Article by Susan T. Jackson
Image by Marcin Jozwiak via Pexels
The humanitarian crisis unfolding in the wake of Russia’s invasion of Ukraine is devastating. Due to food and other supply chain disruptions, the consequences are having ripple effects beyond the region. How can businesses ensure progress toward sustainability at the same time as profitability even (or especially) in times of compounding crises, including the increasing warnings that the world needs to halve its carbon emissions post haste? Addressing climate change and security go hand in hand and siloing political risk from sustainability concerns causes more harm.
Crises and Our Supply Chains
Inflation is increasing as a consequence of a number of factors, mostly recently and immediately the crisis caused by Russia’s invasion of Ukraine. As a result, households are experiencing stress and supply shortages of daily goods (such as flour and cooking oils) and the rising costs of products and energy. Businesses too are struggling to maintain access to the supplies crucial to providing products and services, something already difficult because of disruptions due to COVID-19. Knock-on effects stretch along supply chains. For example, countries such as Turkey process wheat from Ukraine and sell the milled wheat to countries in Africa and the Middle East. Shortages in raw materials to the milling countries mean increasing food insecurity further down the supply chain.
Sustainability and (not or) profitability
Sustainability is not the trade-off for profitability that many think it is. Indeed, sustainability practices in supply chain management can bolster resilience in ways that business-as-usual cannot. And, the longer companies act on sustainability, the stronger their resilience can be. In essence, right now is always the time to get serious about sustainability in your supply chains, such as integrating technologies that can increase efficiency. By increasing visibility and optimizing relationships, improved data can help achieve both sustainability and resilience along supply chains. Regardless of where you are, there are several other overarching factors that should be taken into account in supply chain design and management.
Global supply chains are the weakest link
Companies that have a mix of domestic and global suppliers are more resilient and able to remain competitive in the face of shocks than those that rely only on global suppliers. Because many companies in Europe rely on Russian rail transport to move finished goods from China to Europe, bypassing Russia now adds to longer, more expensive and more carbon intensive air transport. Closer-to-home suppliers could help mitigate that effect.
Make-Take-Waste no more
Linear business models have extensive environmental and social impacts. Circular business models are based on closing loops, reusing resources and giving back. Not only can they counteract resource depletion and reduce pollution, they can reduce costs, provide new revenue streams and be a source of better risk management. Regenerative business models can do all that and more. From fashion to flooring, companies are decreasing their dependence on raw resources that are harder to get and more expensive during crises.
Legal compliance
A growing number of ethical supply chain rules are coming onto the books and companies need to comply in order to have access to these markets. The German law on supply chain due diligence, France’s Loi de Vigilance and the US’s Xinjiang supply chain business advisory are just a sample. In addition to this compliance, companies must navigate sanctions imposed on Russsia. Though coming with their own set of challenges, localization of supply chains and ‘friend-shoring’ – sourcing from allies – are already considerations, not least because of the fragility of global supply chains exposed by the COVID-19 pandemic and the US-China trade dispute, and the subsequent supply chain disruptions.
Fueling insecurity
The war in Ukraine exacerbates an already precarious situation caused by our reliance on fossil fuels for everything from energy supplies to agriculture and food production. Some of the technologies that are essential to addressing climate change and reducing greenhouse gas emissions, such as semiconductors, are at risk because of increased prices due to the war.
Being proActive makes good business sense
It is quite possible we will live with ongoing crises for the foreseeable future. What do we do, then, to become more resilient? Business as usual is not a viable option. Resiliency needs sustainable actions.
Leadership → Companies that had already taken steps toward supply chain resilience via implementing sustainability into their decision processes are better situated now. Smart supply chain management is grounded in a sustainable mindset. Empowering employees to be sustainability champions can lead to higher motivation as well.
Innovation → Innovative business models are the foundation to building a sustainable business. Creating circular and regenerative business models starts at the design stage. Focusing on processes, people and purpose can set you off on your journey to regeneration. Resetting your company’s culture to focus on business-for-business innovation and people instead of profits can contribute to more sustainable business models.
Strategy development → Businesses need to incorporate sustainability into their business models as a measure for future-proofing by anticipating financial and non-financial risks, securing supply chains and avoiding greenwashing. For example, with new sanctions and changing supply chain laws, companies need to develop and implement strategies that support business while ensuring they are in compliance. Governments should work to support these kinds of business strategies.
Transformative processes → Moving toward circularity and regenerative business models involves identifying and changing processes from linear take-make-waste production. Sustainable transformation grounded in design thinking can bolster resilience, promote democratic leadership, and lead to more socio-ecological sustainability.
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