then engage suppliers to find concrete ways to generate valuable, long-term environmental efficiencies across the supply chain.
- Use intelligent cartonization. Most products are being transported in oversized packages. Re-engineering the packaging to use smaller cartons will not only cut carbon emissions but also generate significant cost savings. Finding ways to incorporate thoughtful packaging will make your supply chain more efficient. Start by asking yourself: What will the right packaging fit be for the product we are transporting? Are the products being overpackaged in the name of protection, leading to significant in-transit costs and non-sustainable waste for landfills?
- Implement responsible sourcing policies. Engage your suppliers to find more environmentally sustainable replacements that do not create unacceptable costs or performance trade-offs. For instance, Target, the American retail corporation, works with its suppliers to eliminate polystyrene foam packaging because it is difficult to recycle and ensures that raw materials for paper-based packaging come from sustainably managed forests. The company works with suppliers to reduce or eliminate unwanted chemicals in manufacturing and capitalizes on the opportunity to cut costs and waste.
Now is the time to proactively address carbon emissions. We need to stop treating carbon emissions as a corporate social responsibility issue and look at it as a way to cut costs and differentiate our companies.