Balancing Sustainability and Your Budget
After years of putting off or ignoring supply chain sustainability in favor of operational sustainability, the average company’s supply chain greenhouse gas (GHG) emissions are now 11.4 times the amount generated by their operations. In retail, that figure soars to 28 times.
Through an insistence on supply chain sustainability, you can dramatically lessen disruptions, reduce environmental risks, ensure supplier compliance and transparency, and help strengthen supporting industries. Even small or incremental changes can make a big difference in a relatively short amount of time.
Consider Costs of Delay
Supply chain sustainability is interchangeable with supply chain risk management. Although sustainability can require a significant investment, the risks being avoided generate substantial costs as well.
Corporate buyers face $120 billion in costs related to environmental risks in their supply chain through 2026. Embracing supply chain sustainability now can reduce risk and avoid most, if not all, of the associated costs.
To paraphrase a well-known idiom, some things not only cost, but they also pay. An estimated 38% of companies say that higher costs make it hard to adopt a sustainable supply chain, even though 34% admit that they expect a sustainable supply chain to ultimately reduce costs.
Your brand and business reputation are just as important. Customers worldwide are demanding better adherence to environmental, social, and governance (ESG) standards. Without supply chain visibility, “guilt by association” damage is much harder to avoid. You may not be aware of n-tier suppliers engaging in environmental injustices or unfair labor practices until customers start holding you accountable.
Review Funding Sources
When budgeting for sustainability initiatives, start by considering not only the cost of solutions but the long-term impact they will have on your bottom line.
Many companies base their investment in supply chain sustainability on a percentage of sales or a percentage of the cost of goods sold (COGS). Some find they can transfer a portion of their operational sustainability budget to supply chain initiatives. Still, others may choose to reduce dividends or retain earnings to help cover the costs.
To make sustainability a priority, you have to look beyond operations. Remarkably, only 37% of companies, including organizations that place a high value on operational sustainability, say they work with suppliers to cut emissions.
Making your supply chain lean and green can be a complex and expensive process. Remember that you don’t have to do everything at once. Your journey toward an eco-friendly supply chain and reduced carbon footprint is generally composed of many smaller, incremental changes over time. Here’s a sampling of incremental supply chain sustainability initiatives that you could pursue at comparatively low cost:
- Revise your warehouse layout. You may find that you can handle the job just as effectively in a smaller footprint.
- Redesign your packaging to use less material. Doing so may also cut costs (plus you get the opportunity to update branding).
- The simplest steps toward optimizing inventory – replacing spreadsheets with inventory management software, for example – can help reduce power consumption and emissions, rationalize warehouse space, maximize operations, and improve transportation efficiency in one fell swoop.
- Use constraint-based planning to help eliminate unnecessary setup, reduce waste, and utilize available capacity more efficiently.
- Upgrade to more efficient truck models when replacing your current delivery fleet.
- Work gradually toward a more sustainable, transparent, and resilient supply chain by holding new suppliers accountable to environmentally friendly standards.
A budget-friendly step to help you plan your sustainability budget and processes to is learn from what others are doing. For example, more than 500 businesses, from aerospace and auto manufacturers to food and pharmaceutical companies, have visited Subaru of Indiana to observe their ESG and sustainability practices.
Following the parent company’s establishment of a zero-waste policy in 2002, Subaru of Indiana undertook operations and supply chain sustainability initiatives that have been overwhelmingly successful. They have not sent anything to a landfill since 2004.
The plant includes a three and a half million square foot factory in which 5,500 people assemble 375,000 cars each year. Since achieving zero-landfill status 18 years ago, Subaru estimates their sustainability practices at the plant save about $1-2 million annually. Some of the initiatives include:
- Suppliers are asked to ship parts in reusable containers so that Styrofoam packaging can be used multiple times.
- Non-hazardous, non-recyclable materials (about 5% of the plant’s total waste) get incinerated. This produces energy and creates ash for use in road-resurfacing material.
- They use vendors to recycle cardboard, paper, aluminum, pallets, and plastics such as polyethylene and polypropylene.
- They offer cash and other rewards for employee suggestions to improve environmental stewardship.
- Polymer bumpers that get damaged on the assembly line are ground up. This is then sent back for re-use in the molding machine.
- Cafeteria waste goes for composting and employees with flower and vegetable gardens get to take the compost home.
Companies often struggle to budget for sustainability initiatives because they simply don’t know enough about costs and impact. To budget for a more sustainable supply chain, consider the costs of delay, review potential funding sources, start with incremental changes, and learn from others.
Redwood Logistics has many supply chain sustainability solutions that can help you budget and execute your program.
Contact us today for more information.