Sustainability ranks low on list of supply chain priorities
Organizations are placing less importance on sustainability efforts in the supply chain, as they try to balance short-term business results with long-term sustainability goals.
Organizations see the supply chain as an area where they can target and improve sustainability goals. But efforts to do so might be fading in importance.
Sustainability has dropped in a ranking of concerns for supply chain management leaders, academics and industry experts, according to the recently released "Top 10 Supply Chain Trends 2024" report from the Association for Supply Chain Management (ASCM). "Green and circular supply chains" came in ninth on the list, a drop of two places from the previous year's report, in which a panel of experts created, researched and prioritized the rankings.
The report's most prevalent categories focused on the digitization of supply chains and adoption of new technologies, which was reflected in the high rankings of digital supply chain, big data and analytics, artificial intelligence, and investment in people and systems.
But based on the report, the story of supply chain and sustainability is mixed right now, said Abe Eshkenazi, CEO at ASCM.
The general consensus is that sustainability is a critical issue in supply chain management. But there's a clash between short-term business concerns and long-term benefits of sustainability initiatives, Eshkenazi said. Organizations are also concerned with the evolving list of environmental, social and corporate governance regulations that are coming on.
"In terms of the pressure for reporting and compliance overall, supply chain leaders aren't ignoring sustainability. It's just become a challenge to implement sustainability initiatives," he said.
This is an area where Ashkenazi admits that organizations like the ASCM are letting companies down as far as providing useful information about sustainability regulations.
"We have an opportunity to be more upfront in terms of what the appropriate metrics are, what accountability is and what reporting requirements are," he said. "A lot of companies are shying away from being out front about this and, thereby, opening themselves be held accountable to prove that they really are consistent with the letter of the law."
Sustainability has dropped on the ASCM's rankings list, but it is still a focus of investment in advanced technologies like AI for many organizations, Eshkenazi said. Supply chain applications that use AI and analytics to gather and process data are becoming increasingly valuable.
"Data is gold within a supply chain, and access to data can only be done through a technology solution," he said. "It is extremely difficult to use a one-to-one relationship to get information from your peers, especially with complex supply chains."
However, for many, the investment in technology is aimed at helping with concerns around supply chain resiliency and visibility as well as the mitigation of disruptions, Eshkenazi said.
"The supply chain industry has been wracked with disruptions from cyber to geopolitical to environmental to the wars in Ukraine and Gaza," he said. "You need to be responsive to the changes in the marketplace. And you can only do so if you have a clear line of sight on all your supply chain partners in the activities within your supply chain."
Companies can do better in ensuring more sustainable supply chains by designing it up front rather than treating it as a back-end issue, Eshkenazi said. Consumers can also play a part by becoming educated on the issues and putting more demands on companies to include sustainability as part of the supply chain that produces and delivers products.
"Conscious consumers should be aware of what's in their product and how it got there," he said. "But it's not easy for consumers to understand the complexity of supply chains."
Costs top sustainability in supply chains
Recent research from Nucleus Research, sponsored by ERP vendor Epicor, also indicated that sustainability is low on a list of concerns from supply chain leaders.
The 2024 Agility Index surveyed 1,700 supply chain leaders in organizations from a variety of industries across the globe on their main supply chain issues and technology investments.
In the survey, rising costs were the most significant of the top 10 challenges in supply chain management, identified by 47% of respondents, followed by supply shortages (41%), cybersecurity (33%), and labor shortages (28%). Planning for ESG regulation compliance was identified by 17%, higher than only "Something Else" at 1%.
In terms of the pressure for reporting and compliance overall, supply chain leaders aren't ignoring sustainability. it's just become a challenge to implement sustainability initiatives.
Abe EshkenaziCEO, Association for Supply Chain Management
"This is not particularly surprising, as businesses are businesses, and ultimately, they're going to be most concerned about costs and paying bills over regulatory and sustainability concerns," said Sam Hamway, an analyst at Nucleus Research.
This is not to say that ESG concerns are unimportant for many organizations, particularly in Europe where there is more emphasis on sustainability in supply chains, Hamway said.
Many organizations view incoming ESG regulations as just another type of supply chain shock, the same as geopolitical risks or a supplier going out of business, he said. Those that have a digitized supply chain that takes advantage of technologies such as machine learning for predictive analytics or generative AI to allocate resources are better equipped to handle these shocks.
"If you have a leaner supply chain, it's much easier to adapt to those changes and take them in stride," Hamway said. "It's the same as organizations moving from paper-based processes to a digital supply chain management system. Those with paper-based processes are going to be much more affected by regulations, especially when their competition is more advanced and using digital operations."
Sustainability a low priority for procurement
Procurement is a critical aspect of supply chain management. Recent research suggests that sustainability is not a top priority for procurement professionals.
The CPO Agenda from research and market intelligence firm The Hackett Group, a survey of procurement executives, ranks embedding sustainability as the ninth out of the Top 10 priorities for 2024. Economic and operational issues, such as containing costs, ensuring supply continuity and dealing with inflation, were listed as the top priorities.
Sustainability rose one place from the previous year's priorities Top 10 ranking. But just 48% of organizations reported having a transformation initiative planned to address sustainable procurement in 2024, according to the report. However, the report also noted that there is a "clear regional difference in the importance placed on embedding sustainability." For example, 78% of European organizations were planning sustainability initiatives in 2024 compared to 33% of North American organizations.
A survey report released in April from Supplier Ethical Data Exchange (Sedex) also indicated that North American procurement leaders are not prioritizing sustainability. London-based Sedex is a global technology firm that provides data and services to help organizations improve supply chain sustainability and ethical trade practices.
The survey of 250 senior procurement professionals found that 40% of respondents had no sustainability criteria as part of their decision-making processes. Further, 50% of respondents acknowledged that sustainability is an afterthought or not considered at all in general business decisions.
This contrasts with the stated intentions of many companies, as 90% of the Russell 1000 Index -- a benchmark used by investors of the top 1,000 companies by market capitalization in the United States -- produce annual ESG reports that promote ambitious ESG goals, according to Sedex.
"This highlights the gap between company commitments and the day-to-day realities of business operations," the report read. "Despite continued demands from investors, legislators and consumers for companies to operate more sustainably, these demands evidently remain secondary for many sourcing departments."
Jim O'Donnell is a senior news writer for TechTarget Editorial who covers ERP and other enterprise applications.
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