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Are Supply Chain Disruptions Putting Sustainability Goals At Risk?

Many businesses are confronted with the challenge of meeting sustainability goals while simultaneously balancing profits, growth, and investor expectations.

Unfortunately, issues like supply chain disruptions and inventory challenges threaten to undermine many of the sustainability initiatives currently taking place across industries. In response, companies must explore new solutions to continue operating sustainably.

Recent Events Disrupting Global Supply Chains

Several unforeseen circumstances have caused the supply chain disruptions seen in recent years. Because many of these global events are still unfolding, brands must be prepared to react at a moment’s notice to the ever-changing economic landscape.

Some examples of the most impactful events that have affected companies in the past two years include:

COVID-19

In the early stages of the COVID-19 pandemic, suppliers struggled to accurately predict and meet surging consumer demand. This initially led to empty shelves and a shortage of certain consumer goods like toilet paper or meat. Brands ramped up production, and at the same time retailers increased orders of various products to compensate for the initial shortage. As a result these companies suddenly found themselves with slow-moving or excess inventory instead.

This phenomenon is known as the “bullwhip effect,” and it continues to impact the efficiency of global supply chains today. 

Blockage of the Suez Canal

In early 2021, a massive container ship full of goods found itself lodged in the Suez Canal, one of the most important waterways for shipping in the world. Within 24 hours, hundreds of vessels began queuing up in the canal waiting to pass, effectively stalling nearly $10 billion in trade. Though this was an isolated incident, this once again exposed the vulnerability of markets to sudden, unpredictable supply chain disruptions, causing brands both in the U.S. and abroad to reevaluate their sourcing strategies. The blockage not only caused downstream inventory issues resulting in waste, but it also highlighted the harmful effects of carbon emissions in the shipping industry.

Computer Chip Shortages

The ongoing chip shortage has forced many companies across industries to scale back production even in the face of growing demand. Recent developments in Ukraine, along with ongoing tensions between China and Taiwan, threaten to further strain an already thinly stretched computer chip market. Because a massive portion of semiconductors is produced in Taiwan and Ukraine, geopolitical conflicts in these regions may create serious sourcing problems for brands worldwide.

Ukraine and Russia

Aside from added disruptions to the supply of microchips, the occupation of Ukraine has already been blamed for rising fuel prices in the west, contributing to increased transportation expenses across the board. As one of the biggest suppliers of oil in the world, Russia’s current economic isolation could worsen fuel shortages in the future, making it even harder for brands to efficiently transport products without raising costs for consumers.

The U.S. banned oil imports from Russia in March 2022, so companies can expect oil prices to increase. This will create even more problems for supply chains within and beyond the U.S.

The Worldwide Push for Sustainability

Occurring alongside supply chain disruptions is a concerted effort among many nations and private companies to make their operations more sustainable. To remain competitive, brands must learn to balance profits with mitigating the effects of climate change. Here are some of the primary drivers behind the momentum for greater environmental accountability.

COP26

The 26th annual Conference of the Parties, or COP26, met in Glasgow in 2021 to reaffirm their commitments to reduce global carbon emissions with sustainability initiatives. Nearly 200 countries came together to discuss strategies for reaching net-zero emissions by 2050, among several other key environmental objectives.

Increasing Government Regulation

The Biden administration halted the processing of new oil and gas leases in the U.S., but other countries are taking different measures to encourage sustainability in the business sector. In France, for example, it’s now illegal to destroy or discard unsold consumer goods, making it crucial for French brands to embrace more sustainable manufacturing, shipping, and warehousing practices.

Environmental, Social, and Governance Criteria

Another factor contributing to the global push for sustainability is the emergence of Environmental, Social, and Corporate Governance (ESG) standards. Adherence to these standards reflects a brand’s willingness to improve environmental conditions. ESG is becoming more seriously considered by investors seeking to support companies committed to sustainability.

How Supply Chain Disruptions Are Affecting Sustainability Goals

Ongoing issues with global supply chains present serious obstacles to achieving sustainability objectives worldwide. Fuel shortages, shipping delays, inflation and poor inventory management have cascading effects further down the supply chain, complicating the fight for a greener tomorrow. 

Fuel Shortages

To help alleviate the economic impact of fuel shortages, the U.S. waived environmental restrictions on the production and transportation of gasoline. Though these fuel waivers were only temporary, fuel shortages in the future may make these exemptions more common. Environmental agencies may increasingly relax fuel standards and loosen requirements to bolster the overall fuel supply, potentially leading to higher emissions in the short term.

Port Closures and Shipping Delays

Health and safety concerns due to the pandemic have contributed to lower labor force participation in recent years, causing several major ports to close or operate at diminished capacity. More container ships with longer wait times to unload their cargo has translated to higher fuel consumption for sea-faring vessels and increased waste of perishable goods.

Inflation

Rising costs may cause some consumers to purchase cheaper, less sustainable products to save money. Higher price tags on eco-friendly, organic, or ethically sourced goods can translate to lower sales volumes of products that are better for the environment, inhibiting the progress previously made by companies to provide quality, sustainable goods at an affordable price. Consumers may also purchase fewer goods due to increased costs, forcing brands to deal with greater amounts of slow-moving or excess inventory.

Challenges with Demand Planning and Inventory Management

The unpredictability of the current world market makes it difficult to accurately forecast supply and demand. The war in Ukraine is a prime example of how events in one country can send shockwaves through global markets. A recent report by Dun & Bradstreet indicates that over 600,000 businesses worldwide rely on either Russia or Ukraine for various supplies to maintain operations. 

Any inconsistencies in the supply chain can easily leave companies with too much or not enough inventory, which may eventually lead to unnecessary waste or destruction of goods.

How Brands Can Strike a Balance Between Profit, Growth, and Sustainability

For brands to remain profitable and thrive without sacrificing sustainability, they must align their environmental initiatives with the objectives of their internal teams. This means working directly with peers across sustainability, sales, finance, IT, and operations to develop sustainable objectives that can coexist with the company’s overarching financial goals.

For sales teams, this may mean working closely with sustainability leaders to understand how they can more efficiently sell slow-moving or excess inventory into other channels to reduce the risk of landfill waste and destruction down the line. For IT teams, this may mean working closely with all departments to research new technology solutions that would enable them to operate more sustainably.

Data is also a critical tool for creating continuity between profits and sustainability. In addition to driving internal alignment between teams, companies must prioritize digital transformation. Upgrading outdated legacy systems and investing in tools that provide greater visibility, expanded automation, and enhanced analytics is a great place to start. Modern supply chain visibility and inventory technology solutions can enable companies to improve internal efficiencies, quickly predict areas that are at risk of underperforming, and make proactive decisions to reduce waste, emissions, and energy consumption across the entire supply chain. 

At INTURN 360, we provide brands with the tools needed to efficiently manage their inventory, supply chains, and environmental objectives. With INTURN 360, it’s easy to track inventory in real-time while automating many redundant processes that impede productivity and sustainability. Reach out today to learn more.