Corporate supply chains have been opaque for a long time. This is now changing with greater focus coming on traceability. Coupled with companies becoming more transparent, supply chains are getting the right attention.
So, what is traceability? Traceability is the ability to verify the history and location of products and services in the supply chain. This involves building supply chains that are transparent and providing an easy way to assess where contamination is occurring. Traceability improves product sourcing, reduces costs and ensures a healthy output.
This is not new. For instance, companies have been tracking agricultural commodities and forest products for years. With growth in technology, newer tools land techniques such as sensors and data analytics, are enabling companies to more easily and affordably account for the environmental and social impacts of their materials and products. Thus traceability permeates right from farms, forests and mines to individual factories.
The growth of third-party verification is another factor. Professionals are now readily available to verify the provenance of products and raw materials. This makes it very difficult for companies to escape by feigning ignorance.
Worldwide, many food and beverage companies are partnering with their growers and other agricultural partners to push for sustainable business practices. Examples include Coca- Cola, General Mills, and Mondelez.
So, what is corporate India up to in this area? We studied 214 companies and based on their sustainability reports/business responsibility reports/ annual reports we found some interesting patterns.
Manufacturing: Challenges ahead
Manufacturing being a core process for any business has a significant impact on both – consumption of resources as well as the GHG emissions it generates. Only 38% of India’s top companies disclose data on GHG emissions while 83% of them have set targets. Many manufacturing companies do not have a GHG monitoring mechanism in place around their operations and only a handful from the services industry e.g. IT & banking seemed to report their indirect emissions like electricity consumption, business travel and employee commute. Many low ranked companies are yet to take up initiatives in this regard.
The commonly adopted measures were usage of renewable energy, green certification of production units/buildings, preventing wastage of electricity, improving efficiency of electricity by use of LEDs, etc. Some manufacturing companies also mentioned initiatives such tree plantation for carbon sequestration. Financial institutions (including banks) seem to associate their contribution in this regard by providing funds to firms investing in and/or using renewable energy in their operations at concessionary rates.
Supply Chain: Are we even setting targets?
Our study finds that 23% of the companies studied give specific targets to their suppliers to reduce their carbon footprint. However, only 24% of the companies studied conduct environmental audits of new suppliers before they are brought on board or conduct ongoing periodic audits of existing suppliers on their environmental impact.
However, some top scoring companies ensure that suppliers meet the same environmental and social standards — including disclosure of goals and performance metrics—as the company has set for its internal operations. Some have also taken the initiative of creating sustainability awareness and training for employees of suppliers/vendors. There are also initiatives to help suppliers start their sustainability journey.
Green Logistics: Fighting to find a place
Greening a companies’ transportation systems provides one of the best opportunities to reduce GHG emissions. A sustainable transportation and logistics strategy includes an analysis and monitoring of both owned and third-party operated fleet & logistics, as well as the type of fuel used. 25% of India’s top companies have these parameters as part of their sustainability reporting, though only 6% of the companies studied disclose information related to emissions from logistics.
Sustainable products: The future challenge
Greening the supply chain is not just about reducing emissions in the current supply chain but also developing new products and services that are environmentally sustainable. We find that a significant percent of the companies have programmes to promote sustainable offerings. The questions is how many of these will actually reach the market.
Present imperfect to future perfect
The outcome of the Paris Accord (COP21) has extensive ramifications for both manufacturing and supply chains as India needs achieve its nationally determined emission cuts of 33-35% . Given the rather low key performance of Indian companies on the supply chain front there is an urgent need for action.
The long term objective would be to develop closed loop supply chains. Closed loop supply chains are designed to and managed to explicitly consider the reverse and forward supply chain activities over the entire life cycle of the product. This involves:
– Product returns management including reverse logistics
– Repair, remanufacture and recycle
– Remarking and reuse
Achieving closed loop systems is not exactly easy. It may take several years to achieve it and some industries may never really manage it. However, some immediate steps could include:
1. Choosing the right suppliers: This requires that companies choose the most environmentally responsible suppliers. This also implies that existing suppliers be trained into becoming environmentally responsible.
2. Apply the 80/20 rule: Choose suppliers that contribute most to environmental degradation. Focus attention here to ensure that significant improvements are achieved in the shortest time.
3. Collaborate to conquer: Many companies engage their suppliers in the greening process. Companies can collaborate with their suppliers to come up with environmental guidelines and innovative approaches to combat environmental challenges.
4. Bell the compliance cat: Compliance and execution are at the heart of all change efforts.
Written by : Namrata Rana and Utkarsh Majmudar