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Three Links to Building a Sustainable Supply Chain: PLM, ESG, and SDGs

The hot topic on the tip of industry leaders’ tongues is—how do we build sustainability into our supply chain? During the pandemic businesses placed sustainability on hold—now they want to catch up. With the mandates set by the 2015 Paris Agreement to achieve a carbon net zero by 2050, companies have accelerated their schedules as customers, shareholders, employees, and suppliers have become more aware of the implications of climate change.

When it comes to building a sustainable supply chain, where do you start? The reality is many organizations are still working through their most pressing supply chain problems and asking questions such as:

  • How do we get visibility into our supply chain?
  • What are our materials issues?
  • What goals do we want to pursue?
  • How do we track those goals?
  • What are the best ways to communicate progress to stakeholders?

Many smaller businesses are experimenting with new project-based models to demonstrate that supply chains can be designed to reduce emissions from operations and to change customer behavior in support of carbon emission reductions. For example, several businesses, particularly in Europe, are using returnable containers for customer deliveries but they’re also struggling with customers who don’t return them. A German retailer has had success by charging a refundable deposit to encourage customers to ship back recyclable polypropylene boxes—the retailer now gets 90% of those boxes back.1

Embedding SDGs and ESGs into your sustainable supply chain framework

Environmental, social, and governance (ESG) legislation is evolving into regulations globally. Germany’s recent January 1, 2023, Supply Chain Due Diligence Act was passed to prevent human rights violations all along the supply chains and now requires supply chain operators to prepare their reporting operations in advance to prevent having to scramble later to remain compliant.2

In addition to new regulations and supply chain compliance, industries worldwide are looking at the possibilities of a framework that merges ESG elements with the United Nations 17 Sustainable Development Goals (SDGs). This convergence is attractive as it can be a standard or a template for a sustainable supply chain strategy. It can also be used to manage ESG reporting, compliance, and create long-term financial value.

ESG factors are important in supply chain management because businesses must evaluate the ESG practices of their suppliers and make sure they are consistent with their standards and values. This entails making sure that suppliers use eco-friendly products and procedures, handle employees fairly, and conduct business ethically.

A digital supply chain can help companies integrate ESG considerations into their operations in several ways. Studies show that effective supply chain ESG management can lead to:

  • Increased transparency
  • Better branding
  • Improved employee satisfaction
  • Lower levels of regulatory risk
  • Increased productivity
  • More profitability
  • Long-term sustainability
  • Improved supplier engagement
  • Increased access to investment and funding opportunities

Defining your ESG factors

Environmental: How the business interacts with the natural environment, the impact of its operations, and the actions the company takes to mitigate negative effects. Businesses must consider the complete value chain when assessing their environmental impacts such as greenhouse gas (GHG) emissions, raw material use, land use, water usage, pollution, and waste production.

6 SDGs that align with the environment:

  • Clean water and sanitation
  • Affordable and clean energy
  • Responsible resource consumption and production
  • Climate action
  • Life on land
  • Life below water

Social: How an organization’s activities affect people—from its workforce to customers, local communities, and those who work in its extended supply chain. The social element covers a broad range of factors including: fair pay, safe working conditions, workforce health, well-being, diversity and inclusion, equality, guarding against modern slavery and child labor, and anti-corruption measures. It also recognizes a business’s obligation to support society proactively through initiatives such as education programs and upskilling employees.

5 SDGs that align with social:

  • No poverty
  • Good health and wellbeing
  • Quality education
  • Gender equality
  • Reduced inequalities

Governance: Deals with rules, frameworks, and methods used to govern an organization or a nation. It examines how decisions are made and how rights and duties are allocated among various organizational members, such as the board, senior executives or the government, parliament, and senior ministers. Governance also incorporates the organization’s compliance with regulations and how it manages risk as well as the risk arising from the environmental and social pillars of ESG. It also takes into consideration incorporating people, the planet, and prosperity into risk monitoring alongside more conventional scrutiny of economic and market trends.

3 SDGs that align with governance:

  • Responsible resource consumption and production
  • Peace, justice, and strong institutions
  • Partnerships for goals 3

PLM, the cornerstone for a sustainable supply chain

Green product development

Modernization is critical as manufacturers contend with more holistic ESG/SDGs sustainable supply chain approaches. The ability to garner transparency, and track and report carbon reduction, environmental compliance, and end-of-life recycling efforts across supply chains and operations on a single platform is quickly becoming a requirement.

To address these challenges, manufacturers need to embrace new technologies and solutions that can help them achieve their sustainability goals. Companies are recognizing that product lifecycle management (PLM) is more important than ever, especially as they could face more disruption and ongoing supply chain issues.

Five benefits of PLM that can help manufacturers address sustainable supply chain issues:

  1. Management and evaluation of environmental impacts
  2. Increased awareness of and authority over supply chain sustainability
  3. Effective compliance and regulation administration
  4. Better product creation and design for sustainability
  5. Reducing waste and boosting recycling rates

With Arena’s cloud-native PLM solutions, remote teams can access, manage, and work on the most recent product information from a single source of truth. Product teams and supply chain partners have greater visibility into material shortages, production delays, and other problems that can cause unforeseen disruptions. PLM empowers cross-functional teams to be more proactive in putting the necessary countermeasures in place to overcome any interruptions while keeping the supply chain moving forward.

Transitioning to a sustainable society

By lowering supply chain fragility and risks, manufacturers can benefit greatly from PLM and an ESG-oriented and SDGs supply chain framework. With the right balance, supply chain professionals can develop better protocols and create new business opportunities without endangering the environment.

Learn more about PLM’s role in sustainability.

Sources cited:

  1. Moving the needle on supply chain sustainability
  2. The new German Supply Chain Due Diligence Act (LkSG) – what needs to be done
  3. ESG 101: Meaning, Importance and Goals