Across the world, manufacturers of everything, from cupboards to computers, have been grappling with monumental supply chain challenges, stemming from geopolitical instability, the COVID-19 pandemic and related goods shortages. And yet, there is a bigger problem that manufacturers are simultaneously facing: sustainability.
Sustainability is scaling manufacturers’ agendas for several reasons. The first is legislation. From the UK, to the US and EU, governments and governing bodies are introducing new corporate climate and sustainability reporting standards. These are compelling organisations to identify, prevent, and mitigate any adverse effects of their operations on the environment. Manufacturers are contemplating the direction legislation is heading and making moves to get ahead of it.
The second related reason is consumer and buyer demand. Increasingly, buyers are leaning on their suppliers to help them meet their own sustainability objectives. Apple, for example, is looking to its manufacturing partners to help it become carbon neutral across its entire supply chain by 2030. As of April this year, 213 of the company’s major manufacturing partners had pledged to power all Apple production with renewable electricity across 25 countries.
Indeed, shifting towards renewable energy sources increasingly presents dual benefits to manufacturers. Not only does it cater to buyer and consumer demand, it also reduces dependence on fossil fuels which, especially in our current world, are volatile commodities. This in turn will help manufacturers manage costs, which is key to remaining competitive.
Finally, there is a dawning realisation among leaders that sustainability is inextricably linked to business longevity. Climate change is posing major risks to businesses by jeopardising resource availability. Organisations need to adopt a ‘sustainability mindset’ and take concrete action to safeguard resources, or they simply won’t have access to them in future.
For these reasons, and many more, improving the sustainability of their businesses is now a priority action for manufacturing leaders and, increasingly, responsibility for this is falling to supply chain and procurement teams.
Why? Because from carbon emissions to packaging and water use, suppliers play a pivotal role in an organisation’s sustainability performance. In terms of CO2 emissions, for example, emissions in the supply chain (so-called ‘Scope 3 emissions’) tend to represent approximately 95% of a business’ overall emissions footprint.
But while procurement and supply chain teams are undeniably facing pressure to drive sustainability progress, are they ready to take up this mantle? Do they have the skills, tools and support they need to be sustainability champions within their organisations?
This is the core issue we set out to explore in our latest report, ‘The sustainability imperative: an agenda for change. It draws on research conducted among 50 supply chain and procurement professionals at manufacturing organisations across the UK and US. Our aim was to gain a comprehensive view of the sustainability initiatives and practices teams currently have in place, along with an understanding of the challenges they’re encountering. Here are the key findings in summary.
Supply chain and procurement professionals are embracing the role of ‘sustainability champions’
It’s reassuring to see that manufacturing organisations are taking sustainability seriously. Almost all the professionals we spoke to (98%) are implementing one or more sustainability initiatives, with each implementing, on average, four. Over three quarters (76%) are reducing waste, 60% are reducing energy or switching to renewable sources and 50% are reducing water consumption.
What’s more, a significant proportion of manufacturers are incorporating circular economy principles into their operations. Almost a third (30%) are considering secondary use at product design stages, with the same proportion using recycled materials in production. The significance of this cannot be overstated. If we’re to move towards a more sustainable future, we all need to reduce our reliance on raw materials. Considering how goods can be shared, reused, and recycled at production stage is imperative to this.
It’s equally encouraging to see that procurement and supply chain professionals are embracing their new roles as sustainability champions. Almost three quarters (74%) feel energised by the opportunity to drive sustainability improvements, while 58% entered the profession for this very reason. This is important, as well over three-quarters (80%) believe sustainability is becoming an increasing part of their role.
Entrenched challenges threaten sustainability progress
While the above paints a promising picture, our report also identifies several prevalent challenges, which threaten to hamper sustainability progress.
The most significant of these is that most manufacturing organisations are structured to prioritise profit over the planet. Over a third (38%) of those surveyed said that organisational objectives are linked to driving efficiencies and growth, rather than improving sustainability. Almost two thirds (60%), said that prioritising sustainability above cost in decision making is difficult because the benefits are hard to track – and 62% said that leaders will only approve sustainability initiatives with clear ROI.
These data points clearly illustrate the predicament that supply chain and procurement professionals are in. We know that they want to prioritise sustainability, but leaders are programmed to look for financial returns, and won’t give them the resources they need unless they can project ROI on investments. This is a real roadblock, as many of the returns on sustainability initiatives are hard to quantify, taking the form of reputational gains or business longevity. Professionals are clearly struggling to bypass this, as 60% say that it’s easier to focus on cost savings than sustainability.
While it’s leadership’s role to remove this roadblock, supply chain and procurement professionals can also meet them halfway by evidencing the success of the sustainability initiatives they do have in place as much as possible. There’s clearly room for improvement here, as while 98% of respondents are implementing sustainability initiatives, just 52% have targets for every one of these – and it’s very hard to evidence success without targets.
The report suggests that a lack of ownership and accountability is another barrier to progress. Under half (46%) of supply chain and procurement professionals feel they have a high level of responsibility for setting sustainability strategy and targets or driving progress in this area (42%). These are concerning statistics, given that these same people are the ones responsible for implementing sustainability initiatives.
It appears that supply chain and procurement professionals are being asked to improve the sustainability of manufacturing organisations, but few are formally being given responsibility for this, or being incentivised to drive progress. While (80%) said that sustainability is an increasing part of their role, just 32% are rewarded for achieving sustainability targets. Manufacturers need to address this, because if supply chain and procurement professionals are not clear on their new sustainability remit, how are they supposed to fulfil it?”
Last but not least, our research suggests that there is a lack of knowledge in the sector – particularly with regards to forthcoming legislation. Almost half (46%) of those we spoke to find it extremely difficult to keep track of sustainability legislation, while 50% say it’s impossible to have an accurate view of sustainability all the way down the supply chain. This is concerning when an increasing amount of legislation is compelling manufacturers to achieve this.
The five pillars for moving the sustainability agenda forward
The above challenges are undoubtedly significant – but they can be overcome. Through our research, we have surfaced five actions that supply chain and procurement leaders can take – with support from senior leadership – to drive meaningful sustainability progress.
- Invest in training: The sustainability landscape is constantly changing. Leaders need to provide their teams with continuous, targeted training to ensure they’re delivering the latest thinking and optimum value back to the business.
- Partner with organisations that can help measure and manage environmental impact: One fifth (20%) of the professionals we spoke to said that measurement and difficulty tracking ROI on sustainability investments was a barrier to them driving progress. Partnering with external consultancies and technology providers with a strong track-record will help companies improve in this area.
- Pick your battles – start small, and build up: Professionals should consider implementing fewer initiatives, but doing these really well, as our research shows that demonstrating success will be critical to securing further funding for sustainability projects.
- Improve collaboration with other businesses: As the saying goes, ‘strength in numbers’. Businesses should share information and expertise on their sustainability activities to help each other evaluate whether their initiatives are successful or could be improved.
- Change KPIs to incentivise sustainability: Right now, there is a glaring mismatch between the achievement of sustainability targets, and financial reward. Just 32% of supply chain and procurement professionals in manufacturing say their reward is linked to achieving sustainability targets. Increasing this proportion would encourage professionals to take more responsibility for this.
Looking to the future
The path to sustainability progress is by no means a smooth one. As we have seen, manufacturing organisations face complex and entrenched challenges – from business models that prioritise the planet over profit, to a lack of accountability and knowledge.
However, often it’s the most difficult goals that are the most worth achieving – and that is certainly the case when it comes to sustainability. Really, manufacturers have no choice but to make progress in this area. Fail to do so, and they could lose business, investment, and fall foul of regulators.
While the task ahead may seem daunting, manufacturing leaders should take heart in the ambition and passion of their teams. Supply chain and procurement people clearly want to spearhead sustainability within their organisations. Now it’s down to leaders to unlock their potential by giving them the tools, training and support they need to succeed.
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About the author
Adrian Preston, Head of Supply Chain Content, Skill Dynamics
Adrian has 30 years’ experience leading the supply chain functions of some of the world’s biggest companies in the automotive, medical, aerospace, construction and agricultural machinery sectors. He is passionate about the value that in-depth training that’s delivered efficiently can bring. Adrian has Masters in Engineering and Management of Manufacturing Systems from Cranfield University.