Three steps towards a sustainable supply chain

Sustainable supply chains require strategic partnerships.

Companies face the herculean task of becoming more sustainable. But the necessary change-around does not stop at the company itself, the entire supply chain has to be examined. EY has already guided countless companies through this process with a step-by-step approach.

Three-step approach

Step 1: Measure the impact

You need to measure not only your own footprint but also that of the entire supply chain. While a clear grasp of your impact is essential, often companies don't know how to calculate it.

Step 2: Set priorities

Then it's time to set priorities. If you’ve measured your impact properly, these will immediately become clear. If raw materials account for eighty percent of your footprint, then you know where to start. Which materials are critical and for which are alternatives available? This way you can identify your strategically important suppliers.

Step 3: Develop strategic relationships

This then gives you your third step: developing strategic relationships with those suppliers. Such relationships go much further than just ordering and paying. They include, for example, thinking together about restructuring the supply chain. Something that calls for quite some adjustment.

Pressure

This is not an optional exercise. Companies might have had a choice before, but not anymore. Europe wants to be climate neutral by 2050, and that requires everyone to contribute. Companies must change now.

For example, from 2023 all larger companies must include non-financial sustainability information in their financial reporting. Some have yet to start, while others already collect certain data but report in different ways, with different names and degrees of detail. From now on everyone will have to use the same standards and formats. Even the largest companies are not ready for that.

Scope 3

All this exposes the biggest challenge: tackling one’s own activities is not enough, companies have to take a close look at their entire supply chain. Saving energy, making their processes more sustainable: many companies are already doing this. But where do they source their raw materials, and how do their products reach the end customer?

In the jargon, this is called 'scope 3': the emissions generated outside the perimeter of the company itself. Scope 3 covers the entire value chain, with all activities at both the supplier and customer ends. Scope 3 usually accounts for more than 60 percent of the footprint. For example, the impact of packaging is often underestimated. It is impossible to be climate neutral without taking scope 3 into account.

But often good data is missing. To calculate the impact of scope 3 you need data from suppliers, which is not always available. As a result, in estimating their emissions, companies build in margins of error that would never be accepted in financial reports. 

Integrated approach

Making an entire supply chain more sustainable calls for an integrated approach. We help our clients not only with the strategy but also with implementation. We also think together with our clients about investments and help them apply for subsidies. Or we accompany the mental shift towards new forms of working. EY offers a decarbonization and energy transition roadmap, including a Life Cycle Analysis, or in other words, an analysis of the entire lifespan of a product. We can then help re-develop a product with sustainability in mind based on a circular model.

Sustainability is a unique opportunity to innovate. It is a driver for change, for bringing something new to the market and making a difference. Companies that pro-actively work on this increase their chances of survival.