Knowledge Post: A Structural Shift in Supply Chain Governance
Release date:
2023-05-18
Author:
Jinhua Logistics
Faced with a host of factors—including mounting geopolitical risks worldwide, the ongoing adjustments to global supply chains triggered by the COVID‑19 pandemic, accelerating climate‑change risks, and increased government subsidies in the United States and Europe aimed at reshoring assets—more and more multinational corporations are undergoing transformation. These companies are rethinking corporate strategies that have remained largely unchanged for three decades and are reassessing their sourcing and product‑development practices, as well as the locations of their facilities and related supply‑chain infrastructure.
How sustainability is integrated into supply chain governance
In the face of mounting geopolitical risks emerging across the globe, A host of factors—ranging from the ongoing adjustments to global supply chains triggered by the COVID‑19 pandemic, to the accelerating risks posed by climate change, and to the increased business subsidies in the United States and Europe aimed at reshoring assets—have prompted a growing number of multinational corporations to undergo transformation. These companies are rethinking corporate strategies that have remained unchanged for three decades, while reassessing their sourcing and product‑development practices across facilities and related supply‑chain networks.
The company is seeking to align all of the aforementioned business drivers into a unified strategy, with the aim of strengthening customer relationships and mitigating business risks. Developing strategies to promote sustainable development is the primary focus of rethinking supply chains; however, to succeed, sustainability must not be managed as a standalone set of factors. The top management of the enterprise, including CEO, CFO, CSO, and CMO It is necessary to jointly assess at least three major, interrelated supply chain issues:
1. What are the main obstacles to achieving a supply chain with improved management and higher productivity? 2. How can leading enterprises upgrade their supply chain management? 3. What new business opportunities and strategies have emerged from these business reviews that can also drive sustainable development performance?
01 Strengthen supply chain management
Many large companies—such as retailers, food producers, and automakers—indeed have tens of thousands of suppliers that provide them with raw materials, products, or services. The sheer number and complexity of these business relationships pose significant challenges to holding suppliers accountable, and even to identifying them or assessing the commercial risks they may introduce for downstream business customers.
A related issue is tracking supplier performance. The lack of data standards or a common information technology platform for harmonizing supply-chain data poses significant challenges for companies of all sizes. These challenges are further compounded by the need to shift from supply-chain models that optimize financial returns through economies of scale to more agile, updated frameworks that account for recent geopolitical realities—reducing reliance on single suppliers or countries for critical materials and components, and aligning supply chains with emerging climate‑reporting and other regulatory requirements in the EU and the United States.
02 Initiatives for supply chain governance
Four major supply chain strategies are taking shape.
First is resilience—the ability of a company and its suppliers to minimize disruptions to business continuity caused by costs, infrastructure bottlenecks, political disputes, and climate change. Although redesigning the supply chain will increase costs, this factor will be offset by the opportunity to minimize risks.
The second emerging supply chain strategy is regionalization. As As Keith Sultana, Senior Vice President of Integrated Supply Chain and Operations Services at Trane Technologies, explains, regionalization increasingly prioritizes relocating production closer to markets—“buying where we sell.” The strategy aims to shorten global supply chains without sacrificing access to specific markets. In other words, regionalization seeks to reduce complexity while maximizing opportunities to accelerate the flow of materials and goods, lower energy costs, and foster deeper collaboration with core suppliers.
The third emerging strategy is supply chain diversification, Alternatively, companies can reduce excessive reliance on a single-source supplier by selectively diversifying their operations. For example, over the next decade, semiconductor manufacturing is expected to expand from South Korea to the United States (in… Under the funding of the 2022 CHIPS and Science Act, the European Union and other markets.
The fourth is to invest in digital data systems through common metrics and platforms for customer–supplier communication networks. , improving warehouse operational efficiency and optimizing logistics (by ship, aircraft, rail, and truck) are establishing real-time electronic data interchange across the supply chain.
03 How sustainability is integrated into supply chain governance
The primary management principle for advancing supply chain sustainability is not to establish a standalone sustainability strategy or governance process, but rather to integrate it into the emerging strategies that leading companies are already adopting. Several types of initiatives to expand business development and build sustainable supply chains illustrate the practices of leading companies:
Governance: The CEO and the board of directors have taken ownership of the governance process, in which sustainability is at the heart of the company’s business objectives and values. Performance expectations and transparent reporting that reflect this ownership are embedded across business units, manufacturing facilities, and the supply chain. Business goals and metrics integrate environmental, social, and governance considerations. (ESG) Expected outcomes, as well as financial and other results.
Focus on sustainable products: The procurement, design, manufacturing, distribution, and consumption of more sustainable products are increasingly becoming central to organizations’ sustainable supply chain practices. Some of the leading practices currently driving this progress include applying product‑specific life‑cycle assessments within broader commitments to circular business processes. (LCA); using recyclable packaging at every stage of the supply chain; and providing more comprehensive information on issues such as carbon footprint, water consumption, chemical use, and waste generation.
Design better data flows together with suppliers: Digital data systems should facilitate more frequent communication between customers and their suppliers, fostering co‑creation of innovative opportunities and accelerating business decision‑making, while ensuring that such systems are appropriately aligned at the levels relevant to each supplier. ESG Report.
Holding the supplier accountable: Enhancing the sustainability of supply-chain performance is less a matter of coercion and more a commitment to shared goals—through conducting business reviews to track progress, providing technical support or guidance to smaller suppliers, and setting future commitments on climate and other key metrics. If, following these steps, a supplier is unable or unwilling to keep pace with customer expectations, terminating the business relationship should be the expected outcome.
Companies that are developing their supply chains in this direction include Ecolab, Intel, Jingbo Electronics, Nike, Philips Electronics, Trane, Unilever, and Walmart.
The goal of more sustainable supply chain governance is to expand mutual business opportunities and reduce corporate risks in ways that protect both people and critical planetary resources. Driven by technological advancements and shifts in public policy, sectors across the global economy are undergoing profound transformations, creating abundant and growing opportunities for clusters of companies that align their supply chains to deliver products and services that embody sustainability. An increasing number of suppliers are heeding this message, recognizing its practical applications and value, and seeking to redesign their own supply chain strategies.
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