The global supply chain connects customers with products and services worldwide, but it also has a considerable impact on the environment. Building sustainability into that chain can reduce its impact and deliver concrete benefits to an organisation.
The effect supply chains have on the environment is significant. In the first quarter of 2024, the average global Carbon Emissions Index (CEI) from supply chains rose above 100 for the first time (a 15.2% increase from the last quarter of 2023). This highlights the significant and growing negative environmental impact of global trade.
But it isn’t just the environmental impact that makes current supply chain models increasingly unviable; the economic disadvantages are growing too.
For instance, nearly 80% of organisations experienced supply chain disruptions in 2024. Third-party failures remained the leading cause, followed by cyber attacks, and then weather and natural disasters, costing organisations precious time and budget.
As a result, many organisations are seeking to make their supply chains more sustainable.
What Is a Sustainable Supply Chain?
A sustainable supply chain is the result of holistically applying environmental, social, economic, and legal concerns to the entire chain. This approach supports responsible and sustainable management at every stage, from sourcing raw materials to delivering finished products to customers. By embedding these principles, organisations can mitigate environmental and social risks, create long-term value, and build trust with stakeholders.
When creating a sustainable supply chain, a supply chain manager will typically consider factors such as:
- Resource use and waste management
- Waste and waste disposal
- Carbon emissions and carbon footprints
- Labour conditions
- On-site health and safety
- Worker exploitation
- Water consumption and water stewardship
- Supplier diversity and inclusion
- Traceability and transparency in sourcing
- Compliance with local and international regulations
For example, a supply chain manager for a consumer electronics manufacturer may pay close attention to the sourcing of minerals and components, ensuring suppliers meet strict standards for labour conditions and health and safety. They might also invest in more efficient packaging and recycling programs to minimise waste, and introduce audits to verify compliance with ethical sourcing standards, such as certification for conflict-free minerals.
In contrast, a large food retailer could focus on reducing carbon emissions by sourcing produce from local farms, implementing policies to prevent food waste, and auditing suppliers to guard against worker exploitation in agricultural operations. They may also work with logistics partners to optimise delivery routes and reduce transportation emissions, or introduce sustainable packaging for own-brand products.
Each business will tailor its sustainability efforts to address the specific challenges and opportunities within its sector.
How To Build A Sustainable Supply Chain
The following steps could help organisations build a sustainable supply chain.
1. Set clear sustainability goals and KPIs
Before taking practical action, it is important for an organisation to define what sustainability means to them and set measurable goals.
Establishing clear objectives and key performance indicators (KPIs) provides a shared direction, enabling progress to be tracked over time. For example, an organisation might set targets for reducing carbon emissions, sourcing more recycled materials, or ensuring all Tier 1 suppliers meet approved sustainability standards.
2. Identify sustainability issues within the supply chain
This stage involves analysing the entire supply chain, breaking it down into its various elements, and identifying which of them could be improved. Some of these elements will be easy to identify; for instance, haulage will emit emissions, which can always be improved.
However, there will be plenty of other elements that might not be immediately obvious. Perhaps an organisation’s factory produces hazardous chemicals, or the working conditions are below standard. There could also be health and safety risks in the depot or the offices. Addressing these issues helps support overall sustainability objectives.
3. Adopt a circular supply chain
Most supply chains begin with materials, which are shipped to the manufacturer. The resulting products will then be shipped to distribution centres and then on to the final destination. Once they have been used, the products often end up as waste.
The circular supply chain aims to reduce waste or even eliminate it by connecting and adding two new steps: recycling the products and sending them back to the manufacturer for reuse. For example, cosmetics company LUSH encourages customers to return product containers for recycling into new packaging.
4. Improve fuel consumption
Freight transport contributes significantly to the UK’s greenhouse gas emissions: with road freight loads increasing, so does the negative impact on the environment.
Reducing fuel consumption is more than just encouraging drivers to avoid idling their engines. Safe and Fuel Efficient Driving (SAFED) training can help reduce emissions and costs.
Investing in aerodynamic improvements to vehicles involves an upfront cost, but can deliver significant savings over time.
5. Eliminate dead mileage
After reducing fuel consumption, consider the efficiency of return journeys. When vehicles return empty, they still use fuel and generate emissions.
Organisations might explore opportunities to backhaul materials, or collaborate with other companies to transport goods on the return journey, increasing efficiency and reducing environmental impact.
6. Engage suppliers
While some organisations can control their entire supply chain, many businesses will engage with suppliers, haulage companies, and other third parties. While their operations may not be possible to control directly, it may be possible to encourage sustainable practices.
For example, NHS England requires suppliers to align with its net zero ambitions and undergo a sustainable supplier assessment.
To support supplier engagement, organisations might:
- Make sustainability a regular part of discussions
- Increase business for high-performing suppliers
- Provide recognition and awards
- Share the costs of sustainability improvements
Organisations who have achieved ISO 14001, for instance, will work collaboratively with their supply chain to ensure internal controls are being met.
7. Monitor, report, and continually improve
Building a sustainable supply chain is an ongoing process.
Once sustainability initiatives are underway, an organisation can regularly monitor performance and review progress against the goals that have been set. Those adopting an internationally recognised standard are required to complete annual management reviews and planned internal audits.
Reporting results and acting on these insights allows challenges to be addressed, achievements to be celebrated, and continual improvement of supply chain sustainability over time.
What Are The Three Elements of Supply Chain Sustainability?
The three elements of supply chain sustainability cover social and financial responsibility as well as environmental factors.
1. Social responsibility
Social responsibility involves the moral, ethical, and philanthropic expectations that society has of a business. This means making sure that everyone in a sustainability chain, from company employees to those working for suppliers, is treated fairly, in line with human rights laws and labour laws.
2. Environmental responsibility
Environmental responsibility involves protecting the environment from the potential harm caused by a business’s operations, its suppliers, and its partners.
While environmental responsibility in a supply chain includes a host of considerations which vary from business to business, it’s essential to understand all the ways in which they impact the environment. With a firm understanding of this, businesses can take action to reduce their environmental impact and adhere to the relevant environmental obligations and laws.
For more information on environmental sustainability in business, read our guides to find out how to make a business environmentally sustainable, and how to write an environmental policy.
3. Financial responsibility
Financial responsibility includes compliance with financial regulations, financial planning, risk management, and insurance. It also means considering the needs of shareholders, employees, customers, business partners, and financial institutions.
The Benefits of a Sustainable Supply Chain
A core principle of a sustainable supply chain is that responsible business practices not only support the planet and its people, but also deliver tangible benefits for the business itself – some of which might include the following.
Reduced costs
Reducing an organisation’s environmental impact is often viewed as a cost rather than an investment, but much of these efforts are focused on efficiency and waste reduction, which can actually lead to savings. For instance, IKEA switched to using electric vehicles for deliveries in 2018. While this required upfront investment, it has led to long-term savings on fuel and reduced exposure to fluctuating fuel prices.
Improved continuity of supply
When Hurricane Ian struck in 2022, shipments dropped by 75% and shipping times were increased by 2.5 days. As a result, sales were halted, in-transit holding costs increased and customer retention was strained. Diversifying a supply chain can help avoid over-reliance on a single supplier or link, improving resilience and supporting business continuity.
Protecting against reputational damage
Awareness of sustainability issues is growing, so if any of those issues are found in a supply chain, an organisation could be at risk. News of environmental harm or labour exploitation in an operation or supply chain can cause serious reputational damage, impact revenue, and threaten future business.
Why Is Sustainability Important in a Supply Chain?
The importance of sustainability in supply chain management extends beyond a single business. For many, the supply chain is responsible for the majority of their environmental impact, therefore, developing a sustainable supply chain strategy is essential.
By building sustainable supply chains, businesses can implement more impactful, positive changes in their environmental footprint. Additionally, practising sustainable methods throughout a business can benefit the planet, support a good reputation, and reduce costs.
How ISO 14001 Can Help Build a Sustainable Supply Chain
ISO 14001 is an internationally recognised standard that can help you put an Environmental Management System (EMS) into place. This system supports the identification of gaps in your sustainability efforts, including those in your supply chain.
You can use this management system to analyse and build your sustainable supply chain, and ISO 14001 is also a robust way to demonstrate your green credentials to a potential client.
This enables you to demonstrate your sustainability efforts clearly and supports your business in acquiring new opportunities.
Take our free online course to find out more about ISO 14001 and how you can introduce sustainability to your supply chain.
Contact our team today to learn how ISO 14001 certification can support you building a sustainable supply chain.
