With inflationary pressures in the global economy, companies must not only focus on minimizing costs, but also ensure a reliable supply chain at the same time. The additional challenge: meeting environmental, social and governance (ESG) goals. Supply chain resilience, cost management and sustainability are all important goals that may seem contradictory at first glance. However, companies must achieve these goals to survive in a competitive marketplace.
Resilient supply chains can only emerge where procurement experts have the entire extended supply chain in mind. This starts with the source of raw materials and ends with the delivery of the final product. They must consider all available options and adapt to situations in near real-time by working with external partners. They must provide transparency and align people, processes, and technologies to increase resilience without driving up costs.
Many believe that trying to build resilient supply chains always comes at the expense of ESG goals or another project. And yes, quite often various measures that lead to more resilience and lower risk result in an increased impact on the climate – for example, when more goods are produced and stored. Even more reason to keep an eye on the impact and actively seek solutions.
Resilience without unnecessarily increasing costs can be achieved by drawing on the full range of solutions available to address potential supply chain risks. By strategically identifying and prioritizing options, organizations can minimize possible conflicts between sustainability goals and operational costs. This includes three key elements:
- Identify redundant links in the supply chain.
- The ability to determine the right timing and options (especially when disruptions are imminent)
- The ability to take advantage of these options quickly and in near real-time
Of course, procurement teams can also create alternatives by building concurrent supply chains or increasing inventory levels, both common methods for building frictionless supply chains. But these approaches can be costly.
There are good examples of where building resilient supply chains and achieving ESG goals go hand in hand: Electrification of some parts of the supply chain can offer logistics additional options that a company can use to balance cost and speed. This includes generating own green energy to increase the robustness of production sites. Or equipping smaller and less experienced suppliers with the latest ESG expertise, tracking their emissions reductions and – if successful – rewarding them. Such measures can bring a two-fold benefit: Minimizing costs and emissions for suppliers and strengthening the partnership between suppliers and companies.
Here’s a real-world example: Ford, the automotive manufacturer, launched a program to reduce the environmental impact of its vehicles, for example, by cutting greenhouse gas emissions and improving fuel efficiency. It has also introduced sustainable practices in its production processes by using renewable energy sources and recycling materials. Recently, the company announced an alliance that is investing in a nickel plant in Indonesia with two other companies to secure other key minerals needed to make batteries for electric vehicles. This will help ensure “that the nickel is mined in line with our company’s sustainability goals by setting the right ESG standards as we scale,” said Lisa Drake, vice president of industrialization for the Ford Model e EV.
There’s no doubt about it: procurement professionals face daunting but worthwhile challenges. They will not succeed in reconciling resilience and ESG goals alone. The foundation is tight collaboration between ESG and procurement teams. Together, they can leverage their synergies to develop compelling business models for new technologies and other supply chain investments.
You have some questions or doubts about implementation processes? Get in touch and explain your situation to our expert team!