Why Prioritize Investing in Sustainable Supply Chains?

Adam Johnson

Why prioritize investing in sustainable supply chains in 2023?

As organizations battle rising prices, volatile supply chains, climate issues, talent scarcity and the ongoing repercussions of the disruption caused by the pandemic, 73% of executives in a recent survey describe a bleak economic outlook for the next 12 months. Despite the general gloom gleaned from PwC’s 26th Annual Global CEO Survey, which polled 4,410 CEOs in 105 countries and territories in October and November 2022, they expressed optimism about the resilience of their individual organizations.

Many CEOs foresee only a “short and mild” recession, facilitating a quick bounce back. With this in mind, it is important to determine how organizations are managing costs while undertaking transformation of their portfolios.

Continue reading to explore why supply chain investments should take center stage this year.

Why Prioritize Investing in Sustainable Supply Chains? An Overview

Businesses that prioritize supply chain sustainability realize many different benefits, regardless of industry. In fact, a recent study found that 81% of supply chain executives say their company has placed additional focus on sustainability in the past three years.

Investor priorities, growing consumer demand for sustainability, resiliency, transparency and increased ROI are just some of the reasons organizations view investing in supply chain sustainability as a necessity today.

Achieving a sustainable supply chain takes a holistic approach that addresses environmental, social, legal and economic matters throughout the entire supply chain with business practices that are good for the planet and its people while supporting business growth.

Why Prioritize Investing in Sustainable Supply Chains? Resiliency 

Global supply chain bottlenecks and trade/logistical disruptions are perceived to be the biggest risk to growth going forward. Resilience and sustainability are also key supply chain topics. Resilience is essential for organizations to overcome external “black swan events,” such as the COVID-19 pandemic, the ongoing political crisis in Europe, and rising energy shortages. Such events are becoming more frequent and severe, impacting both top and bottom lines.

As organizations consider the supply chain as a revenue driver rather than a cost center, the focus has shifted to new operating models around alternative sourcing, de-globalization or localization, and investment in technology to manage the trade-off between cost and service more intelligently.

The principal focus for investment will be in supply chain technologies by enabling agility, transparency, visibility of supply chains and diversification of supplier base, production and transportation partners.

Actions that organizations are undertaking to diversify the supply chain include: onshoring or nearshoring to bring production bases closer to sources of demand, regionalized and localized supplier base, and diversifying manufacturing base (reducing the reliance on a single geographic region).

Why Prioritize Investing in Sustainable Supply Chains? Transparency

What is transparency, according to the customer? It is openness, clarity, honesty, authenticity, integrity and communication. The expectation that customers will get these from the companies they patronize continues to grow, and companies that ignore the necessity of transparency risk losing business and slowing growth.

As online shopping increased due to the COVID-19 pandemic, 45% of shoppers began focusing on sustainability when making purchasing decisions, and that is likely to continue and expand. Consumers also demand transparency as mistrust of brands is widespread among younger generations.

Why Prioritize Investing in Sustainable Supply Chains? Business Benefits

Aside from meeting essential consumer and investor demands, there is a solid business case for investing in a sustainable supply chain.

The return on investment (ROI) is boosted for a sustainability initiative. According to research, companies that integrate social impact see as much as a 20% increase in sales, up to a 6% increase in share price and a 13% increase in productivity.

But the boosted ROI includes more than just money. Many business leaders say they saved money thanks to making their supply chains more efficient and sustainable while gaining a great reputation base with customers.

Why Prioritize Investing in Sustainable Supply Chains? Attractive to Investors

Customers are important to business, but so is capital investment. Most investment managers believe businesses that do not invest in supply chain sustainability will see their share prices fall. When companies pair supply chain sustainability problems with low environmental, social and governance (ESG) standards, many managers consider the company an investment risk.

Most investors take supply chain sustainability standards into consideration when they make investment decisions and ESG standards will be a key factor in investment decisions indefinitely.

Why Are Companies Hesitant to Invest in Sustainable Supply Chains?

One of the cumulative effects of the crises of the past three years has been to reorder supply-chain priorities. Organizations are now focusing on building more resilient, flexible and dynamic supply chains before the next shock hits.

As mentioned previously, the expectation of a recession is driving a hiring freeze, rethinking of workforce locations, as well as downsizing in many organizations. Sustainability is frequently seen as a cost center, rather than a value center, and the expected downturn only makes finance teams more wary of channeling funds towards sustainability funds.

Why Prioritize Investing in Sustainable Supply Chains? The Bottom Line

As the gloom of a suspected recession casts over many businesses, it is critical to invest in areas to help withstand all the downturns that may arise. Although some experts are reluctant to focus on supply chain issues at the current moment, the vast majority believe that investment in sustainable supply chains will help companies differentiate themselves to attract customers and battle through a recessionary period.

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