THIS EXTRACT FROM THE STATE OF SUPPLY CHAIN SUSTAINABILITY 2020 REPORT BY ALEXIS BATEMAN AND DONNA PALUMBO-MIELE IS © 2020 AND REPRODUCED WITH PERMISSION FROM THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY CENTER FOR TRANSPORTATION & LOGISTICS. ALL RIGHTS RESERVED.
This first annual edition of the State of Supply Chain Sustainability 2020 Report addresses numerous dimensions of supply chain sustainability and provides a snapshot to inform both supply chain professionals and future business strategy.
This year’s study tackles the pressure to act, how goals and investments are aligned (or not), corporate preferences for reporting mechanisms, as well as the role of the supply chain professional in sustainability. This specific excerpt addresses the findings on the pressure to act and the role of the supply chain professional.
To gain a broad outlook on supply chain sustainability in 2019, the Massachusetts Institute of Technology (MIT) Center for Transportation & Logistics (CTL) and the Council of Supply Chain Management Professionals (CSCMP) took a three-tiered approach. First, we conducted a large-scale survey of 1,128 supply chain professionals from a variety of industries that included manufacturing, logistics, retail, health care, and wholesale, among others. Next, we interviewed experienced sustainability and supply chain executives. Finally, we analyzed information from news, social media, and reports.
To purchase or download (free to CSCMP members) a copy of the report, visit education.cscmp.org.
The pressure to act
We identified several key themes regarding how companies set supply chain sustainability goals and subsequently invest in implementing them. The first theme was the pressure to act. For those that feel pressure to increase supply chain sustainability, the pressure is not limited to one source—survey results illustrated that it is diffuse across many sources.
A little under half of survey respondents mentioned receiving pressure to improve their firms’ supply chain sustainability adoption. For those feeling pressure, on average, respondents identified feeling some to moderate levels of pressure from different sources including nongovernmental organizations (NGOs), media, investors, industry associations, governments, end consumers, corporate buyers, local communities, and company executives (see Figure 1). The most intense pressure was reported as coming from government, mass media, and executives. But what can be seen most clearly is that, for those feeling pressure, it is diffuse and is not exclusive to a single source. This is contrary to accepted wisdom that NGOs and consumers are primary pressure sources.
While supply chain professionals who responded to the survey indicated that they felt some to moderate levels of pressure across different sources, the majority of the interviewed executives reported feeling high levels of pressure from those same sources, and that pressure has intensified in the last two to five years.
This difference in perception may be a result of a difference in how professionals and executives interact with different stakeholders, which may affect their subsequent awareness of growing sources of pressure. This might suggest that in coming years, supply chain professionals may see more pressure to act as pressure trickles down from executives in the form of responsibilities and key performance indicators (KPIs).1
While historical perceptions of the pressure to address environmental and social concerns have often been tied to NGOs, like Greenpeace, or conscientious consumer segments, executives highlighted the changing nature of these forces.2In addition to external pressures to act, the survey results showed that current and prospective employees are exerting some pressure, and their voiced desire to work for a more responsible workplace is being heard clearly by many executives.
Although pressure was present in all industries in the survey, some are more heavily impacted than others. Survey results showed that extractive industries received the most pressure to bolster supply chain sustainability, followed by agriculture, forestry, fishing, and hunting, and construction (see Figure 2). The industries that received the least amount of pressure were health care and services and wholesale, with more than half of the respondents in those industries responding that they felt no pressure at all.
This finding aligns with our analysis of media content, which shows that there was extensive coverage of the environmental and social impact of extractive industries. Mining in particular has come under increased scrutiny, given its pivotal role in energy and construction as well as in several high-profile environmental disasters.3,4,5
Similarly, food sectors, such as agriculture and fishing, have found themselves at the center of controversies around environmental impacts like clear-cutting of rainforests and wide-ranging labor issues such as slave and child labor.6Executive interviews highlighted how companies were being urged to improve their supply chain sustainability performance and what that means for players across the supply chain.
One executive described this pressure as “a waterfall effect” in that consumer-facing brands are feeling the heat on all fronts, but the pressure to act was passed on from the brands to their suppliers. Brands conveyed these pressures to suppliers in the form of required compliance with supplier codes of conduct as well as the tracking and reporting of sustainability-related impacts.
While regulatory pressure was not an overwhelming factor in the survey responses, it was a reoccurring theme in the interviews and content analysis, both in terms of existing regulation and the “threat” of new regulations.7
Policies such as the U.K.’s Modern Slavery Act, the California Supply Chain Transparency Act, and the U.S.’s Dodd-Frank Wall Street Reform and Consumer Protection Act were all referred to as key regulatory frameworks that push for greater due diligence in the supply chain.These pieces of legislation have rules in place to ensure no forced, slave, or human-trafficked labor in supply chains, in some cases all the way back to raw material. For example, the Dodd-Frank Act requires that companies apply due diligence to ensure that they are not sourcing from conflict zones like the Democratic Republic of the Congo.
According to multiple executives, the effort to comply with legislation is no small task and has prompted companies to not only be aware of practices among their direct suppliers but also to know what is going on in deep-tier suppliers with whom they typically do not interact.8
Does pressure drive corporate commitment?
The short answer is yes. Companies where respondents felt any level of pressure were far more likely to have publicly stated goals than those where respondents did not. Of the respondents who felt pressure, over two-thirds indicated that their company both receives pressure and has goals.
Conversely, of those who did not feel pressure, a similar proportion indicated their company does not have publicly stated goals. While this does not indicate direct causation, it can be deduced from these findings that pressure drives action, especially in the form of goal setting. For those looking to drive more corporate commitment to supply sustainability, pressure is the key.
Supply chain professionals are engaged
Another novel finding from the research is that sustainability, in many cases, is now part of supply chain professionals’ responsibilities. Our research on supply chain roles ranging from junior- and manager-level professionals all the way up to executives indicates that adoption of sustainability is impacting the profession.
As businesses have come under pressure to tackle social and environmental issues, they have created sustainability teams or departments to carry out this work. Initially, these departments were often “bolt-on” units with limited funding or power to drive change. As some companies have come to recognize that the supply chain function is central to sustainability, the discipline has shouldered more responsibility for related projects. Many of the bolt-on units created to take charge of these projects have been incorporated into supply chain groups.
This phenomenon was clearly represented in the research. Nearly half of survey respondents were either a primary decision maker or directly involved with sustainability. While the nature of the survey could be biased toward professionals who are already involved with sustainability, there is evidence that supply chain’s involvement in sustainability efforts is part of an industry trend. The executives interviewed identified the impact of this trend in most professional supply chain roles.
Companies have adopted a variety of approaches to the assignment responsibility for sustainability. For example, some companies allocate supply chain practitioners to cross-functional departments or give practitioners in related functions such as procurement and logistics more responsibility for sustainability. In light of this trend, it appears that the days of a separate sustainability department with a limited role are fading.
One executive likened this change to the evolution of the role of “chief quality officer” and other quality-control functions that gained prominence in the 1980s and ’90s. These responsibilities have slowly been absorbed into all departments and functions. Sustainability may be taking the same path—and integration across all business functions is a key feature of this changing landscape.
Many executives maintained that placing responsibility for sustainability in supply chain roles yields practical and strategic benefits. This approach to sustainability is reshaping the upper echelons of supply chain management. A portion of the executives interviewed are responsible for expanding sustainability in their company and supply chains. This is echoed by experts tracking the industry, such as Michelle Meyer, client executive for Gartner and past board chair for CSCMP. She noted that she has seen “more supply chain executives ‘own’ sustainability than ever before.”
This phenomenon is not confined to veteran supply chain professionals. More than 20% of applicants to the MIT Supply Chain Management master’s program cited sustainability as one of their key interests influencing their decision to pursue a career in supply chain. This attitude is further evidenced in recruitment efforts.
However, the level of engagement with sustainability is not standard across industries (see Figure 3). Agriculture, forestry, fishing, and hunting had the most respondents who were primary decision makers or directly involved, and therefore had the highest level of engagement, followed by accommodation and food service, construction, and utilities. Retail and health care and services had the most respondents who were not at all engaged.
The supply chain sustainability picture within the profession is not all positive. Some survey respondents said they lacked responsibility for sustainability or were unaware of their company’s activities in this area. One respondent said, “This survey made me aware of how much I do not know about our supply chain sustainability strategy.” Others identified an acute lack of opportunity for engagement and/or limited training to get up to speed on supply chain sustainability. Four executives reinforced this point, indicating that a lack of training can be a significant barrier to engagement in sustainability. These findings suggest a dearth of educational opportunities for professionals seeking to find an entry point into supply chain sustainability and to scale up their knowledge quickly and comprehensively.
An additional finding is one that has important implications for decision makers in supply chain sustainability: While being sustainable is commonly touted as the right thing to do, the right decisions on how and when to act are not always clear.
Executive input showed that while there is momentum to pursue supply chain sustainability, the journey is impeded by financial, physical, and technological barriers. For instance, in industries with low profit margins, such as apparel, it can be challenging to justify upfront investment in initiatives that may not pay off in the near term.
Other executives said that they face difficult trade-offs when managing supply chains while also trying to advance social and environmental agendas. Some companies struggle to align internally and externally on what are the most pressing issues to address within the social and environmental landscape. Strategies that seek to align sustainability goals with internal and external expectations, practices, timelines, and financing may enable more effective outcomes.
Conclusion
This inaugural State of Supply Chain Sustainability 2020 Report identified many key learnings, including:
• Pressure to act on sustainability is coming from multiple sources, not just NGOs.
• Pressure drives action; companies receiving pressure are more likely to set sustainability goals.
Nuanced learnings emerged in the differences among industries in goals and practices, as well as between professional and executive perceptions. Understanding the big picture of supply chain sustainability, as well as recognizing differences across professional positions and industries, can help equip supply chain professionals for the future.
The 2020 report will examine these uncertainties, what role supply chain management will continue to play in pursuing progress toward achieving social and environmental goals, and will provide further clarity on the likely evolution of supply chain sustainability.
Notes:
1. A. Sartori, “Increasing Pressure to Demonstrate Supply Chain Sustainability: How Can It Become an Opportunity?” Consumer Goods Forum (2018)
2. M. Jones, “The Pressure Is Mounting for Sustainable Supply Chains,” Tech HQ (2019)
3. Deloitte, “Tracking the Trends 2018: The Top 10 Issues Shaping Mining in the Year Ahead” (2018)
4. K. Hund, D. Porta, T.P. LaFabregas, T. Laing, and J. Drexhage, “Minerals for Climate in the Metals and Minerals Industry,” Matériaux & Techniques (2018): 105(503)
5. S. Pearson, L. Magalhaes, and P. Kowsmann, “Brazil’s Vale Vowed ‘Never Again.’ Then Another Dam Collapsed,” The Wall Street Journal (2019)
6. Food and Agriculture Organizations of the United Nations, “Child Labour in Agriculture,” (2019)
7. Gartner, “Supply Chain Brief: Make Strategic Choices for Measuring and Reporting Sustainability Performance What You Need to Know” (2019)
8. Supply Chain Navigator, “Intel: The Making of a Conflict-Free Supply Chain” (2015)
