Industry Market Trends

A Sustainable Supply Chain Requires Managing Risk, Automating Data

Jan 31, 2013

Credit: John Morgan. Credit: John Morgan.

When it comes to managing supply chains, manufacturing businesses are doing anything but quelling demands. In fact, many are imposing increasingly strict requirements and heavily scrutinizing suppliers to ensure that all levels of satisfaction are met.

As we reported last month, manufacturers are taking sustainability of supply chains and resources into account when they consider the overall impact of their products and the company at large. But new research shows success in sustainability has a direct correlation to success in business. Leaders recognize that sustainability is about more than protecting the planet -- it's about managing real business risks. Moreover, automation and data management processes are emerging as a key tool to help achieve more sustainable supply chains.

Two Keys to the Future

A new report from PricewaterhouseCoopers LLC (PwC) examines 500 global manufacturers, and underscores the factors that separate the Leaders (top 20 percent based on performance) from the Laggards (bottom 20 percent). The study finds that emphasis on speed, flexibility, and responsive is a major factor in supply chain management success, as well as overall business success.

Here are six key findings from the report:

  1. Leaders want it all. These companies deliver on time and in full (OTIF) 95.7 percent of the time. They achieve greater efficiency and better customer satisfaction without driving up working capital, and they do it by treating supply chains as a strategic asset.
  2. Top performers are investing in new tools and technologies and building out their supply chain networks to boost flexibility and responsiveness, both of which are necessary to keep up with ever-changing customer demands.
  3. Leaders tailor their supply chains to meet the needs of various customer segments.
  4. They let the experts handle it. Leaders outsource 50 percent of production and 60 percent of logistics to third parties that specialize in those fields, allowing the company to focus on core strategic functions, like sales, operations, and research and development (R&D).
  5. In both mature and emerging markets, Leaders invest more heavily in differentiating supply chain capabilities, including real-time demand-and-supply planning.
  6. The future of supply chain management will require two essential components. The first is a greater emphasis on automation and efficiency. The second is sustainability. Leaders are turning to RFID and other technologies to facilitate automation and efficiency, and they are requiring their suppliers to share their outlook and emphasis on environmental issues.

Risk Drives Sustainability

The PwC report finds that most companies are only just beginning their journey to a more sustainable supply chain. But demand for sustainable products is increasing across all sectors. As regulations tighten and investor expectations rise, most expect to increase pressure on their supply chain and conduct more detailed monitoring. Still, many of the PwC study respondents claim that efforts to build a sustainable supply chain conflict with the practice of finding best-cost solutions, particularly when those solutions are outside of the country.

To have a sustainable supply chain requires managing and accounting for the impact of major environmental, social and economic factors throughout the lifecycle of a product. That means a company has to keep track of all the risks in its supply chain.

The main reasons for investing in sustainable supply chain management, according to respondents, are:

  1. To manage the risk of unintended environmental or social damage;
  2. To manage their company's reputation and the expectations of its shareholders;
  3. To reduce costs and realize productivity improvements, and;
  4. To create sustainable products, thereby increasing revenues and enhancing the corporate brand.

But risks run both ways, according to The Carbon Disclosure Project's (CDP) Supply Chain Report 2013. Climate change is recognized by 70 percent of CDP members as a potential business risk. The report shows that both CDP members and their suppliers see the supply chain as vulnerable to physical disruption from events such as droughts, flooding, hurricanes, and water shortages. They realize such events can lead to reductions/disruptions in production capacity (44 percent) as well as increase operational costs (31 percent).

Data Drives Sustainability

More than 50 percent of respondents to the PwC survey state that they are implementing or planning to implement new tools for better process automation and transparency. In addition, just under two-thirds consider automation and data management as vital parts of their operations by 2015. This focus is consistent across all industries, but the pharmaceuticals and life sciences; technology and telecom; and chemicals and process industries are at the forefront of this movement.

Businesses across all sectors indicate they want integrated solutions that encompass everything from order to delivery. As Industry Market Trends reported last week, manufacturers are turning to "big data" to extract more value from the supply chain, particularly as they pertain to logistics and distribution operations.

Data management and automation is critical achieving a leadership position in sustainable supply chains, according to the CDP report. Implementing data collection tools across the supply chain builds efficiency and reduces redundancy in reporting. Some companies are using basic procurement data systems to collect basic sustainability information from suppliers. Others are using more advanced platforms to monitor climate change-related data and metrics. But while tools are important, CDP notes that cross-functional collaboration, supplier engagement, and communication are still the foundation of solid working relationships.


Collaboration Drives Sustainability

According to the PwC study, among those companies that rate sustainability as a high priority, 87 percent focus on optimizing their overall carbon footprint. Many are also working closely with their suppliers. The same number stresses the importance of reaching an agreement with suppliers on best practices and ethical standards. In addition, 81 percent are collaborating with their suppliers to create a responsible supply chain footprint and procurement framework.

But some are going even further. Last year's CDP Supply Chain Report noted that 62 percent of CDP participating companies reward their suppliers for practicing carbon management. In the 2013 study, 34 percent of CDP members claim they include sustainability-related obligations in their procurement contracts.