Customers demand more sustainable supply chains

Sustainable supply chains climb the corporate agenda as a consequence of increased market demand.This is the key finding from an international survey conducted by DNV GL and the research institute GFK Eurisko on more than 2,160 professionals from businesses in different sectors in Europe, The Americas and Asia.

“With globalization and the increase in the number of intermediaries, a secure and defendable supply chain is important in order to avoid disruptions that can affect business performance. Sustainable sourcing is a fast developing requirement, driven by customers. Companies that don’t act will have a hard time competing,” says Luca Crisciotti, CEO of DNV GL – Business Assurance.

When choosing a supplier or making buying decisions, 96% of the companies consider sustainability aspects, with low environmental impact as the most important aspect (56%). Health and safety of workers (51%) and economic aspects (43%) follow. Ethics comes next (29%), with proportions higher than average among sustainability “leaders”, i.e. companies with a mature capability to handle the supply chain in a sustainable way (+9% vs average).

42% of firms already adopt formal supply chain strategies contemplating sustainability; this percentage rises to 57% for bigger corporations and 81% for leaders.

80% of companies experienced pressure from their customers to demonstrate the sustainability of their supply chains. Of all the stakeholder groups, customers are the most interested in sustainability. They are driving this more than the authorities (33%) and other external stakeholders, such as local communities (7%), NGOs (4%) and unions (2%).

Key initiatives

Even though most companies feel they are just getting started, they are making concrete efforts to make their supply chain more sustainable.

Luca Crisciotti

Luca Crisciotti: “Sustainable sourcing is a fast developing requirement, driven by customers.”

So far, supplier audits are the most common initiative. 41% of companies claim to have undertaken one in the last three years (rates reach 57% for leaders). The proactive adoption and communication of an ad hoc strategy proved to be quite widespread among leaders (60%) and bigger corporations (1 in 3). Among small companies only 15% companies did this and 36% didn’t undertake any activity at all. Among the sectors, with 47% of companies having conducted audits and 36% adopting and communicating specific sustainability policies, food and beverage stands out as one of the most active industries.

A lot remains to be done. Two-thirds of companies limit their activities to tier 1 suppliers, meaning those companies they buy from directly, without any real control of other activities upstream in the supply chain.

Harmonized frame

Companies are hindered from progressing on sustainable sourcing for two reasons: economic shortages and the lack of a clear and harmonized frame of reference. Conflicting demands from customers (22%), lack of consensus on what to do (21%) and resistance from companies in the supply chain (20%) are barriers.
Despite these difficulties, benefits outweigh costs for 40% of the companies. Ability to meet customer needs (54%) is the top reason. Leaders are those benefiting the most in terms of improving their market performance: increased market share (45%), competitive advantage (52%) and enhancing brand reputation (59%) are key explanations.

Future outlook

Companies expect supply chain sustainability to become more critical for market success, both when it comes to meeting customer needs (+2%) and most of all to gain a competitive edge (+ 19%), improve market share (+17%) and enhance their brand reputation (+7%). 66% of the companies surveyed expect to improve the sustainability of their supply chains in three years’ time.

“To face tomorrows’ business climate, three basic steps have to be taken. Firstly, companies need to understand their key stakeholders’ expectations with respect to the sustainability of their supply chain. Secondly, they need to clearly define their own expectations, inform their suppliers and require them to act coherently. Lastly, it is fundamental to develop a method to check and make sure that all the members in the supply chain understand and implement the requests,” says Crisciotti.