Article By Terry Smagh, Senior Vice President and General Manager, Asia Pacific and Japan at Infor
Priorities in the supply chain are expanding, moving away from cost as the main driver behind purchasing decisions. Now, sustainability and ethical sourcing are grabbing a portion of the spotlight.
Government mandates, along with consumer pressures, call for greater transparency about the use of resources and fair labour conditions. Buyers are expected to make purchases from suppliers with unblemished histories, fair treatment of labour, and conscientious uses of water, electricity, and earth elements.
But can the risks associated with rising costs be addressed at the same time? As supply chain officers make sustainability shifts in their supplier networks, they must decide when and where profitability enters the equation. While investing in more sustainable practices and tracking, how can savings—or increased sales—offset the costs?
Sustainability may not seem compatible with profitability
Buyers need to look closer. With the right software solutions in place, buyers can obtain a holistic picture of the many supply chain factors, from sustainability and fair labour practices to costs and profitability. With a complete end-to-end supply chain ecosystem, the smart buyer can make intelligent decisions that support trustworthy suppliers—while making decisions that are also economically sound. In fact, sustainable practices often bring long-term savings.
French technology services and consulting giant Capgemini agrees, saying, “Transitioning to more sustainable ways of sourcing, producing, packaging, or distributing a product can seem like an expensive undertaking. What many companies don’t realise is that implementing the right sustainability measures can actually help cut their costs over the long term.”
Why is this important?
Costs and Complexity Rise: Organisations, small and large, must orchestrate today’s supply chain complexity with care. As fuel prices, transportation fees, tariffs and operating costs climb, buyers must be aware of the new economics, particularly the hidden costs that add up quickly. It would be easy to lose sight of budgets while focusing on avoiding disruptions and meeting delivery dates. Without checks and balances, the organisation can experience spikes in spending that will be hard to pass along to the consumer.
Sustainability Isn’t Cheap: Putting an infrastructure in place to curb gas emissions, treat wastewater, recycle scrap, and optimise energy use often means modernising machinery and upgrading sensors for collecting data. In the textiles supply chain, many small, family-owned farms and mills in Asia and Indonesia are far from high-tech. Adding environmental safeguards requires investment in infrastructure, such as processes for monitoring gas emissions and wastewater. Those costs may be passed on to buyers.
Noncompliance Is Just As Costly: Some regulations have fines. Others simply deny goods to pass the border. The greatest penalties can be from delays as customs forms and reports are scrutinised by border officials. Outrage from consumers, though, is the risk to be avoided at all costs. Bad press around suppliers with ties to forced labour or hazardous working conditions can be devastating to the brand and sales.
How can the buyer comply with expectations while controlling spending?
Visibility Helps: Surprises need to be avoided. An end-to-end ecosystem gives the buyer a holistic view of the supply chain by providing real-time insights into inventory, shipments, and supplier performance, enabling businesses to identify inefficiencies, minimise delays, and optimise resources. This transparency helps avoid excess inventory, reduce transportation costs, and prevent costly disruptions.
Control Internal Processes: The buyer can look inward for opportunities to be more productive and efficient. This can mean reducing administrative paperwork, streamlining processes, ending redundancies, and giving decision-makers tools to help them make well-informed decisions quickly.
Examine Product Design and Assembly: When attention turns to processes, the core manufacturing steps can often be modified to use less energy, produce less waste, and avoid toxins. Components used in making goods, such as glues and fabric dyes, can often be replaced by more environmentally responsible products, which will save costs in the longer term. Also, lighter packaging can help lower fuel costs during transit.
Modern Supply Chain Technology Can Help Save Money: There are many ways modern supply chain solutions save internal resources. Boosting productivity is one way. For example, built-in automation takes care of routine, tedious steps so users only need to review exceptions that require closer scrutiny. Processes, like completing forms for customs, can also be accelerated, saving time. Traceability, too, helps with compliance of sustainability mandates.
Improving Warehouse Operation: Adopting energy-efficient practices can not only lower carbon emissions but can also result in considerable cost savings in warehousing services. “Retrofitting warehouses with energy-saving solutions like LED lighting, solar panels and efficient HVAC systems may require an upfront investment but results in long-term savings on energy bills and enhances a company’s ESG credentials, attracting investors and enhancing brand reputation,” says a recent SDC newsletter.
Incorporating automation technologies such as robotic equipment and data-driven inventory management further optimises energy use, helping warehouses become more sustainable and efficient.
Final take-away: Balance between compliance and costs is possible
To help offset the rise in costs such as transportation and materials and the costs of building a modern infrastructure, organisations can also turn to technology to boost productivity. Modern supply chain solutions help organisations balance sustainability requirements with cost-effective strategies. Organisations can make smart, ethical purchasing decisions without risking cashflow.
