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Challenges to Supply Chain Sustainability

5 minute read

More than ever, supply chain-based organizations are prioritizing sustainability. But that doesn’t mean they’re reaching their goals.

Transitioning to sustainable business operations is tricky. It’s time-consuming, complex, and requires employees from across the company to be on board. For businesses with intricate supply chains, the challenge is even greater.

The numbers vary across industries, but most organizations have some sort of sustainability and/or ESG goals. Despite this, very few companies are achieving those goals.

IBM reports only 35% of companies have acted on their sustainability strategy, and only 40% of companies have identified ways to close their sustainability gaps. Other research found only 2% of corporate sustainability programs achieve their intentions.

Companies need to get on board quickly to build their brand value, prepare for environmental risk, meet consumer demands, attract valuable talent, and improve operations.

However, a few key challenges stand in the way. Keep reading to learn the major obstacles to supply chain sustainability and what companies can do to overcome them.

#1: Increase in initial costs

While sustainability has proven to be a value-add in the long run, the increase in short-term costs to get programs up and running deters companies from making the switch.

A survey of senior executives from global retail and manufacturing firms found increased cost is the biggest obstacle to adopting sustainable supply chain practices, with 38% of companies hesitant to implement initiatives due to the price.

It’s a valid concern—making changes to existing business practices is expensive and time-consuming. For organizations transitioning to sustainable practices, the process involves benchmarking existing measures, re-evaluating and changing suppliers, setting ESG goals and commitments, re-training employees, and more.

It can be especially complex for publicly traded companies since the initial financial hit of the change may cause stock prices to fall.

The increase in short-term costs does often lead to long-term savings, however. Take the example of Unilever. Often viewed as a leader in sustainability practices, Unilever has been transitioning to green electricity, recyclable plastics, and sustainable sourcing for many years. The investments have paid off: Unilever reportedly saved $1.5 billion between 2008 and 2021 through sustainable sourcing practices.

Further Stanford research into sustainability found it would cost $62 trillion for the world to switch to clean energy, but the payback would only take 6 years.

Read: Improving Supply Chain Sustainability: 5 Ways to Get Started

#2: Suppliers don’t follow standards

Another significant obstacle for businesses switching to sustainable practices is the complexity of getting suppliers to follow suit.

Many big companies make sustainability pledges and commit to working with first-tier suppliers who follow the same practices. However, it’s the lower-tier suppliers that often need the most attention.

In fact, research shows a typical company triggers emissions levels up to 20 times higher from its suppliers than from within its own organization, and only 37% of suppliers report engaging with their value partners to cut emissions.

It’s difficult to hold suppliers to a certain standard when many companies don’t know who their lower-tier suppliers are or what sustainability practices they follow. Many third- and fourth-tier suppliers are also located in countries where sustainability regulations are nonexistent or not enforced.

A Harvard Business Review study looked at supplier activity of three major corporations seen as sustainability leaders in their respective industries. Their research found the brands’ lower-tier suppliers were seldom following the standards set by the corporations, which posed serious financial, social, and environmental risks. However, the problems often arose due to the corporations imposing unrealistic deadlines or orders that exceed the suppliers’ capacity, causing the suppliers to bypass sustainability standards to get the work done on time.

#3: Insufficient digital infrastructure

There’s a common saying that “if you can’t measure it, you can’t manage it.” This is especially true for sustainability since the first step to making changes is benchmarking current processes.

Many ESG and sustainability measurement methods are complicated and require advanced technology and skills. Robust digital infrastructure is needed to collect data across the organization and store it in an easily accessible way. This also often includes rolling out new technology to suppliers to get them on board with reporting methods, which comes with a completely different set of challenges.

Having visibility into the entire supply chain network is also vital to improving sustainability, but many organizations are struggling. Since 2015, Forbes has measured the gap in supply chain visibility and found that despite multi-million dollar investments, the industry is going backward, not progressing.

Business leaders know how important digital technologies are to sustainability efforts. In a Gartner sustainability survey, 42% of IT and business leaders said their CIO or CTO plays a critical role as a sustainable business enabler. Additionally, 63% of organizations reported investing in IT and digital solutions as part of their sustainability strategy.

Digital investments benefit organizations in ways other than sustainability, which helps make the case to executives. A PwC survey of 6,000 senior supply chain leaders found those who implemented heavily digital supply chain technologies experienced a 7% decrease in supply chain operations costs.

Read: 5 Focus Areas for Supply Chain Optimization

#4: Lack of talent

The need for green skills is on the rise, but there aren’t enough sustainability professionals to fill the gap.

LinkedIn data shows the demand for green talent will soon outpace supply. Job postings requiring sustainability skills grew at 8% annually over the past five years, but the share of green talent is growing slower, at around 6%.

Another LinkedIn report found green skills are some of the fastest growing skills in the economy. Sustainable fashion, environmental services, and sustainable growth have all grown by more than 60% in the past five years.

Green skills are also becoming more required in traditional, non-green jobs. For example, a Financial Analyst might need to have basic knowledge of energy consumption to calculate ESG financial metrics.

However, a Boston Consulting Group and Microsoft report published earlier this year found there’s a critical shortage of sustainability talent, which is hindering companies from transitioning to sustainable operations.

How are companies handling the talent shortage? Growing existing employee skills. The same research found 68% of surveyed sustainability leaders were hired from within, and 60% of employees on sustainability teams say they weren’t hired for their sustainability expertise. Instead, companies are focusing on employees who have a strong set of functional, transformational, and/or data and digital expertise, and teaching them sustainability skills on the job.

What can companies do about these sustainability obstacles?

To overcome these supply chain sustainability challenges, companies can bring in consultative expertise to create comprehensive sustainability and ESG goals and strategies.

At Catena Solutions, we can help provide the talent your organization needs for effective transformation. Contact us to learn more.