- April 14, 2022
Businesses Face Continued Challenges Implementing Sustainable Supply Chains
If we consider how retail supply chains have evolved over the last 40 or 50 years, it is easy to understand why businesses were so late to embrace sustainability. Businesses in more developed economies in North America and Europe ramped up their sourcing activities in Asia in the early 1980s as China’s economy opened up. Relying on cheap labor, they could make products and outsource services at much lower costs. Consumers were happy to have a wider range of affordable products available to them.
Developing economies such as Japan, China, Vietnam, Korea, Malaysia, Bangladesh, and Cambodia saw the opportunity to build their own economies and supported multinational companies to scale production. But as these economies developed, labor and other costs increased, while competition pushed retail prices down and retailers and brands looked for lower cost countries to produce their products. For apparel this was Vietnam, Cambodia, Bangladesh, and others. Unfortunately, environmental and social responsibility took a back seat as this dramatic economic growth unfolded.
Meanwhile, China’s economy grew into one of the world’s largest with higher labor and other costs and a huge appetite for the natural resources required for production. China, with its own global ambitions, has strategically shifted from producing low-cost, labor-intensive products such as apparel, toys, and other consumer goods, to higher value products. As a new world leader with significant financial resources and influence, China has expanded into other developing countries with a monopoly on supplying these fast-growing consumer markets with made in China products. This has resulted in a whole new set of environmental and social responsibility problems which are still unfolding.
As we have seen through various crisis such as the China/U.S. trade war and more recently the COVID-19 pandemic and the Russian conflict in Ukraine, there are significant risks in complex global supply chains. Aside from the environmental and social challenges, the economics of global supply chains don’t make as much sense as they did 10 or 20 years ago. High shipping and commodity costs along with geopolitical issues led to delays in production, shortages of components and finished goods and higher prices. In response, some companies have shifted to nearshoring and onshoring, which reduce global risk and shorten lead times. While supply chain management has played a critical role in driving efficiency and reducing costs, many businesses are questioning if the cycle of globalized production is sustainable.
Maybe we are at a turning point, and this is an opportunity to rethink global sourcing and develop more sustainable global supply chains.
One of the biggest challenges to incorporating sustainability through a globalized supply chain is managing multi-tier suppliers. Part of the problem is that lower-tier suppliers are not as equipped to handle sustainability requirements. Multinational corporations might also not know who their lower-tier suppliers are, which presents a risk to their social and environmental sustainability goals.
A Harvard Business Review Study in 2020 that analyzed the supply networks of various multinational companies found that many of the suppliers were violating the standards the multinational corporations expected them to follow. The lower-tier suppliers lacked environmental management systems and had limited procedures for managing forced labor and hazardous conditions. They also had large numbers of temporary workers, high turnover, and overtime issues.
From the suppliers’ point of view, part of the problem is when they receive large orders with tight production deadlines, they must scramble to hire unskilled labor and workers must put in significant overtime to produce orders. First-tier suppliers also rarely evaluate lower-tier suppliers’ sustainability practices since they have trouble meeting the standards themselves. Both first and lower tier suppliers often lack the resources, training and incentives required to comply with sustainability standards.
It is the company’s duty to know what their suppliers are doing and to support their entire supply network by including them in their sustainability programs.
Another widespread problem in implementing sustainability is that different departments such as procurement and merchandising are not always on the same page. The Harvard study found that when engineering and procurement units preapprove suppliers, their vetting criteria often does not include social and environmental considerations. Because of this disconnect, they are more focused on profit (cost, quality, delivery, and technology) over the people and the planet impacted by their decisions. When interviewed, these procurement people said that they need more training and incentives to properly pursue sustainability. This is really a top-down organizational problem where sustainability goals and practices are not communicated clearly across the organization.
Global Supply Chain Visibility
Retail supply chains are extraordinarily complex, producing thousands of SKUs across multiple sourcing countries. These supply chains rely on numerous internal players from designers and merchandisers to purchasing, quality, and finance, as well as external service providers ranging from the actual factories to raw material and component suppliers, logistics providers, and testing and certification companies.
Without visibility, retailers have limited control and are exposed to inefficiency, production delays, and sustainability issues. Surprisingly, many retailers still rely on manual processes, paper documents, Excel files, and emails to manage information flow. More sophisticated retailers and brands rely on specialized software, often customized to their organization, to centralize information and visibility into their entire supply chain. If these systems are not set up to integrate sustainability processes, the company faces unnecessary risk.
CBX Cloud is an interconnected cloud platform serving retail merchandising and the private-label supply chain from concept to delivery. Our software connects all operations within your organization, from line planning, product development, sourcing, quality, order follow-up, and logistics, with a platform that’s compatible with existing systems and configurable to the needs of each business.
CBX Cloud ensures ESG compliance by creating transparency earlier in the supply chain and creating quality checkpoints throughout the process. To learn more about how CBX Cloud can help your company meet its sustainability goals, contact us.