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From Option to Necessity: Firms Can Drive Value Through Sustainable Supply Chains

November 10, 2021

Once a nice-to-have proposition for companies, sustainability is quickly becoming a must-have for those seeking to stay ahead of the competition. Consumer demand, regulatory directives, investor pressure and workforce attitudes about sustainable products and practices are among the forces driving this seismic shift. Additionally, businesses increasingly realize that unsustainable practices may lead to an unsustainable planet.

C-suites also understand that sustainable supply chains can drive value. Recent examples demonstrate how environmental disasters cause havoc with supply chains and profits, increasing firms’ recognition that prioritizing sustainability enables them to better cope with environmental disruptions and regulatory constraints while meeting customer demand and creating a corporate culture that mirrors employee expectations.

“Unlocking Value Through Sustainable Procurement,” a new white paper sponsored by global management consultancy firm Kearney, crystallizes the issues surrounding supply chain, procurement and the corporate pursuit of sustainability. The analysis, by a team of faculty and students with the Global Supply Chain Institute (GSCI) at the University of Tennessee, Knoxville’s Haslam College of Business, zeroes in on procurement’s role in corporations’ supply chain sustainability goals.

Moving supply chains toward sustainability promises to be challenging. A 2020 UN report estimated that end-to-end supply chains’ impact on emissions is more than five times that of companies’ direct operations. Also, cajoling all the independent and subsidiary operators along the supply chain toward sustainability may be a herculean effort. Still, procurement departments may be best suited for the undertaking.

“Procurement appears to be the ideal department to guide a supply chain toward sustainability because its function intersects many departments within a company – and extends outside the organization,” says Wendy Tate, a supply chain management professor at UT and co-author of the study. “Procurement’s contacts and scope favorably situate it to promote cooperation and coordination among the multiple players involved in making supply chains sustainable.”

“With third-party expenditures representing over 55 percent of a company’s revenue, optimizing this spending provides a significant opportunity for companies to gain a competitive advantage regarding the impact on both cost and sustainability,” says Yves Thill, a partner in the Strategic Operations Practice at Kearney. “In the wake of the pandemic, procurement leaders are in a unique position not only to lead their organizations efforts’ in driving sustainable and inclusive business practices but also to redefine and reinvent global supply chains.”

According to Kearney’s 2020 Assessment of Excellence in Procurement Survey, in 90 percent of leading organizations, procurement plays a pivotal role in growing sustainability investments; yet, the paper reveals that procurement often is not included in companies’ sustainability planning. How, then, can procurement departments take advantage of their strategic position to lead supply chain sustainability projects? Through interviews with supply chain professionals and focus groups from 14 companies across industry, plus extensive research and an examination of the literature (thoroughly footnoted), the authors identify seven capabilities that procurement organizations should adopt to promote sustainability:

  • Culture: Clear sustainability vision with executive-level buy-in
  • Competencies: Skills to perform the necessary work with an attitude of openness and cooperation
  • Strategy: Sustainability mindset integrated into procurement strategies
  • Ecosystem: Interconnected network enabling innovation and value creation across the supply chain
  • Governance and Structure: Appropriate organizational structure and processes – given the sustainability agenda’s maturity, scope and strategy – which ensure continued progress
  • Plan and Measure: Concrete sourcing plans with clear targets and metrics that offer real opportunities for sustainability
  • Communication: Internal and external communication fostering transparency and driving positive engagement and collaboration

The authors analyze and explain each capability’s role in developing a company-wide sustainability mindset that will drive sustainable practices. The paper includes numerous observations from interviewees regarding their organizations’ sustainability work, and it offers case studies from companies that are making significant strides toward sustainability.

One such case study covers Firmenich, a company with a strong sustainability culture and a drive to engage beyond its organization’s boundaries to achieve their mission to “operate globally with the highest standards of governance, ethics and transparency and deliver 100 percent of products with a measurably improved social and environmental impact.”

“We see with Firmenich and other companies that sustainability across the supply chain is within reach,” Andrea Sordi, co-author and GSCI professor, says. “More and more, government, society, customers and the workforce expect companies to be environmentally responsible. So, this is no longer an either/or discussion of economics versus sustainability. It is an economics and sustainability discussion. With this paper, we suggest a path toward economically sound sustainability.”

To that end, the authors present a “Seven Capability Pillars” framework (Appendix 1) to help sustainability teams strengthen their capabilities, with the idea that they will first attain compliance, then competency, then value creation. Appendix 2 provides a self-assessment tool for organizations to gauge their maturity and set sustainability roadmaps.

“Unlocking Value Through Sustainable Procurement” is the Global Supply Chain Institute's 26th white paper. Copies of GSCI's previous white papers also are available for download.

About the Global Supply Chain Institute at the University of Tennessee, Knoxville’s Haslam College of Business

The Global Supply Chain Institute is the hub of a global network of supply chain professionals, corporate partners, students and academics. GSCI shares industry insights and best practices by producing some of the field’s most cutting-edge white papers and industry research, giving its partners access to the ideas, network and education they need to stay ahead of supply chain trends and bring their organizations to the forefront of the industry.

About Kearney

Kearney is a leading global management consulting firm with deep-rooted expertise in strategic transformation. We work with more than three-quarters of the Fortune Global 500, as well as with government bodies and nonprofit organizations. As a global consulting partnership in more than 40 countries, our people make us who we are. We’re individuals who take as much joy from those we work with as the work itself. Driven to be the difference between a big idea and making it happen, we help our clients break through. To learn more about Kearney, please visit www.kearney.com.

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CONTACT:

Scott McNutt, business writer/publicist, rmcnutt4@utk.edu