How SMEs Benefit from Developing Sustainable Supply Chains
As the business world becomes more aware of sustainability as a driver of profitability rather than purely a reputational tool, the pursuit to extend sustainability into the supply chain is gaining greater weight. Promoting a sustainable supply chain, by integrating environmental considerations into the decision making on suppliers and ensuring suppliers meet certain environmental requirements, has developed into a tool to create value within a business, both through increased profitability and improved reputation. Patagonia Inc. is a shining example of the application of sustainable supply chain management; the company embraces sustainability by taking responsibility to limit the environmental consequences of its actions at every part of its supply chain.
Although large companies have made the most progress in this area, we will explore why SMEs are in a prime position to harness the benefits of sustainable supply chains.
A growing number of businesses are placing sustainability at the heart of their strategy; a study conducted by The Economist Intelligence Unit found that of the 250 senior executives surveyed from large, multinational businesses, 60% viewed sustainability and profitability as equally as important, whilst almost a quarter valued sustainability with more importance than profitability ((The Economist Intelligence Unit, 2019 (source)). And you don’t have to look far to see why. A recent project conducted by the World Economic Forum with the support of Accenture found that the ‘triple advantage’ approach, whereby the goals of profitability, environmental considerations and social awareness are joined up, can have huge benefits to business; when using the ‘triple advantage’ approach, businesses could find increased profits of up to 20%, lower costs of up to 16% and increased brand value of up to 30%, whilst simultaneously reducing emissions by up to a fifth. (source)
This challenges the perception that sustainability is a “nice to have” and demonstrates that it is “good for business”. Indeed, sustainable businesses are ‘long-term greedy’ rather than not greedy at all ((Financial Times, 2019) (source)); i.e. embedding sustainability into business practices enables businesses to reap the rewards on a long-term, rather than short-term, basis.
With over 80% of the environmental damage from a typical company coming from its supply chain, businesses have started to look externally to improve the sustainability of their operations. Extending the ‘triple advantage’ approach to the supply chain has the potential to further increase a business’ environmental sustainability as well as its profitability. One of the key approaches to supply chain sustainability available to large firms is the use of the company’s purchasing power to influence supplier behaviour and assist them with embedding sustainable practices ((McKinsey & Company, 2016 (source)). . Similar to their larger counterparts, the majority of SMEs place value and importance on sustainability. Despite this, many of them perceive barriers in embedding sustainable practices, particularly relating to the resources involved in establishing sustainable practices ((EDIE, 2018) (source)). In this context, promoting sustainability in the supply chain offers a credible and achievable alternative for smaller businesses, enabling to achieve external sustainability gains if they find difficulty in embedding sustainability internally.
The ability of SMEs to have more flexible and reactive supply chains than large companies ((Fowler Welch, 2016) (source)) presents an opportunity for them to pursue external sustainability gains. If managed well, having more flexible and reactive supply chains can enable SMEs to reduce inefficiencies in their supply chains and limit avoidable waste, increasing both their sustainability and profitability ((The Telegraph, 2018 (source)).
So, how can SMEs develop a more sustainable supply chain? Working with local suppliers offers SMEs anachievable and effective tool to encourage them to be more sustainable. SMEs are likely to be higher up the pecking order with small local firms than they are with their bigger suppliers, allowing them to develop a more effective working relationship and have greater influence, thus enabling them to enforce sustainability expectations. In addition, the close proximity of local suppliers reduces delivery emissions, and the greater flexibility and responsiveness of working with local firms enables SMEs to reduce inefficiencies and limit avoidable waste.
In addition to the benefit of sustainability on individual businesses, using local suppliers and in turn promoting more inclusive growth practices that benefit the local economy, contributes to the bigger sustainability picture, and namely Goal 8 of the UN Sustainable Development Goals (SDGs) ((EDIE, 2018) (source)).
Sustainability has broken beyond the bounds of internal business operations. Focusing on the supply chain significantly widens the opportunity for businesses to be sustainable. Although SMEs may face barriers in embedding sustainable practices internally, their ability to have more flexible, responsive and local supply chains presents them a great opportunity to be sustainable, from the source. The focus on local suppliers not only encourages environmental sustainability, but also promotes inclusive growth and contributes to the bigger sustainability picture.