In the world of business, sustainability is a term broadly used to indicate the environmental impacts of operations and products. But from a supply chain perspective, the importance of sustainability extends beyond “going green”. Besides being environmentally woke, sustainable supply chains are socially responsible and ensure more reliable operations and, therefore, improved cashflow. Building a supply chain around a supplier sustainability framework has multiple benefits to its credit.
A network of sustainable suppliers ensures better productivity and reduces the risk of financial loss (through penalties for non-compliance) and reputational damage. Sustainable practices also help enterprises enhance efficiency with significant cost savings. Now, the growing investor- and board-level focus sustainable practices in the supply chain has made its way into supply chain decision-making process. “2019 Gartner Procurement’s Value Contribution in Supply Chain Survey data shows that 75% of participating organizations reported having a formalized sustainable procurement program in place.”
But establishing a supplier sustainability program is easier said than executed; especially given the large, complex, and often fragmented nature of modern supply chains.
The Challenges of Ensuring Supplier Sustainability
While the importance of supplier sustainability cannot be overstated, the challenges around implementing an effective framework to ensure it can often seem overwhelming. Sustainability is a fairly new agenda and legacy enterprises often find it difficult to navigate their own largely non-sustainable practices. Beside a general lack of awareness often tends to leave gaping holes in the supplier sustainability program. Combine that with the magnitude and complexity of modern supply chains that hinder visibility and we’ve got an enterprise-level challenge on our hands.
There are three key challenge areas when it comes to implementing a supplier sustainability program:
- Increase costs: 38% of enterprises believe that increased are the single biggest hurdle on their path to supplier sustainability. On the other hand, global environmental supply chain risks are expected to cost businesses $120 billion by the year 2026.
- Lack of visibility in complex supply chains: This is the second most cited challenge in establishing supplier sustainability. It is often difficult for enterprises to monitor the large number of inter-dependencies and varying degree sustainability maturities across such a supplier network. In case of sustainability measures, a lack of overall awareness adds a layer of complexity.
- Mindsets and cultures: For incumbent enterprises, introducing new ideas – such as sustainability – is often met by resistance and subsequent non-compliance. Without a strong monitoring framework in place, the efficacy of a supplier sustainability framework will falter.
Supplier Sustainability Applications
It is no secret that enterprises that hope to establish supplier sustainability must overcome a complex and largely fragmented supplier ecosystem in terms of capabilities and focus areas. This is an especially difficult task given that many businesses rely on spreadsheets and manual processes to track and measure this data. Fortunately, technology has an answer.
“Supplier sustainability applications help companies assess and monitor suppliers’ ESG performance to reduce risk exposure and drive improvements.” Through effective use, a supplier sustainability application can prove to be a powerful tool in optimizing supplier networks, especially in the long run. These applications are capable of aggregating and leveraging supplier data from across various touchpoints an interconnected ecosystem and decentralizing compliance ownerships. In turn, they allow enterprises to prequalify their suppliers by accounting for the multifarious aspects of sustainability – insurance, risk, compliance, and more.
As a result, enterprises can begin to establish increasingly sustainable practices and build a supply chain that is reliable and responsible, without having to bear a massive cost burden.
To gain a deeper understanding of why supplier sustainability applications are the future of resilient supply chains, you can sign up to view the full 2022 Gartner® Report “Market Guide for Supplier Sustainability Applications” here.
*Report Source: Gartner, Market Guide for Supplier Sustainability Applications. Miguel Cossio, Laura Reiner. Published 1st June, 2022 **GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used here in with permission. All rights reserved.
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