16 Ways to Improve Supply Chain Sustainability

Supply chain sustainability affects a company’s environmental, social, and governance (ESG) efforts on a fundamental level. The supply chain touches nearly every aspect of ESG: environmental sustainability, which includes recycling, lowering the consumption of fossil fuels, and reducing waste; social progress, which includes closing the gender wage gap, using equitable hiring, compensation, and promotion practices, paying a living wage, and making workplaces safer; and governance, which includes complying with regulations covering all these practices.

The average company inherits most of its ESG impact, or ESG footprint, from its suppliers, reports McKinsey. As of 2022, more than 90% of an average organization’s greenhouse gas emissions—the output of gases such as carbon dioxide (CO2) that trap heat in Earth’s atmosphere—come from its supply chain, according to the U.S. Environmental Protection Agency. Human rights abuses, deforestation, pollution, and other sustainability concerns are also linked to the resources a company uses to make or obtain its materials and products and transport them throughout the supply chain.

Companies can improve their supply chain sustainability by better tracing the origins of materials and goods, improving supply chain execution efficiencies, and refining their policies, use of technology, and supplier relationships.

Key Takeaways

• Supply chain sustainability refers to the impact a company’s supply chain operations have on the planet and society.
• Ways to improve supply chain sustainability include reducing emissions of harmful gases while producing and transporting goods and ensuring suppliers and partners do the same.
• Since companies primarily manage supply chain sustainability by auditing suppliers and partners, supply chain professionals should understand how doing business with each vendor might impact the planet and society.
• Companies are more likely to improve supply chain sustainability if they set goals, track metrics, and use data and analytics to inform process adjustments.

16 Ways to Improve Supply Chain Sustainability

Supply chain sustainability refers to the impact a company’s supply chain operations have on the planet and society. Supply chain professionals play a critical role in helping their companies become more sustainable by minimizing harm to the environment and supporting social equality. Their efforts to create a more sustainable supply chain are often part of a broader effort to achieve the company’s ESG goals.

The benefits of supply chain sustainability include reduced costs, better continuity of supply, and a stronger company reputation. In a 2022 survey of 525 supply chain executives by EY, top reasons for improving supply chain sustainability included potential revenue growth as well as pressure from partners, customers, and employees.

Supply chain professionals must balance business priorities when making decisions that affect operations. For instance, the supply chain team at a manufacturer might decide to stop sourcing traditional cotton and switch to organic cotton, which requires less water to grow, to achieve the company’s ESG goal of minimizing environmental harm by using sustainable materials.

Here are 16 of the top ways to improve supply chain sustainability.

1. Reduce Emissions from Transportation and Logistics

Globally, transportation is the sector that relies most heavily on fossil fuels—such as coal, oil, and natural gas, which can’t be replenished and emit greenhouse gases when used—according to the International Energy Agency. And in the United States, transportation is the leading contributor of greenhouse gas emissions, according to the U.S. Environmental Protection Agency. So reducing transportation emissions is a key way to improve supply chain sustainability.

Businesses can do this by ordering materials, parts, and products more efficiently. For example, placing one large order with a vendor instead of several smaller orders likely helps decrease the number of vehicles on the road, planes in the sky, and ships in the sea, resulting in fewer greenhouse gas emissions.

Product-based companies that oversee their distribution internally can also reduce emissions by shipping products to warehouses, stores, and customers more efficiently. For instance, Unilever cut their CO2 emissions by routinely combining more freight loads into single vehicles with the help of transportation management software. Businesses might also find ways to shorten delivery routes, use electric vehicles, or rely on alternative fuels—such as biofuels made from vegetable oils, animal fats, or recycled cooking grease—to power delivery trucks, cargo ships, or planes.

Companies that outsource their distribution can choose to partner with vendors that prioritize environmentally friendly transportation. They might also consider less-than-truckload (LTL) shipping instead of full-truckload (FTL) shipping. Unlike FTL—in which companies reserve an entire truck, regardless of whether they plan to fill it—LTL combines shipments from multiple clients to maximize truck space and optimize delivery routes, reducing the emissions attributed to any one client.

2. Increase the Use of Recycled and Renewable Materials

Recycling is fundamental to the circular economy, which involves effectively sharing, repairing, reusing, and recycling materials and products. The circular economy not only preserves finite natural resources but also reduces waste in landfills, which emits greenhouse gases as it decomposes. However, the global economy is only about 7% circular, according to a 2023 report from Circle Economy, an organization promoting circularity.

Companies looking to create more sustainable supply chains can contribute to the circular economy by designing or sourcing products made from repurposed textiles, plastics, and other materials. A manufacturer may melt metal scraps to form new, usable pieces instead of throwing them away. A retailer might source clothing made from recycled fabric. Companies that design their own products can also use renewable resources, such as bamboo and cork, instead of nonrenewable resources, such as naturally occurring metals and fossil fuels, in their designs.

3. Improve Supplier Relationship Management (SRM)

Companies that want to increase their sustainability should improve supplier relationships and carefully consider compliance, which might carry nonobvious sustainability liabilities. For example, a manufacturer might buy textiles from a supplier that were made using fossil fuels or sweatshop labor. In this case, by engaging with the supplier, the manufacturer encourages those practices, even if its team doesn’t know those practices were used.

In addition to asking the right questions when auditing suppliers, companies can increase supply chain transparency by conducting onsite inspections of vendor facilities. They might also use software to track the origins of materials and goods and monitor the processes used to make and transport them more closely. For example, teams can use supply chain management software to easily trace the origins of a product at the serial-number level, determine the materials supplier for that product, then vet that supplier’s sustainability efforts. Finally, companies might also hire a consultancy to look for opportunities to improve transparency throughout their supply chain.

4. Increase Transparency

End-to-end supply chain visibility, or insight into every movement of materials and goods as they travel from supplier to consumer, is a top priority for supply chain executives, yet more than 60% of these executives haven’t seen improvements in visibility year over year, according to a 2022 EY survey.

In addition to asking the right questions when auditing suppliers, companies can increase supply chain transparency by conducting onsite inspections of vendor facilities. They might also use software to track the origins of materials and goods and monitor the processes used to make and transport them more closely. For example, teams can use supply chain management software to easily trace the origins of a product at the serial-number level, determine the materials supplier for that product, then vet that supplier’s sustainability efforts. Finally, companies might also hire a consultancy to look for opportunities to improve transparency throughout their supply chain.

5. Implement Sustainable Procurement Policies

A sustainable procurement policy helps companies make sustainable choices when sourcing materials and goods. Initiatives that may become part of a procurement policy include avoiding plastics, using recycled materials, opting for locally made resources, and ensuring the fair treatment of workers involved in manufacturing. A company may decide to do business only with vendors that avoid exploitative practices such as child or sweatshop labor, for example.

To adhere to these types of procurement policies, many companies include sustainability topics in the standard list of questions they use to evaluate vendors. For example, they may ask whether farmers sprayed pesticides on the crops used to make textiles or about a product’s carbon footprint, meaning the total amount of greenhouse gases emitted directly or indirectly during production. They can track the answers using software such as a vendor management system, which gives each supplier a numerical sustainability score and models the effects of sourcing goods from that supplier on the planet and society. While this is a best practice, only 20% of chief procurement officers at large European companies say their organizations use sustainability metrics as primary criteria in sourcing decisions, a 2021 McKinsey survey found.

6. Invest in Renewable Energy Sources

Energy use is the most significant cause of greenhouse gas emissions worldwide. About 80% of energy comes from fossil fuels, which emit harmful gases and are not renewable, according to the United Nations. By contrast, using wind and solar energy doesn’t produce greenhouse gases and can prevent some kinds of pollution that impact air quality. Companies can make their supply chains more sustainable by prioritizing relationships with vendors that use renewable energy, powering their own facilities with energy from solar panels or wind turbines, and transporting finished goods using electric vehicles or trucks, ships, and planes that rely on alternative fuels.

Renewable energy sources, such as sunlight, often cost less than gas and other nonrenewable energy sources, but using them often comes with up-front costs. For example, it can take up to 10 years to recoup costs from installing solar panels on a commercial building, according to solar panel vendor Solar.com.

7. Increase Collaboration

Companies can collaborate to increase sustainability in their supply chains. For example, a group of manufacturers could adopt human rights standards that their distributors must meet. In addition to preventing human harm, the pact could reduce the manufacturers’ regulatory risk and build trust with consumers who want to buy from companies that show their commitment to sustainability. Further, the agreement could encourage more distributors to operate sustainably.

Collaboration with a business at the same supply chain stage is called horizontal collaboration. For example, two furniture manufacturers with factories near each other might place a joint order with a wood supplier, cutting CO2 emissions from delivery trucks. When companies at different stages of the supply chain work together, it’s called vertical collaboration. A manufacturer, for instance, might work out an agreement with a supplier to develop more sustainable packaging in exchange for more business.

8. Promote Sustainability Education

As we’ve seen, supply chain professionals directly impact an organization’s sustainability efforts. Sustainability education equips the team to choose vendors that support the company’s ESG goals, then measure progress toward those goals.

If a company’s supply chain professionals haven’t received education about sustainability issues in their industry, then the company might provide it or support the supply chain team in pursuing outside certifications or degrees. Certified Sustainable Supply Chain Professional (CSSCP), issued by the International Supply Chain Education Alliance, is a popular certification that requires completing a series of online courses and passing a final exam. Top universities also offer supply chain sustainability courses and certifications aimed at professionals. Company leadership might offer financial support for employees to complete these programs or partner with a learning and development provider to offer similar courses in-house.

9. Measure and Report Environmental Performance

Organizations that want to improve their supply chain’s environmental performance metrics are far more likely to succeed if they assess current performance to set a benchmark, create a plan for how and in which areas they want to improve, and regularly report on those metrics.

While companies may already run reports annually to comply with government regulations, they could add biweekly or monthly reports to track their supply chain’s progress toward their environmental sustainability goals more closely and make changes as needed. Regular environmental reporting can also help retain and attract employees. 83% of people say they’re more willing to work for organizations that clearly demonstrate progress on environmental and social issues, and 69% of employees say they’d leave their current employer for one that focuses on these issues more, according to a 2022 ESG study from Oracle and research consultancy Savanta. Regular reporting could also win customers—91% of people want to see more accountability from businesses on sustainability issues, the study found.

10. Invest in Green Technology

Green technology is a broad term for technology used to mitigate a company’s negative impact on the planet and society. For example, a company may choose to use solar panels to generate alternative energy. Companies can use other types of green technology, such as wind turbines, LED lighting, and plant-based packaging, throughout their supply chain, and they can commit to working only with vendors that do the same. They might also invest in green technologies such as electric trucks, vans, and buses, which don’t emit pollutants while transporting products, or power their vehicles with biofuels.

In addition to solar panels, as previously discussed, other types of green technology often represent a significant up-front investment. Work with finance teams to model the potential return on investment and its timeline. For example, how quickly will your company recoup the cost of an electric truck fleet via fewer operating costs and more uptime compared with gas-powered trucks? Can you forecast an increase in sales due to a stronger brand reputation for sustainability?

11. Support Local Communities

Companies can also improve supply chain sustainability by operating locally. A manufacturer might source materials from local suppliers, reducing its carbon footprint and bolstering jobs for local workers who might otherwise lose them to larger, national suppliers.

Companies might also have their supply chain teams, as well as other employees, participate in local green or social justice activities, such as community cleanup events. Aside from improving sustainability, these activities have the potential to boost talent recruiting and retention efforts—65% of people globally want to work for a company with a powerful social conscience, according to a 2022 PwC report. These activities can also raise brand awareness and improve an organization’s reputation with current and potential customers.

12. Establish Sustainability Goals

Clear, measurable supply chain sustainability goals increase the likelihood that an organization will succeed in its efforts. These often stem from broader organizational goals. For example, a company might set a goal to reduce its carbon footprint, which (as mentioned) is the sum of all CO2 emissions created directly or indirectly in the process of buying or making products, providing services, and running operations. With this organizational goal in mind, supply chain professionals may develop green procurement policies that include purchasing products from vendors that use biodegradable packaging. The supply chain team might set a goal to source 75% of packaging from these types of vendors in the coming year.

13. Adopt Ethical Labor Practices

Treating people well is a core principle of supply chain sustainability. As discussed earlier, supply chain professionals must verify that their suppliers, manufacturers, and other partners don’t use child, sweatshop, or slave labor when harvesting or creating materials and goods. They must also verify that vendors pay their workers a fair wage and provide or ensure safe, humane working conditions. Companies must meet these same standards in every part of the supply chain they oversee internally.

14. Reduce Waste

Globally, an estimated US$163 billion worth of inventory is thrown away annually due to damage or overproduction, according to a 2022 report from materials supplier Avery Dennison.

Manufacturers can reduce waste in their supply chains using interconnected smart manufacturing technologies, such as robots, sensors, and software systems, to create a smart factory. For example, they might outfit an assembly line with welding robots that make fewer mistakes than human welders and avoid creating scraps while receiving instructions from software about adjustments to welding parameters. Additionally, the manufacturer might eliminate overproduction by using these interconnected software systems, machines, and other devices—also known as the Industrial Internet of Things (IIoT)—to create production lines that automatically adjust output based on demand fluctuations.

As another example, a retailer might reduce waste in its supply chain by supporting the reuse of finished products to make new ones. For instance, it might start a buyback program in which consumers exchange unwanted clothing for discounts on new products. The retailer would then send those unwanted goods to its manufacturer to make new clothing.

15. Develop Sustainable Packaging

Companies have choices when it comes to sustainable packaging, which is also called green or eco-friendly packaging. For example, they might develop or procure packaging that incorporates materials such as recycled paper, recycled plastic, or biodegradable plastic made of cornstarch, seaweed, or other plants.

Sustainable packaging doesn’t always have zero environmental impact, which illustrates the idea that supply chain sustainability is about making better decisions, not necessarily eliminating environmental impact completely. Recycled plastic packaging is more sustainable than packaging made from single-use plastics, and recycled paper products are more sustainable than those made from virgin materials, but companies can only use paper products and some plastics a few times before they end up in landfills because they degrade over time.

Companies may be concerned that sustainable packaging is more expensive, which is true in some cases. However, 74% of consumers are willing to pay more for it, according to a 2020 report from Boston Consulting Group and Trivium Packaging.

16. Use Data and Analytics

Companies can perform complex analyses of their supply chain data to improve the tactics they use to achieve their sustainability goals. For example, tracking and analyzing CO2 emissions from transportation or a factory can reveal increases in emissions, predict future emission levels based on trends, and help a manufacturer decide how to go about reducing emissions. Or, if a manufacturer runs a smart factory in which machines connect to each other and the internet, it can use data analytics to determine when to automatically slow production based on forecasted reductions in demand, reducing wasteful overproduction.

Improve Your Supply Chain Sustainability with Oracle

Companies globally are advancing their supply chain sustainability efforts with Oracle Fusion Cloud Supply Chain Management (SCM). With end-to-end supply chain management support, the application suite helps organizations find ways to reuse materials in product design, packaging, and manufacturing; track the origin of materials and goods in adherence to sustainable procurement policies; optimize shipments to minimize carbon emissions; and improve demand forecasting to reduce waste.

Companies also use Oracle Cloud SCM to quickly adapt to market and demand fluctuations, avoiding disruptions and keeping customers happy by ensuring the products they need are always available without creating surplus or waste.

Supply Chain Sustainability FAQs

How can the supply chain improve sustainability?
A company’s supply chain often directly impacts the environment, economy, and society. Organizations can improve their supply chain sustainability by considering their impact on people and the planet when evaluating vendors, designing products, planning shipping routes, and making other decisions throughout the supply chain.

What is an example of improving supply chain sustainability?
Reusing materials from old products instead of using virgin materials in production is one way a manufacturer can make its supply chain more sustainable. For example, a clothing manufacturer might use fabric from old T-shirts to make new ones.

What does it mean to make a supply chain sustainable?
A company creates a more sustainable supply chain when it adjusts its supply chain operations to avoid harming society, the environment, and the economy.