This story first appeared in the July/August issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’ DC Velocity.
Companies can find it challenging to meet the increasing demand to make their supply chains sustainable—except when external events force their hands.
Our research shows that when large-scale disruptions compel companies to rethink their operations, improving sustainability is often part of the redesigned supply chains that emerge from such crises. Counterintuitively, supply chain sustainability (SCS) efforts appear to thrive in a crisis.
While companies should not limit their SCS efforts to crises, an awareness of these opportunities can help them identify opportune moments to advance their green agendas. This is especially the case in today’s volatile business environment, where adjustments to operational footprints in response to disruptive market forces are becoming more frequent.
UNRELENTING PRESSURE
Every year since 2020, the MIT Center for Transportation & Logistics and the Council of Supply Chain Management Professionals have surveyed companies about their SCS efforts. The four “State of Supply Chain Sustainability” annual reports have analyzed responses from about 9,000 respondents worldwide. The latestreport, published in September 2023, is based on data from more than 2,300 respondents around the globe and 10 executive interviews.
The pressure to make supply chains more sustainable has risen steadily over the four years we have done this research. We measure 10 sources of pressure, including investors, government entities, corporate buyers, company executives, and consumers, and the pressure from all of them has increased over the four years.
Investors represent the fastest-growing source, with a 25% increase in average respondent score throughout observation. Next come corporate buyers, with a 15% increase, followed by governments and governing bodies (11%).
Overall, the research indicates that commercial interests—be it access to capital gated by sustainability-minded investors or sales opportunities gated by sustainability-minded procurement teams—are pushing companies to improve their SCS performance year after year.
OBSTACLES TO SCS
However, meeting stakeholder expectations of significant reductions in supply chain carbon footprints is still a stretch for many companies.
Reducing Scope 3 emissions—those associated with assets not owned by the company and therefore largely out of their control—is proving particularly tricky. These problems are reflected in our latest research. Almost half of the “2023 State of Supply Chain Sustainability” report respondents indicated their organizations will not begin measuring or reducing Scope 3 emissions for five years or more. Scope 3 reporting and collecting reliable data across company boundaries appear to be especially challenging.
Another indicator of the bumpy road to SCS is the number of companies rethinking or scaling back their net-zero emissions pledges. Again, these issues are reflected in our research. Across all global respondents in the 2023 report, only 35% confirmed that their companies have net-zero goals. Moreover, many within this minority group appear unprepared for the net-zero deadlines they set for themselves.
DON’T WASTE A CRISIS
Four years of researching SCS efforts have allowed us to study the impact of various large-scale global crises on firms’ commitment to this work. We have found that the effect varies with the type of disruption experienced.
For the most part, crises that provoke acute supply chain network disruptions necessitating supply lines to be redrawn tend to result in an increased commitment to sustainability in supply chains. However, economic crises that require companies to regroup tend to dampen their SCS commitments.
For example, in the 2023 report, respondents were asked to rate their companies’ continued commitment to SCS in light of three crises: the Covid-19 pandemic in 2020–21, Russia’s invasion of Ukraine (asked in 2023), and adverse economic conditions in 2023. In the first two cases, SCS efforts did not flag, but they did in the third situation. The survey results show that 79% of respondents confirmed that their SCS commitments increased in response to the Covid-19 pandemic, and 61% said they have increased due to the Ukraine invasion.
In contrast, 56% of respondents indicated that their commitments to SCS declined over concerns that an economic slowdown was imminent in 2023. The research shows that when an economic downturn is in the offing, firms tend to concentrate on developing leaner, more cost-effective supply chain networks, even when such efforts do not align with sustainability goals. Also, companies are more focused on short-term risk-mitigation efforts—rather than longer-term sustainability targets—when dealing with economic headwinds.
However, when global disruptions upend operations, the reaction is different. Companies redesign their supply chain networks in response, and building sustainability into these revamps makes sense. In recent years, we’ve observed that the most opportune time to redesign a supply chain with sustainability in mind is, paradoxically, when the supply chain is broken.
AN EXTENSION OF REDESIGN
In today’s uncertain world, there is no shortage of global-scale disruptions to supply chains, and these are unlikely to diminish in the face of future uncertainties, such as climate change and geopolitical instability.
Framing SCS as part of a company’s ongoing supply chain network redesign efforts might be a way to secure resources for these programs.
Moreover, perhaps this rationale need not be restricted to global crises. A host of competitive challenges can require firms to review the structure of their end-to-end operations. A company might need to change the geographic profile of its supply base as political tensions rise, decentralize its supply chain to reduce risk, or reconfigure its last-mile operations in changing e-commerce markets.
Further research is needed into the relationship between sustainability efforts and managing and mitigating disruption risks. Meanwhile, current and potential disruptions can offer an opportunity to integrate sustainability into the design and management of supply chains.
Gartner, Inc.