Pearson on Excellence: Ethical Supply Chains, right makes might

Until recently, most companies viewed ethical supply chains—socially responsible, eco-friendly operations—as good for people, good for the environment, and maybe even good for public relations. But good for business? Not so much. But that mindset is changing.

One reason for the shift is customers: Baby Boomers and Gen-Xers are coming around, but Millennials (born between 1980 and 2000) are all in. The great majority view ethical behavior, particularly sustainability, as part of life, and these beliefs extend to their commercial connections.

Companies with ugly environmental records or poor labor and community relationships are quick to earn Millennials’ enmity. Plus news travels so fast—think Facebook, Twitter, YouTube—that suspect corporate practices become common knowledge at warp speed.

Investor behavior is also changing. More and more analyst firms now factor ethical behavior into their valuations. Sustainable business practices, for example, have an increasingly strong impact on stock prices. According to recent Accenture research, more than half of surveyed executives say investor interest is an incentive to build more sustainable operations.

Lastly, companies that sidestep environmental and social responsibility are finding it harder to attract and retain talent. Nearly half of all CEO respondents to a recent Accenture survey stated that employees are key influencers of corporate policy in sustainability.

The net effect is that ethical supply chains are an increasingly common baseline for corporate quests to operate and grow profitably. Companies are rethinking the potential of virtuous behavior: moving from policies focused solely on compliance to social and environmental programs that also enhance competitive advantage. As the saying goes, “it’s doing well by doing good.”

Thinking more holistically is one way to “do well by doing good,” and that means linking the foundations of a typical business case with behaviors that foster environmental, social, and civic responsibility.

For each cornerstone (revenue growth, cost reduction, brand and reputation, and risk mitigation) high-impact actions can be taken to concurrently support people and the planet. This too is supported by research. We have found that initiatives with a strong business case and clear benefit to the environment and society have been found to increase corporate revenues by up to 20 percent, reduce supply chain costs by up to 16 percent, strengthen brand value by up to 30 percent, and reduce carbon footprints by up to 22 percent.

Another key is collaboration: finding innovative ways to partner with internal stakeholders, suppliers, sub-contractors, sub-sub contractors, and consumers. Suppose your company decides to reduce the size of a product. Subsequent collaborations might start with internal and contract engineers who re-think design.

Suppliers might then be engaged to reconsider packaging—ideally using less overall material and higher percentages of recycled or recyclable components. And now that packages are potentially smaller and lighter, it probably makes sense to reassess transportation—another chance to build new, more profitable, supply chain relationships.

In addition, the brick-and-mortar retailers that sell your product may devise new storage and shelving approaches, while e-retailers could develop more economical and eco-friendly warehousing and consumer-shipping methods.

Pioneering companies will even investigate opportunities to forge ethical supply chain relationships with competitors. A great example is Nestlé, which is working with PepsiCo to combine supply chains for fresh and chilled food products in the Belgian market.

The partnership is helping ameliorate low truck-fill rates by bundling warehousing, packaging, and outbound distribution. It also addresses retail customer overlaps. Benefits include a 44 percent reduction in transportation costs and a 55 percent drop in carbon emissions.

Service levels also have increased: Both Nestlé and PepsiCo can deliver more frequently, thus driving up satisfaction levels for retailers and consumers.

According to Accenture research, 87 percent of CEOs see sustainability as an opportunity for growth and innovation, and 80 percent see it as a route to competitive advantage in their industry.

Take Unilever, whose, “sustainable living brands” now represent half of the company’s global growth; or Patagonia, the global clothing retailer that pledges one percent of annual sales to the preservation and restoration of the environment. Since 2008, Patagonia has doubled its scale of operations and tripled its profits.

These and myriad other examples point to the value of thinking differently about environmental and social responsibility—obviously recognizing it for the “noble purpose” that it is, but also embracing its potential to help businesses grow profitably.