Resilient and Sustainable? Can a Supply Chain Really Have It All?
The State of Supply Chain Sustainability 2021 report tells us that the work for increased supply chain sustainability has not slowed down as a result of the COVID-19 pandemic, but is continuing in full force. And at the same time, the pandemic has focused on the need for more resilient supply chains too. The question is whether it is possible to be sustainable and resilient at the same time?
The State of Supply Chain Sustainability study shows that today’s sustainability pressures come from several sources, both inside and outside companies. The pressure and expectations from investors and industry organizations are increasing the most, but also from customers, consumers and legislators.
Sustainability is multi-faceted
The issue of sustainability has several dimensions and can be divided into four categories: environmental, economic, human and social sustainability. In the report just mentioned, it is interesting to note that issues concerning human rights, working conditions, energy saving and renewable energy increased significantly from 2019 to 2020. The survey also provides clear information on how companies work with sustainability issues. Here, three clear approaches emerge: supplier development, reduced environmental impact and increased transparency in the supply chain.
But circling back to the main question for this blog post: Can a supply chain be sustainable and resilient at the same time? A resilient supply chain is characterized by its ability to avoid and resist disruption and to recover quickly when a disruption does occur. In the wake of COVID-19, the need for more resilience in the supply chain has become painfully clear. The result is that companies are now taking measures to become more resilient in the future, such as more nearshoring, increased inventory levels and investments in digital solutions for better visibility in the supply chain. All of this is to ensure the company’s ability to deliver, and ultimately, its survival.
Reduced risk, increased environmental impact
Many times, different measures that create more resilience and reduced risk lead to an increased climate impact. This applies, for example, when more goods are produced and stocked, and this often applies when the number of production units increases. Resilience is largely about building overcapacity into the supply chain, to be able to handle unforeseen events — and with increased capacity, we generally get an increased environmental impact on the purchase. When additional capacity is built, for example more warehouses or more sourcing partners, the environment is often negatively affected. But the upside is that we minimize risk because the supply chain becomes more flexible and adaptable and thus more resilient.
Environmental sustainability and resilience
The answer to the question in the title is therefore a bit complex that the supply chain can be sustainable and resilient at the same time, but not always. With a broad definition of sustainability, which includes climate, economy and social and ethical sustainability, increased resilience often leads to better sustainability. But if we only consider the environmental sustainability, it is difficult to combine with increased resilience. Against this background, it is important to understand how increased resilience affects the company’s environmental sustainability.
Survival before sustainability
It is understandable that recent years‘ problems with poor visibility and dependence on long supply chains from Asia have led to a strong demand for more resilience, and many times the survival of one’s own company is given priority over environmental sustainability. And even though sustainability issues are prioritized at the highest level, I do not see a clear trend that indicates that companies want to optimize their sustainability and at the same time de-prioritize their financials — the priorities in the supply chain are primarily still costs, service and profitability. The exception is understood to be the companies that have decided to be sustainability leaders in their industry and therefore need to prioritize sustainability goals in order to make money and be profitable.
Transparency and visibility
So you can see why there is sometimes an inherent contradiction between environmental sustainability and resilience. But what can be done about this? There are digital tools and platforms for increased visibility, transparency, collaboration and optimization that can be of great benefit to increase resilience without having to build more capacity to the detriment of the environment and climate. The development and increased use of these technologies and tools have greatly increased the opportunities to get an overview of changing customer needs and other unforeseen events. With software solutions for end-to-end planning and implementation, it is possible to anticipate fluctuations and events and proactively adapt to them. If, for example, a forecast turns out to be incorrect, this is communicated quickly throughout the supply chain so that production and transport plans are adjusted immediately. Thus, unnecessary costs and environmental impact can be avoided. In a resilient supply chain, it is also possible to develop environmental awareness where sustainability goals can be balanced against other goals in connection with disruptions. This can be done with the help of decision support systems (for example, transportation planning) that provide suggestions on how a certain disturbance can be solved in different ways and with different environmental impacts. This gives companies the opportunity to make conscious decisions about the environmental impact of different action alternatives, even in situations characterized by disruption.
Collaboration is crucial
Connecting the business internally and externally with partners is absolutely crucial to the success of its sustainability work, while simultaneously becoming less vulnerable to disruptions. Sustainable decisions in the supply chain must be based on a holistic approach, end-to-end, where the influence of external partners is also taken into account. A digital interconnection of this kind can provide insight into a supplier’s daily operations and, on that basis, additional requirements can be placed on the supplier’s sustainability work. Software for purchasing, planning and transportation can also contribute to increased sustainability by comparing the performance of different suppliers, because despite the global supply chains becoming increasingly complex, the development of advanced digital tools has made it possible to connect and share business-critical information relatively easily.
Resilience with different timeframes
Companies need resilience throughout their supply chain and for different timeframes. Depending on the period of time, different measurements are needed.
In the short term: that is, in the next few days or weeks, depending on lead time requirements, you need to be agile and fast-moving. With a full overview of the supply network and demand, you can act more agile and thus in the short term manage and act effectively on unforeseen events.
In the medium term: that is, the next 3-12 months, you need to gain insights and understanding to be able to prepare and adapt the business to different events.
In the long run: that is, a year or more, you need to be able to understand the degree of uncertainty and risk that exists between demand and supply, and set the direction and exercise the leadership required to realize your strategy.
To learn how Blue Yonder’s solutions can help your supply chain balance resilience and sustainability, visit us at blueyonder.com.