“Sustainability” is rising to the top of most companies’ agendas, and it's becoming clear that supply chains are where the fun is at, as 80% of your footprint typically sits here.
But why source responsibly, why invest in making your supply chains more sustainable? In this article, we’ll arm you with the crisp numbers-driven arguments that your CFO likes to see, the ROI (return on investment) of sustainable procurement, and leave the other good reasons (regulation, reputational risk, talent attraction, and the future of your grandkids) for another article.
Before your CFO starts screaming "WE CAN NOT AFFORD IT", let’s take him/her back to the basics:
Profit = Revenue - Cost
We'll start with revenue. We think sustainability is expensive because we, as consumers, are used to paying more for sustainable products - whether an organic apple or renewable energy. And that's exactly the foundation of the first round of arguments: sustainably sourced products sell better.
Increasing sustainability leads to increase in sales
Let's look at the research. 60% of consumers consider sustainability as an important criteria when buying products or services, reaching numbers as high as 74% in industries such as energy and consumer products. In fact, more than ⅓ of the population is willing to pay more than a 25% premium for sustainable companies.
Ahold, one of the largest retailers in the Netherlands, increased its sales of healthy products by 25% when it started using responsible sourcing for the majority of its products in the health sector. Coca-Cola improved the sustainability of its African supply chain by sourcing ingredients from local farmers and making sure that women are properly paid and trained to work. As a result, the local sales, revenue, and brand positivity of the beverage company grew by double digits.
In conclusion, when implemented properly, increasing the sustainability of your supply chain can lead you to sell more products at higher prices.
Sustainability and efficiency: two sides of the same coin
That's a good start, but what about the cost side of the equation? It must be prohibitively expensive to produce those results? Not necessarily. Sustainability, especially environmental sustainability, is closely linked to the efficiency of operations and the amount of waste produced. Hence, more efficient and less wasteful processes equal lower costs and lower footprint. Let's look at a few examples.
Research from Deutsche Asset & Wealth Management has shown that companies focusing on responsible practices are 60% likely to have better financial results than other companies. Nestlé, Unilever, and UPS, among 25 multinational companies, ended up increasing revenue by up to 20% while cutting supply chain costs as much as 16% as a result. Walmart reduced up to 5% of its multi-billion-dollar supply chain costs, by enabling in-store buyers to deliver orders to other buyers. Amazon and Procter & Gamble were also able to deliver their products more efficiently, with lower costs, by sharing warehouses, thus reducing emissions.
Inaction to the detriment of performance
The sustainable alternative at lower costs is a no-brainer of course. The sustainable alternative at an equivalent or higher cost becomes relevant when linked to a revenue-related strategy, risk mitigation, compliance, or the overall sustainability strategy of the company. And do remind the CFO that the status quo related to inaction is not a continuation of historical financial performance, but a deterioration of performance as the company becomes less competitive in an increasingly sustainability-oriented world.
The first step is to start evaluating sustainability in your supply chain, in sourcing decisions, and in spending allocation. Or putting sustainability on the scorecard as we like to say. That's no easy task, and can be an overwhelming journey to start, so let us help you.
Book a demo today to learn how Responsibly allows you to use cutting-edge technology to simplify, automate and digitize your responsible sourcing practices.