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January 22, 2019

Sustainability and profitability an ‘either-or’ choice

By Beth Wright

Economic performance is the top ranking corporate sustainability priority for the majority of organisations, according to a new global survey of supply chain decision makers – yet tensions exist on whether sustainability or profitability is of greater importance.

When directly asked whether profitability or sustainability was more important, 60% of respondents gave equal priority to these objectives, with another 25% leaning towards sustainability.

The survey of 250 manufacturing and retail organisations across the US, Latin America, EMEA and APAC regions was conducted by the Economist Intelligence Unit, the research and analysis division of The Economist Group. It set out to explore supply chain approaches and priorities in relation to business sustainability, defined as the process by which companies manage their financial, social and environmental risks, obligations and opportunities over time.

The findings are set out in a report entitled ‘Sustainability: The Missing Link?’ On the one hand we see respondents possibly ‘saying the right thing’ when asked in the abstract about the relative importance of profitability and sustainability, but saying something quite different when it comes to specific organisational priorities,” says Jeremy Kingsley, technology editor with the Economist Intelligence Unit.

“We also see a correlation between seniority and the relative importance of sustainability and profitability, with 67% of C-Suite respondents saying that sustainability comes first, compared to 55% of other respondents.”

When asked about what is driving supply chain sustainability in their organisation, growth opportunities (36%), cost savings (34%) and the importance of responsible business practices (33%) were the top drivers. However, respondents were divided on whether supply chain sustainability has a positive or negative impact on cost, with increased costs being cited as the largest impediment to supply chain sustainability and responsibility by 38% of respondents, especially those representing smaller businesses. Difficulty in monitoring complex supply chains (29%) and organisational structures (24%) were also cited as barriers.

In North America, the survey found a marked shift in priorities looking ahead to the next five years. When asked to consider their organisation’s top supply chain management priorities over the last five years, American and Canadian respondents ranked reducing operating costs as the most important.

Over the next five years, however, improving product quality was the number one priority. Reducing environmental impact is also viewed as being more important over the next five years, increasing from 12.9% to 19.4%.

“There are many ways companies can make their supply chains leaner and greener, but for organisations with potentially hundreds of suppliers, thousands of products and millions of customers, determining the best alternatives is far from straightforward, at times making sustainability and profitability an ‘either-or’ choice,” says Razat Gaurav, CEO of LLamasoft, the software supplier that sponsored the survey.

“Making the right decisions that can accomplish these dual objectives requires both a big picture view and a granular understanding of the end-to-end supply chain. Global organisations must turn to technology to build ‘digital twins’ of their real world supply chain, providing a risk-free environment in which to play out many scenarios, from the expected to the unlikely, giving them the confidence that the changes they make will deliver the desired and expected outcomes.”

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