Supply chain execs would sacrifice profits for sustainability gains

by Emily Atkins

Two thirds of supply chain executives see sustainability as a key corporate value, and more than half would be willing to give up some profit to improve it.

This is one of the findings of a recent survey of 500 chief supply chain officers (CSCOs) across 10 industries. The study, The resilient digital supply chain: How intelligent workflows balance efficiency and sustainability, was conducted by the IBM Institute for Business Value (IBV) in cooperation with Celonis and Oxford Economics.

The study found that organizations are searching for ways to modernize their supply chains by embracing data and hybrid cloud strategies as well as prioritizing sustainability.

CSCOs are looking to hybrid cloud, AI, process mining and execution management to help them overcome the disruptions they’ve faced over the last two years. In fact, 72 percent of CSCOs surveyed expect their processes and workflows to be automated over the next three to five years — and 69 percent plan to accelerate cloud adoption to enhance real-time data access.

“The Confluence of post-Covid-19 challenges, inflation and supply issues, security, and sustainability has led to the most complex operating environment in modern business. This has forced organizations to rethink and rebuild their supply chains to be more agile, efficient, and sustainable,” said Jonathan Wright, managing partner, finance and supply chain transformation, IBM Consulting.

“Technology and data-fueled automation and intelligence are key to not only evaluating current workflows and inefficiencies, but in identifying new opportunities as well.”

Top challenges

Four fifths of CSCOs said that demand volatility is a top challenge, while 77 percent mentioned the increased cost of transportation and logistics. Cost aside, 76 percent cited the availability of transportation and logistics as a top challenge.

These challenges lead to missed opportunities: 71 percent said lower inventory for raw materials and finished goods has led to stock-outs and lost sales. And 60 percent have had to expedite products for customers, leading to higher transportation costs.

Big data to the rescue

CSCOs are pursuing aggressive data-backed strategies to help improve resilience and sustainability. Almost 90 percent  are implementing execution management and 77 percent are implementing process and task mining to modernize their operations.

AI is growing in importance. By 2025, 83 percent of CSCOs plan to introduce AI-enabled real-time inventory management. And 81 percent are looking to AI-enabled processes and workflows for real-time demand sensing. About 72 percent expect most of their processes and workflows to be automated in the next three to five years, while 27 percent expect their workflows to be AI-enabled in the same timeframe – increasing to 33 percent by 2030.

Sustainability before profit

Sustainability is a core element of overall business value for 66 percent of those surveyed. More than half (51 percent) said they would be willing to sacrifice profit – on average five percent to improve sustainability outcomes. This would be equal to US$22 billion for US Fortune 500 companies in one year.

The actions they plan to take over the next three years in pursuit of circular economy goals include initiating full lifecycle design of their materials and products to expand re-use of materials and reduce waste (47 percent); improving energy efficiency of their products and services (44 percent); developing new products and services based on renewable energy components (35 percent); and engineering new zero-waste products and services (30 percent).

The top three expected benefits of sustainability initiatives were: complying with environmental regulation, reducing reputational risk, and driving new innovation areas.

These gains cannot be realized without monitoring sustainability targets. Some 55 percent of CSCOs said in the next three years they expect to incorporate real-time monitoring and reporting on environmental and social sustainability. In fact, the SEC recently proposed a rule change that would require public companies to disclose climate change risks to their business, which, if passed, could accelerate the need for operational climate change data.