How sustainable supply chains are driving business transformation

Supply chains are sustainability’s new frontier. They are core activators for organization-wide sustainability goals and commitments. With sustainability in mind, supply chain executives are forging ahead, taking steps to protect their access to resources and bolster resiliency, and yet finding challenges to overcome and new opportunities to further explore.

EY teams conducted a survey about the sustainable supply chain approaches at 525 large corporations across Argentina, Brazil, Canada, Mexico and the United States (US). The various sectors included retail, consumer packaged goods, health providers, life sciences, government, technology, energy, manufacturing, mobility, and food and agriculture.

The research shows that while many executives have long-term sustainability goals for their supply chains, few have the visibility, technology and comprehensive programs in place to measure their progress. Challenges to their initiatives include upfront costs and a lack of a clear business case to support the expenditures.

Focusing on supply chains is key to overall environmental, social and governance (ESG) efforts because more than 90% of an organization's greenhouse gas emissions,¹ and 50% to 70% of operating costs, are attributable to supply chains. Beyond risk avoidance and compliance, organizations are seeking ways to create long-term value by embedding sustainability into supply chain operations.

EY teams research found that eight in 10 supply chain executives are increasing their efforts toward sustainable supply chain operations. Executives are working toward efficient use of natural resources, decarbonization, ethical sourcing and fair trade as part of their larger focus on ESG initiatives. They are also looking to reduce risks, increase innovation and generate a stronger return on investment for their sustainable supply chain initiatives.

This article explores the top three findings from the survey to support executives in achieving their sustainability goals.

1. Despite a long-term vision, organizations struggle with a lack of visibility and ROI backed sustainability initiatives

As consumer, investor, regulatory and employee expectations heighten and pressure for supply chain disclosures increases, so has the focus on visibility in supply chains. Consumers are asking sophisticated questions about sustainable sourcing, labor conditions, and why they can’t find basic needs on their grocery store shelves.

EY teams 2022 survey reveals that visibility throughout the supply chain is this year’s top priority for supply chain executives, having been a top-two priority for them in 2021 and 2019. Further, there is a critical need for executives to assess risks, plan for disruptions, and even better, to avoid them. And although increased end-to-end supply chain visibility is a top priority, it remains a work in progress—only about four in 10 respondents (37%) have seen increasing visibility.

Digital tools, data analytics and collaboration platforms help organizations capture metrics, set key performance indicators and establish governance. While visibility is a wide undertaking, a holistic end-to-end view of the supply chain helps companies track materials and supplies, understand supplier working conditions and collect data to measure their program effectiveness. Technology offerings can also identify and introduce efficiencies in operations and resources.

In one notable finding, EY teams research revealed that 33% of companies lack a business case for sustainable supply chains and nearly half of respondents said their companies are struggling to measure the return on sustainable supply chain activities. A lack of business case to support expenditures and processes to track sustainability improvements may stall funding support for future initiatives.

2. A sustainable supply chain roadmap looks beyond procurement toward end-to-end supply chain transformation

Cost savings and efficiency were cited as the top motivators for embarking on supply chain sustainability by 61% of companies. However, financial performance is not the only benefit to expect.

In a Harvard Business Review Whiteboard Session,² Andrew Winston suggests that companies should focus on four components to redefine return on investment for supply chain sustainability:

1. Cost reduction: reducing material waste, improving efficiency and reducing their carbon footprint
2. Revenue growth: examining how a sustainable supply chain can affect market share, stock price and profitability
3. Risk management: managing regulatory and compliance risks, and building resilient sourcing strategies
4. Intangibles: exploring how sustainability improves customer loyalty, brand reputation, innovation, employee quality of life and retaining talent

As a result of their ESG initiatives, 55% of supply chain executives say they expect to see better management of operational risks within the next one to three years, adding to the 20% who have already seen these reductions.

While 31% have already experienced enhanced efficiency and productivity, 51% expect to see that in the next one to three years. In the longer term, three to five years, 54% of respondents expect increased share price or other indicators of shareholder value.

Finally, they are most likely to use sustainable supply chains to safeguard their corporate brand (33% compared with 14% of the group overall).

Lauren Rogge, Principal, Ernst & Young LLP, Cate Mork, Senior Manager Ernst & Young LLP, and Paul Barsch, Assistant Director, Ernst & Young LLP, also contributed to developing this article.