Peter Spiller once said in a Procurement Leaders event: “Sustainability is top of mind in all CXO (Chief Experience Officer) conversions currently, and procurement has a major role to play, [if you want] to really do something.”
In other words, procurement is a vital component of achieving meaningful sustainability in today’s economy. It’s not just about being environmentally conscious—it’s about securing your position in the industry, anchored on supply chain decisions and values that will attract more customers.
Sustainability is more than buying green—it’s also about earning green.
Businesses need to shift to practices and partnerships that prioritise sustainability to remain competitive in the global marketplace. In this article, we’ll discuss how sustainable sourcing is the key to both a strong supply chain and increased customer conversions.
What is Supply Chain Sustainability?
Sustainability is the future—supply chains included. Let’s look at the big picture.
Business Growth at Risk.
In the coming years, consumer companies will see significant growth opportunities. The global consumer class is forecasted to increase by 1.8 billion people by 2025—an increase of 75% from 2010. The consumer sector is also projected to grow 5% each year for the next two decades. Consumer spending will rise, household incomes will increase, and people will generally buy more goods.
But will companies be able to meet the demand?
Looking at the top 50 publicly traded consumer-packaged-goods (CPG) companies, McKinsey & Company found that these companies’ expected cash flow growth is equal to half of their current value. The factors that contribute to these companies’ future growth will have major effect on their total returns—but this growth is vulnerable to being undermined by non-environmentally-friendly and non-ethical practices:
Source: Bloomberg; Capital IQ; McKinsey analysis
Carbon Majors Report even reported that more than 70% of the world’s CO2 emissions come from a hundred companies alone. Non-environmental and non-ethical businesses are effectively putting their own future growth at risk.
Sustainable Supply Chains as the Solution.
Instead, companies need to make sustainability their highest priority in the coming years. Consumers, scientific consensus, government leaders, and business leaders are now calling for improvements in sustainability performance. Companies need to respond to these demands by prioritising the development of a sustainable supply chain.
Sustainability impacts the entire supply chain process from sourcing to processing, using, and recycling products. This means it can also help companies manage sustainability-related risks, such as:
- The Cost of Manufacturing vs. Operating: A typical supply chain has higher social and environmental costs than a company’s operations do. Transportation and manufacturing account for more than 80% of businesses’ greenhouse gas emissions and more than 90% of their impact on natural resources and geological resources.
- The Loss of Profits Due to Low Sustainability: Environmental impact interferes with all supply chains. For example, the Australian agriculture business GrainCorp said their profits were cut by 64% in 2014 due to a drought brought about by climate change. Unilever also estimated a loss of $365 million per year due to water scarcity and higher food costs from the resulting decline in agricultural productivity.
Companies can significantly reduce their costs and secure future profits just by improving the sustainability of their supply chains—a factor largely dictated by their initial sourcing method.
Sustainable Sourcing in Supply Chains.
Sustainable sourcing is the first and, arguably, the highest contributing factor to overall supply chain sustainability, as it sets the direction for the entire supply chain.
Supply chain partners should be committed to social responsibility and environmental stewardship, in addition to sourcing and using materials responsibly. This includes recycling whenever possible, reducing harmful packaging waste, and repurposing any valuable materials.
By working closely with suppliers who are aligned with your company and customers’ values, you can minimise your environmental and social impact to position yourself towards strong growth.
Think of it this way: How you source today will affect the availability of key resources in the future, ultimately impacting your business’s long-term sustainability and profitability.
How is Supply Chain Sustainability Related to Customer Conversion?
Money is still the root of all businesses, so it’s no surprise that companies focus on customer conversions or purchase volumes as core metrics for success. Moreover, loyalty from existing customers is lucrative, seeing that it costs five times as much to gain new customers than retain current ones, and customers spend 67% more in their third year of purchasing than when they initially convert.
But how does this connect to having a sustainable supply chain in your business?
Customers Want Sustainability. In days past, businesses could simply rely on the quality of their product or service to gain customer loyalty. However, with the pressures of increased commoditization, globalisation, and market saturation in recent times, sustainability is a key success factor if you want to cultivate a long-lasting relationship with customers.
Here are the reasons why:
- Sustainability Aligns with Customer Values: Studies show 68% of consumers are motivated to be loyal to a brand with whom they share the same values. What values do your customers care about the most? Research by Greenprint’s Business of Sustainability Index shows a whopping 77% of all Americans are concerned about the sustainability of the products they buy.
This customer value is seen across generations, where 63% of Gen Z, 75% of Millennials, 64% of Gen X, and 57% of Boomers are willing to pay more for an environmentally sustainable product.
- Sustainability Supports Customers’ Personal Values: The majority (88%) of customers today want businesses to help them be more environmentally conscious. They are even looking out for “greenwashing” companies (those who give false impressions of being environmentally friendly and sustainable just to boost sales). Single-use plastics are a great example, where consumers around the world have made a personal choice to reduce their plastic waste.
In effect, companies that support their customers’ initiatives to increase sustainability are positioned to foster the strongest relationship with them. Brand loyalty and repeat purchases then become a manifestation of their personal values. Translation: they feel good about buying from your company.
- Sustainability Transforms Customers to Brand Advocates: Demonstrating shared values with customers increases their chance of becoming brand advocates. This is important, as 72% of customers with a positive experience with a brand will share their opinions with six or more people. Referral marketing is shown to have a 3-5x higher conversion rate and 16% higher lifetime value, expanding and strengthening your business through social proof.
By clearly conveying your sustainability efforts to your customers, you will give customers tangible, positive results that they can use as the basis of their brand advocacy.
Sustainability speaks to consumers, directly impacting the bottom line revenue of a business. It both boosts customer conversions in the short term and ensures lasting customer loyalty in the long term.
The Key Players of Supply Chain Sustainability and Customer Conversions
The key players that drive sustainability and customer conversions within a company are the CXO and the CPO. The former is responsible for the overall product experience from the customers’ perspective, while the latter takes charge of sourcing the actual products.
Together, they form this business cycle:
Redesigned, based on Emerald Insight
Sustainability plays a key role here, not only in terms of sourcing but also in terms of purchase, use, and overall customer experience. As we discussed earlier, the goal is to convert customers into loyal buyers. The way you do this is by aligning with their values, supporting their personal convictions, and creating brand advocates in today’s environmentally-aware consumer base.
Where does the cycle begin?
It begins with sustainable sourcing of goods and materials. The first step in a supply chain is material sourcing, before you ever get to the point of manufacturing, distributing, and retailing. All the other steps will work with the raw materials—making material sourcing a pivotal step to establish sustainability from the get-go.
Redesigned, based on Cips
Incorporating sustainability values in your supply chain starts by selecting responsible suppliers. That initiative will trail down the line, positioning your business to produce products aligned with your customers’ values surrounding sustainability.
How to Start with Sustainable Sourcing
Rather than seeing sustainability as a costly inconvenience, supply chain managers and procurement officers should see it as an opportunity to optimise costs, reduce waste, and generate more profits for the business.
At Good for Life, our team has developed a list of priorities for evaluating materials for procurement, all geared towards developing a sustainable supply chain.
You can use this checklist to gauge where your materials suppliers currently stand:
- Development of an ISO 9001 quality management system
- Participation in Sedex ethical trading programs and guidance standards
- Adherence to ISO 26000 guidance standard on social responsibility
- Full compliance with local and international laws and regulations
- Use of an internal carbon management program for measurement or reporting
- Policies for sustainable material sourcing, either through a registered program or internal policies
These six areas of focus are what we use to score suppliers, ensuring that we prioritise suppliers aligned to sustainability efforts. Learn more about our Sustainable Procurement Policy to see how our systematic supplier selection process works.
Sustainable Sourcing: Today’s Answer for the Future
The goal of any company’s supply chain should be achieving sustainability while maximising efficiency and maintaining quality standards. If you want to attract new customers and retain them for the long term, your procurement team needs to integrate sustainable principles into their sourcing processes and decision-making, choosing suppliers who are environmentally and socially geared for optimal customer conversion and business performance in today’s economy.
Good for Life has built a network of suppliers that are good for the community and, overall, good for life. Our experts can help you source and manage the ideal vendor partnerships to help you achieve a sustainable supply chain and showcase your environmental responsibility to your customers.
To get started on sustainable sourcing, get in touch with our team! At the end of the day, it’s your company that’ll reap the benefits.