Insight

The world sees how firms manage supply chain sustainability

The pandemic has accelerated the shift of companies toward greater transparency and more accountability for supply chains

Rob Barrett

Rob Barrett

Principal, Supply Chain Leader, KPMG US

+1 480-459-3535

Investments in supply chain sustainability have reached a critical point. Global trends continue to lead toward a greater corporate emphasis on strengthening the sustainability of supply chains. Far from diverting attention from sustainability goals, the pandemic has accelerated the movement of companies along a road toward greater transparency and more accountability. There seems to be no turning back.

These are among the main findings of a new, global survey of 2,400 managers and executives working in a range of industries and functions, including the supply chain. The survey1 was co-sponsored by KPMG and was devised by the Center for Transportation & Logistics at the Massachusetts Institute of Technology and the Council of Supply Chain Management Professionals.

This report is the second, annual global survey of its kind and it echoes many of the perceptions KPMG has analyzed, based on years of client interactions. The report’s authors had expected COVID-19 might dampen companies’ enthusiasm for investing in supply chain sustainability (SCS), but the latest survey shows the opposite occurred. Eighty-two percent of respondents said their firm’s commitment to SCS had either increased or stayed the same since the start of the pandemic. Interest in human rights protection, workers’ welfare and renewable energy increased significantly over the past year.

The impact of COVID-19 has actually heightened awareness of the vulnerability of supply chains to economic disruptions and natural disasters. This is especially true with regard to the social impact of supply chains on ‘essential’ workers and the toll exacted by COVID-19 on the entire workforce.

The implications are far-reaching, as the report makes clear. There is growing pressure on companies to focus on SCS and it’s coming from investors, governments and international organizations, the survey shows. Interviewees for the report add that customers were the main driver. When executives inside companies lead the effort, the momentum for SCS transformation seems unstoppable.

One key effect of this pressure is to place supply chain professionals at the center of corporate change. No longer is SCS thought of merely as the cost of doing business; compliance is necessary but no longer sufficient. The next step is to understand that SCS is foundational to the transformation of the enterprise as a whole. Supply chain professionals will increasingly drive sustainability as one of the top metrics that are tracked to assess the health of the business. It will be their job to find ways to overcome hurdles to sustainability, such as gaining the support of suppliers for a company’s SCS goals.

As SCS grows in importance, this will bring more scrutiny from outside stakeholders, especially investors and customers. Companies will need to show they are not “greenwashing”, but are genuinely engaged in improving SCS every year, because the health of the Earth depends on it. When executives get on board, they push to develop metrics to show that corporate success is tied to supply chain sustainability.

KPMG fully supports the integration of SCS into corporate strategy and helps advise companies on how to implement this transformation. Due to an increase in corporate adoption of ESG reporting, we have seen a progression towards an increased scope and accuracy of reporting. Concurrently, we are sensing a shift in the drivers of sustainability, from a response to external pressure to an opportunity to differentiate themselves.

Increasingly companies want to show they are at least one step ahead of their competitors in the field of SCS, in the eyes of customers, investors and their own employees. Improved supply chain transparency is critical to firms’ responses, the report says.

The survey highlights some challenges in attaining these goals, however. One is resources. Despite the growing commitment to SCS, there was a wide gap between rhetoric and action, especially in terms of organizations ‘putting money where their mouth is.’ Nearly three out of five respondents said they were investing in measures to enhance sustainability, but this ratio has hardly budged from the number the previous year.

This may reflect the tightening of budgets caused by the pandemic, particularly among smaller companies. In fact, the survey shows there is also a significant gap between the commitments of large companies and small ones toward SCS, which is not just a function of COVID-19. Larger enterprises are in the public eye to a greater extent than small ones and hence face stronger pressure from external stakeholders to do more to improve sustainability.

The authors of the report have taken a more nuanced view of the differences between companies than merely size. They found that respondents tend to cluster around six types. At one end are companies with low effort and “dreamers” whose soaring rhetoric isn’t matched by actions. At the other end are those that are trying hard to implement their SCS goals and others that are leaders in their industries on this score. The clusters are based on four measures: pressure, commitment, investment in SCS and disclosure.

These leading companies are going to be the ones to watch closely, both to see if they remain committed to SCS implementation and to discern whether they become role models to others. Indeed, it’s to be hoped that those six SCS types are actually stepping stones on the way to an environment in which sustainability is not only part of corporate strategy but also organizational culture. If this is achieved, it will become the business of every employee to be aware of—and put into effect—the steps that support and further the goals of SCS. 

For now, it is too early to say whether SCS will be embedded in most companies’ business strategy. There are many obstacles that still need to be overcome. Yet by linking sustainability efforts to corporate performance, companies are likely to be benefit from a virtuous circle in which enhanced SCS drives business improvements which, in turn, encourage further measures to safeguard a healthy planet.

Footnote

  1. MIT Center for Transportation & Logistics and Council of Supply Chain Management Professionals, State of Supply Chain Sustainability 2021, Cambridge, MA, MIT Center for Transportation & Logistics, 2021.