Driving Sustainable Supply Chain Change

Driving Sustainable Supply Chain Change

by Stephanie Krishnan – Associate Vice President, IDC Manufacturing & Energy Insights Asia/Pacific, IDC Asia/Pacific

“By 2025, to improve long-term supply chain profitability, 60% of manufacturers in global supply chains will invest in software tools to support sustainability and circular economy business models.”
Source: IDC FutureScape: Worldwide Supply Chain 2022 Predictions — APEJ Implications

The importance of Environmental, Social and Governance (ESG) continues to grow. IDC’s March 2022 Future Enterprise Resiliency & Spending Survey showed that almost 50% of finance organizations are prioritizing consistent ESG practices and/or policies when considering industry ecosystem design and partners. In Asia, Governmental and Finance
institutions are launching initiatives to accelerate green finance And, whilst this may seem unrelated to supply chains, these requirements are starting to place significant pressure on supply chain participants. Those organizations that seeking to take advantage of preferential access to finance are being required to place ESG compliance requirements on suppliers and distribution channel partners. Additional compliance pressures are being applied from European companies, which is starting to impact their Asian suppliers. Whilst altruistic motives have been a “nice to have”, the reality is that financial incentives and regulatory requirements will likely result in actual change.
Companies, both large and small, are changing. Tender documents and responsible source guidance are requiring suppliers to show evidence of their actions to support ESG initiatives, as well as the actions of their suppliers. To enable this companies are turning to technology support to scale, monitor, and report on outcomes. Across the Asia/Pacific region, the portion of company IT budgets allocated to sustainability-related IT investments or initiatives is increasing – IDC’s 2021 Manufacturing Insights survey revealed that more than 50% of manufacturers are apportioning 10% or more of technology spend to support sustainability-related IT investment initiatives. These investments are occurring in foundational technology capabilities that will allow organizations to increase their reporting capabilities, draw insights from data, and reduce paper use and administrative load on workers through process automation (refer Figure 1).

Figure 1 – Where are manufacturers investing to support sustainability?

The benefits of ESG initiatives extend beyond meeting compliance requirements. Organizations are seeing economic benefits, in running their supply chains sustainably. As data is collected and analyzed, opportunities for efficiencies are identified and implemented. Moving beyond process improvements, the next stage is business model redesign which includes developing products and services to embrace the circular economy,
closed-loop product design, and renewable or upgradable products. With circular economy business models, organizations are targeting the integration of sustainability practices from raw materials to the final product, incorporating reusable components, reducing resource usage, and increasing biodegradability or recyclability. This requires addressing operational activities including design methodologies, production process, waste reduction, ethical and sustainable sourcing of resources, local sourcing considerations, and supplier evaluation.

A procurement professional I recently spoke to said “it’s coming at us thick and fast, so we’ve got to be ready for it.” Things are changing, and supply chains participants are feeling pressure from customers, consumers, financiers, and governments to take action on these changes. Supply chain participants need to think of sustainability as fundamental to how supply chains are run and managed, and stakeholders must be aligned to set up short and long-term plans to drive sustainability outcomes. IT will need to incorporate environmental sustainability into technology decision making, management, and investment actions, and implement suitable technologies to support ESG programs. Technology is an important tool to scale those actions to drive real outcomes for people, planet, and long-term business success.