Supply Chain Execs Focused on ESG but Lack Measurement Methods

Supply Chain Execs Focused on ESG but Lack Measurement Methods

Oct. 6, 2022
New E&Y report says that customers are "asking tough questions about a company’s sustainable sourcing, working conditions of suppliers."

While  (80%) of senior supply chain executives are focusing on (ESG) initiatives many lack end-to-end supply chain visibility and technology to reach their goals, according to a new Ernst & Young report.

The report found that despite having articulated a long-term vision, 33% lack a business case to support sustainable supply chain development. Additionally, nearly 1 in 5 do not have a sustainability strategy or know where to begin, and half of the executives don’t have an integrated scorecard to measure supply chain sustainability results.

The report outlines five recommendations for leaders to jump-start their supply chain sustainability programs:

  1. Estimate the gap with goals: Understand current sustainability performance and examine how the current supply chain design supports (or does not support) the organization-wide sustainability commitments and goals.
  2. Improve visibility and traceability: Deploy technology and improve processes for broader data sharing with suppliers.
  3. Expand the business case: Include drivers beyond cost savings, e.g., increased revenues, market share, reduced risk, customer loyalty, talent proposition.
  4. Broaden your focus and prioritize: For sustainability, look beyond procurement to other functions in the supply chain such as manufacturing, logistics and product design.
  5. Leverage incentives: Leverage available tax incentives and grants to fund future initiatives.

“Despite having a long-term vision for ESG, supply chain executives struggle to embark on a sustainability journey due to lack of visibility from the products and services they source to their distribution centers and delivery operations,” said Raj Sharma, EY Americas Consulting Vice Chair, in a statement. “Customers today are not only concerned with why products aren’t available on the store shelves, but they are asking tough questions about a company’s sustainable sourcing, working conditions of suppliers and much more.”

In response, supply chain leaders are prioritizing an increase in end-to-end visibility (58%) and resilience (47%), according to the report. As consumer, investor, regulatory and employee expectations have increased demand for supply chain disclosures, the report shows that visibility across the supply chain will be a necessity for companies working to comply with the U.S. Securities and Exchange Commission’s or other countries’ proposed climate disclosure regulations.

Despite the emphasis on increased visibility, the primary motivation for improving supply chain sustainability is cost savings, according to 61% of those surveyed. Reducing water intensity, using renewable energy and minimizing material waste are key focus areas for improved efficiency.

“Cost savings is not the only benefit supply chain leaders should expect from sustainability initiatives,” said Sumit Dutta, EY Americas Supply Chain and Operations Markets Leader, in a statement. “To make the strongest business case, they should focus on the more immediate impact that a sustainable supply chain can have on their organization as a whole – including revenue, risk management, customer loyalty, brand reputation, innovation, employee quality of life, and talent retention.”

The EY report also found that sustainable supply chains can:

  • Contribute to revenue growth: 70% of executives have already seen or expect to see increased revenue because of their sustainability supply chain initiatives within the next one to three years.
  • Improve risk management: 55% expect to see better management of operational risks within one to three years.
  • Contribute to intangible elements of the business: Within the next three years, 40% of those surveyed expect their employees to experience an improved quality of life, 44% anticipate increased customer loyalty, and 31% believe it will contribute to decreased employee turnover.

“Leading supply chain executives, we call trailblazers, are experiencing positive results from sustainable supply chains,” Dutta said. “They have seen increased revenues and expect to see improved share price in the next few years.”

Trailblazers also are pushing to become digitally networked by sharing data in the cloud with key stakeholders and working on increasing end-to-end visibility throughout the supply chain. Today they are adopting cloud-based sustainability applications, the internet of things (IoT) and machine learning. Mostly autonomous supply chains with fully automated planning, fulfillment order robotics, and driverless trucks and forklifts are future goals for supply chain leaders, according to the research.