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Sustainability In Ecommerce: How To Create More Sustainable Supply Chains

sustainability-in-ecommerce:-how-to-create-more-sustainable-supply-chains

Last year, a container ship called the Ever Given ran aground in the Suez Canal. The event became meme fodder across the Internet, as news sources showed held-up cargo ships and worried crews desperately trying to free the transport from Egyptian sand.

At first, the story seemed like diversionary news. How much, after all, could one ship really cost the world? 

As it turned out, a lot: it would disrupt $60 billion in global trade.

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Here’s how we saw companies building sustainable supply chains in the uncertain geopolitical environment of 2022:

Table of contents

  1. What is a sustainable supply chain?
  2. The importance of a sustainable supply chain
  3. Supply chain sustainability trends and stats
  4. Supply chain sustainability challenges
  5. Sustainable supply chain best practices and innovations
  6. Examples of sustainable supply chains by other ecommerce businesses
  7. What can other businesses learn from these sustainability practices?

What is a sustainable supply chain?

Supply chain sustainability defined

A sustainable supply chain is one that considers the environmental and social impacts of your products, from sourcing and manufacturing to the end of the product life cycle. 

What is sustainable supply chain management?

A sustainable supply chain represents more than a commitment to environmental and social impact. For a supply chain to be “sustainable,” it has to meet a few criteria. The supplies themselves should be sustainable, such as using recyclable materials in packaging. Production and delivery should be as low-emission as possible, while the socioeconomic impact on factory or fulfillment workers promotes fair treatment

 Supply chain issues in 2020 through the present have highlighted how a healthy supply chain can impact business growth:

Sustainability is also a logistical issue: without reliable supplies, companies quickly run out of environment-friendly options. After 2021—a year in which supply chain issues forced companies to turn to expensive high-emissions air freight—businesses are looking for ways to achieve sustainability in every facet.

Can a supply chain be truly sustainable in 2022?

The good news: the demand for sustainable products is as strong as ever.

According to Capgemini’s Circular Economy for a Sustainable Future report, around 80% of consumers place a high premium on “saving the planet for future generations.” A Forrester report from 2021 saw a majority of consumers concerned about the impact of climate change on society. According to the same report, a majority of consumers typically buy from brands that share their values.

Today’s businesses are reworking their supply chains in kind, and it begins with packaging. Packaging alone is responsible for 50% of annual global waste production, according to the Circular Economy report. 

Apple, for example, has committed to eliminating all plastic in its packaging by 2025. Since 2017, the company has used 100% “responsible sources” in the wood fiber that goes into its packaging.

The COVID-19 pandemic—and consumer reliance upon at-home delivery—made packaging the most visible part of a sustainable supply chain. McKinsey writes this is the key element in the new trends in packaging, forcing suppliers to rethink their materials.

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Last March, McKinsey updated its data and saw a sustainable supply chain growing only more important. 

McKinsey identified sustainability and digital ecommerce as megatrends shaping our current age. And while packaging is the most visible part of a sustainable supply chain, it remains one piece of a complex global puzzle.

Climate change and global warming are the single largest threats contributing to supply chains globally. Many countries have already had significant shortages and increase in cost associated with updating legacy practices to combat climate change. Due to the cost increase, people have already started to feel their wallets affected when purchasing goods.” 

—Stedman Cleveland, CEO & Co-Founder of Aura

The importance of a sustainable supply chain

A sustainable supply chain represents more than a commitment to environmental and social impact. Supply chain issues in 2020 through the present have highlighted how a healthy supply chain can impact business growth.

  • Increased revenue. ESG (Environmental, Social, and Governance) initiatives like a sustainable supply chain have a demonstrable impact on business growth. According to McKinsey, “ESG performers enjoy faster growth and higher valuations than other players in their sectors, by a margin of 10 to 20 percent in each case.”
  • ESG performance. As more companies look for ways to improve ESG, the supply chain represents the majority of opportunities. More than 90% of the environmental impact of most consumer goods comes from the supply chain. 
  • Better supply chains also improve global impact. Businesses concerned about forced labor practices or the high-emission extraction/processing of fossil fuels can mitigate these problems by looking to the supply chain first.

Supply chain sustainability trends and stats

The geopolitical upheaval at the start of 2022 has highlighted the need for stable, sustainable supply chains—so much so that the overarching trend has become the story of supply chains themselves. The phrase “supply chain” has never been so prevalent in the earnings calls of major companies.

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There’s a reason for this: supply chain challenges have never taken such a bite out of business earnings. This is likely due to sustained demand in the face of geopolitical uncertainty, first from COVID-19 and now from Russia’s invasion of Ukraine.

The damage to the bottom line highlights the need for sustainable supply chains. Gap, for example, turned to air freight to fill in the gaps in its supply chain. This swung the company from a $234 million profit in one quarter to a $16 million loss in its most recent quarter.

Another option for increased sustainability, carbon credits, can be just as expensive. Supply chain challenges helped contribute to an explosion in carbon credit costs in 2021. In some cases, carbon credit prices catapulted nearly 1,000%.

One pitfall is relying too much on carbon credits to offset emissions. Challenges to these credits have come to light recently. If you do go this route, be sure that you can stand behind how they work. Share it openly with your customers on an FAQ page. The less ambiguous climate initiatives are, the fewer customers will challenge them.” 

—Frazer Kinsley, Director of Consulting Services at 3PL Central and Managing Partner of Kinsley Partners

Casey Armstrong, CMO at ShipBob, shared that, internally, the company witnessed up to threefold increases in carbon credit prices over the past six months. Despite this, Armstrong believes a cost increase is the only way to go in certain situations, with carbon offsets “part of doing business, and not an option to dismiss.” 

Research from Deloitte suggests multi-pronged supply chain strategies like diversifying suppliers can help in 2022. Executives from 41% of companies report they will diversify suppliers in 2022 to help offset sudden changes in the supply chain. 

Supply chain sustainability challenges

Today’s brands face sustainability challenges when supply chains break down. In 2021, those reasons were typically as follows:

  • Turning to expensive air freight to supplement supply chain holes
  • Shipping delays in a high-expectation consumer environment
  • Over-reliance on single suppliers

Turning to expensive (and high-carbon) air freight

When a single bottleneck shows up in an established supply chain, companies turn to the easy, convenient solution: flying over it. 

The problem with air freight is it’s expensive; it creates high emissions per pound delivered. CO2 emissions from air freight are a small fraction of the overall carbon puzzle, but air freight has outsized impacts on pollution. Despite constituting only 2.5% of total carbon output, commercial aviation makes up 3.5% of warming effects.

Even worse, the carbon footprint of air freight tends to be no better than packing your supplies into a car and simply driving it to the destination. 

For comparison, even an oil tanker only contributes about 1% of the carbon footprint as air freight does, when weighed in grams per cargo mile.

And the trend isn’t going anywhere. By 2050, the Environmental and Energy Study Institute anticipates air travel will have tripled in its carbon footprint. It’s not only carbon-expensive, either. For Gap, turning to air freight forced the company from hundreds of millions in profit to a $16 million loss. 

Shipping delays meeting high expectations

Businesses don’t turn to expensive, higher-carbon air freight without good reason. In 2021, that reason was that global supply chains couldn’t keep up with demand.

According to a Gallup poll, 60% of customers couldn’t purchase an item in the summer of 2021. Not far behind, 57% of customers reported noticeable delays in receiving shipments.

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If air freight is the symptom, shipping delays are the underlying cause. 

Over-reliance on single suppliers

The supply chain disruptions of 2020 and 2021 showed how reliant the world has become on a steady stream of cheaply-shipped goods. 

When a company can rely on a single manufacturer with a steady, secure supply chain, the arrangement locks in inventory and creates a predictable carbon footprint. 

But when there’s a logjam at the Port of Los Angeles, preventing inventory from arriving via large container vessels (3.0 grams of carbon per tonne-km of cargo), it forces companies to use alternative methods of delivery. 

Delivery by truck tends to be 26 times less carbon-efficient as large container vessels. Delivery by air? 145 times. 

With multiple sources of inventory, a company at least has the choice to select the most sustainable option for deliveries.

Sustainable supply chain best practices and innovations

How are today’s businesses adapting when it comes to building a sustainable supply chain that doesn’t fall to the whims of unpredictable demand trends?

  • Elevating chief supply chain officer and operations positions. Modern Retail writes that over the previous year, retail companies began appointing new chief supply chain officers at higher rates. These leaders can then begin diversifying their suppliers and optimize supply chain operations.
  • Flexible contracts. Making fewer static commitments (such as fixed, long-term contracts with suppliers) helps companies shift to changing trends. “Flexible contract manufacturing enables companies to replace more of their traditional fixed cost base with variable costs to adapt to changing demand,” says Jeff Langely of KPMG Australia.
  • Diversifying supply chain sourcing. In 2021, a McKinsey report found that two-thirds of organizational ESG commitments come through its suppliers. By carefully choosing diverse suppliers, businesses can have the greatest impact on sustainable practices. This is especially important in an environment with unpredictable supply shocks.

The latter may be the biggest trend emerging. Last year, corporate reporting references to supplier diversity saw a major upswing:

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To build sustainable supply chains, more and more companies are going to the supply chain’s starting point. This helps promote industry in developing economies, where sustainable practices may still need financial support for growth. It also helps each company grow less dependent on single sources, making commerce more resilient to geopolitical supply shocks.

Examples of sustainable supply chains by other ecommerce businesses

Understanding the trends in sustainable supply chains is only one side of the coin. It also helps to know what specific brands are doing to meet the increasing need to build durable, sustainable supply chains.

Bed Bath & Beyond

  • What it did: Bed Bath & Beyond launched eight owned brands in 2021, touching core product segments like kitchen/dining and storage/organization.
  • Why it works: While this helps differentiate the brand’s products from other offerings, launching its own brands provides the benefit of a more diversified—and resilient—supply chain strategy.
  • What benefits it ties to: Ownership and control over operations. Bed Bath & Beyond now has greater control over what goes into its supply chain, including sustainable materials. In its new initiative, it claims at least 50% of cotton and wood is responsibly or sustainably sourced, and that less than 50% of packaging weight is from virgin plastic.

L’Oréal

  • What it did: L’Oréal adopted a new focus on agility, evolving its supply chain toward the goal of reducing its greenhouse gas contributions by 50%. By the end of 2020, many of its distribution centers already achieved the goal of using 100% reusable plastic.
  • Why it works: Acceleration. L’Oréal recently sped up its solidarity sourcing initiatives to diversify its supply chain. The company also incorporated a program of demand sensing anticipated planning (using data operations to improve demand forecasting) to avoid supply chain challenges caused by inaccurate estimates.
  • What benefit it ties to: In addition to the environmental results, L’Oréal’s agile strategy will give it the ability to respond in real-time to market expectations. In other words, its supply chain is more sustainable and resilient.

Egglife

  • What it did: Egglife, an egg-white-based food wrap brand, brought on Cynthia Waggoner, formerly of Kraft Foods, as a lead supply chain officer.
  • Why it works: Egglife uses cage-free egg whites from American Humane Society–standard sources. Though Egglife was founded only in 2019, the company’s rapid growth—recently expanding to 8,000 outlets—required a dedicated supply chain officer who could help sustain growth without sacrificing these standards.
  • What benefit it ties to:  More and more companies are finding that supply chain hires, or elevating operations positions, are paying dividends in logistics. Egglife anticipates doubling its production capacity in 2022 while remaining committed to cage-free eggs.

What can other businesses learn from these sustainability practices?

Given what businesses are doing to build more reliable and sustainable supply chains, what can we learn? The following trends kept showing up throughout 2021 and into 2022.

Elevate supply chain leadership within your business

At-home grocery orders in the US accelerated from $1.2 billion in August 2019 to $6.4 billion by October 2021. This helped feed the growth of companies like Egglife, as well as Supernatural, a direct-to-consumer baking brand.

Supernatural started with a head of operations working on a contract basis in 2021. Egglife hired a former Kraft executive as its top supply chain officer. Placing greater emphasis on building sustainable, scalable supply chains has kept both companies growing without overwhelming current leadership. 

Elevating supply chain leadership has another benefit: connecting to and building relationships with suppliers. “Brand and supplier relationships need more than just financial benefit,” says Adii Pienaar, founder of Cogsy, an operations-focused software.  “It also needs flexibility, predictability and longevity to create a true partnership that ensures that brands always have enough product to sell to their customers.”

For example, Jordi Beneyto-Ferre, Senior Manager of Global Materials and Sustainability at apparel brand Icebreaker, calls 100% traceability and transparency between companies and suppliers the “key to sustainable price chains.” 

It’s through Beneyto-Ferre’s leadership and a commitment to sustainability, Icebreaker is able to enforce strict partner requirements to its fabric mills, suppliers, and distribution center partners. Everything from wastewater compliance to avoiding restricted substances goes through the supplier-seller relationship. These partners also share data, creating better forecasts for shifts in supply and demand. 

Rather than just collecting large swaths of data, businesses that actually connect that data to gain a holistic view of front- and back-end information will see significantly more ability to pivot and align with vendors who run sustainably.

—Jenn Vande Zande, Editor in Chief, FCEE at SAP

Diversify supply sources to help promote ethical worker treatment

L’Oréal’s commitment to solidarity sourcing highlights an advantage of diversifying supplies: it pays real dividends in ESG efforts. L’Oréal began new purchasing strategies in 2020, exposing its supply chain to more remote, underprivileged areas in China.

The project, dubbed Plants like No Other, united several brands: L’Oréal, Yves St. Laurent, and Lancôme. Together, these brands used their buying power to promote employment opportunities for working women in China. L’Oréal reports the project helped 913 people (two-thirds of whom are women) work full-time.

In doing so, these beauty brands added a new leg to its supply chain while also doing good.

Reduce single-use packaging whenever able

In 2019, the ecommerce industry used almost 2.1 billion pounds of plastic—a number expected to double by 2025. Recent estimates suggest that trend is not slowing. According to Gartner, even commitments like those of Apple and Bed Bath and Beyond aren’t having a big impact on the overall trend

The key problem: single-use plastics. Companies will have to adapt to future regulations, such as a UK law requiring a tax on plastic packaging in 2022. 

According to S&P’s Sustainability Yearbook 2022, an assessment of several thousand companies, finding sustainable packaging alternatives continues to be a major industry trend driving product development and innovation.

The yearbook recommends focusing on the following packaging materials:

  • Recycled
  • Certified and renewable raw materials
  • Reusable packaging

Woody Hambrecht, co-founder of Haus, only sees more of these laws coming into effect. “We’re already seeing reusable shipper boxes starting to be mandatory in parts of Europe,” he says.

Learn from people who’ve done it before

We asked Jacqueline Marisa Rideout, a Manager of Supplier Diversity and Sustainability with 10 years of experience, how she would advise businesses looking for more sustainable supply chains in 2022. Here are her takeaways:

  • Don’t let diversification of suppliers relax your standards. Every company, Rideout says, should reinforce its commitment to sustainability. Diversify only with suppliers who can meet the criteria you establish. She recommends using an RFI (request for information) to start these new supplier relationships.
  • Focus on transportation. Rideout calls transportation the largest impact on a company’s sustainability. Efficient routes reduce travel and therefore emissions. To accomplish this, Rideout recommends limiting LCLs (less-than-container loads) and maximizing container utilization. Other practices, like updated refrigeration equipment in warehouses and reusable packaging, also have lasting effects.
  • Optimize your network. Map out your supply chain from beginning to end, identifying key locations for warehousing and distribution centers based on your customer locations.

Maggie M. Barnett, COO of ShipHero, agrees, noting how ShipHero has optimized its network to increase sustainability. She calls last mile one of the points of “biggest impact” in the supply chain.

Domestically, merchants have the opportunity to deploy a distributed warehouse network model, where the product is strategically placed in zones where demand is highest. This allows merchants to continue to meet rapid shipping speeds, while keeping product transportation on the ground to decrease reliance on airplanes for fast delivery. 

—Maggie M. Barnett, Esq., COO of ShipHero

Creating more sustainable supply chains

Building a sustainable supply chain is not a single initiative. To meet the needs of an evolving and complex world, a supply chain needs to be responsive to shifting demands in packaging and carbon emissions. 

McKinsey argues that sustainable supply chains are built at the organizational level. Companies succeed with ongoing optimization efforts aimed at improving sustainability. Even better, they can set performance-based targets to track their progress.

Today’s top brands are making commitments to better-sourced materials. They’re elevating supply chain executives to positions of higher leadership. Ultimately, they are making a sustainable supply chain a priority.

If companies are going to live up to their ESG commitments, it has to be.

This originally appeared on Shopify Plus and is made available here to cast a wider net of discovery.

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