Sustainable Sourcing: Challenges and opportunities in sustainable sourcing

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With seven years to go before 2030, the year of reckoning for the United Nation’s Sustainable Development Goals, industries are exerting more effort to make good on their sustainability commitments.

But while more companies are taking part in the journey to sustainability, it is not an easy ride. In addition, more companies committing to being “green” could lead to shortages of in-demand low-carbon emissions materials such as recycled aluminum and recycled plastic. According to a McKinsey report, “Companies that fail to secure adequate supplies of scarce green materials may need to pay steep premiums, or else they will fall short of their target commitments, potentially harming their relationships with customers, investors, and other stakeholders.”

Thus, companies need to source materials and products with less energy waste and select suppliers in a more resilient way, so that they can make concrete contributions to the global low carbon emissions initiative.

“It’s not easy buying green,” as a recent McKinsey study points out, and companies need to balance challenges and opportunities to win at sustainable sourcing. McKinsey advises players across value chains to “build the capabilities and strategies needed to avoid supply disruptions in the near term and beyond.”

Challenges in Sustainable Sourcing

In a 2021 Global Sources Live session, Global Sources invited sustainable sourcing experts Aaron Leonard, Divya Demato and Pia Pinkawa to discuss a number of challenges for both buyers and suppliers. Among these are:

1.      Figuring out how sustainability mixes with traditional pillars of procurement

According to Aaron Leonard of EcoVadis, “Sustainable sourcing is procuring goods and service with people, planet and ethics at the forefront or as part of the decision-making process. It’s that simple. What’s not simple is how you mix those things into the traditional procurement cost, logistics, timing and quality discussion. They can all come together so that you get a win-win outcome. I think that’s the complexity here.”

2.      Slow implementation despite executive commitment

Divya Demato, CEO and founder of sustainability consultancy GoodOps, said that while sustainability is being mentioned increasingly in shareholder calls and company executives voice their commitment to it, the pace of implementation leaves much to be desired. “We’re still seeing a lot of slow movement in terms of getting these programs up and running,” noted Demato.

3.      Talent gap

Organizations often are stymied in implementing sustainable sourcing because there may not yet be enough human resources equipped with skills in this area. Demato said companies sometimes cannot find the right people who know how to devise the right sustainable sourcing program or find the sustainable supply chain for their organization. This is because sustainable sourcing cuts across logistics, marketing and operations. “The entire company has to come together holistically to be able to come up with solutions,” Demato stated.

Opportunities in Sustainable Sourcing

Amid the challenges, sustainable sourcing presents vast opportunities that can work to the advantage of organizations that are committed to implementing it. Among the opportunities are:

1. Increasing demand for sustainable products

Pia Pinkawa, supply chain sustainability and communication expert, said more customers are requesting sustainable products or want to know how the goods they buy are produced. A common question asked by their consumers is whether products are recyclable.

Sourcing for sustainable components or materials is on-trend these days and helps businesses in the long-term. This is because consumers are also now willing to pay a little more for goods that are sustainable as well as to buy from companies that practice sustainability principles.

EcoVadis’ Leonard said an example is when buyers shift from traditional energy to renewable energy. “They might pay a little extra on their bills to begin with, but they’re prepared to buy in because of the overall benefit to climate change risk,” he said.

Another example is the increased demand in the food and fashion sectors for products that protect animal welfare. This has led to a huge demand, said Demato, for plant-based foods in the food industry and for vegan materials like leather alternatives in the fashion space.

2. Potential benefit for brand management and promotion

Consumers’ increasing awareness of the need for sustainability is an opportunity for better brand promotion and customer loyalty .

Sourcing and using sustainable materials and products can give businesses more positive reputations and higher profit margins as more customers prefer to purchase products from businesses that practice sustainability.

3. Better change management and risk mitigation

Pinkawa said that companies and suppliers that have been engaged in sustainability programs together are better at change management than others. This is because of the better communication that has been established between them and an approach where they find solutions together.

It’s a partnership mindset that will enable companies to better manage risks such as supply chain disruptions and even fines and litigation.

4. Cost savings

Sustainable sourcing provides opportunities for cost savings and is not necessarily more expensive, as some companies and buyers fear. Companies just need to have a holistic approach, Demato said. The sustainability approach teaches new ways of doing things.

For example, one of the ways organizations can save on costs is by changing the way they source raw materials, Demato said. Another example is diverse sourcing. Sourcing from various places in the company's supply chain – such as from local or nearby suppliers and not just the usual large manufacturers – results in savings in shipping costs and reduces material waste during shipment. It is more eco-friendly and supports the local community besides.

Optimizing for sustainability: Global Sources examples

As a B2B platform that connects buyers and suppliers, Global Sources (GS) facilitates sustainable sourcing in several ways

Read on to get an idea of how we are implementing sustainable principles:

1. Focus on quality control, obtain certifications

Global Sources’ website features a section on company certifications on the product detail page, where companies can add their ESG-related certifications, and which enables buyers to have more information for their supplier selection process.

For example, Shenzhen Marvo Technology, a manufacturer of kitchen appliances that offers OEM/ODM services, is managing sustainable sourcing expectations by focusing on quality control and working to get certified to sustainability standards that are important for their buyers. Among sustainability certifications that they have obtained is one for biodegradable packaging, which is important in Europe, one of their key markets, said its representative Abby Peng.

2. Continuously innovate

For Shenzhen Gold-East Electronics Co. Ltd, a Sedex-audited maker of smartwatches, the market’s increasing focus on sustainability sourcing presents the opportunity for companies like theirs to innovate, according to company representative Thomas. “We have to do continuous innovation. We have to know what the customers’ requirements are. To some extent, our customers are our teachers, but they also told us to learn from our competitors,” he added.

GS promotes innovative products to encourage suppliers to focus on the development of sustainable products. The Global Sources website also has filtering product search functions that make choosing environmentally friendly products and sustainable suppliers easier for buyers.

3. Be open and transparent

Ann of Shenzhen Merlin Living Co. Ltd, which specializes in the manufacturer of ceramic products like vases, highlighted openness and transparency as one way they are embracing the sustainability mindset. Ann said their company encourages buyers to go on factory visits to their 50,000sqm facility so that the customers can check on raw materials used as well as their manufacturing.

GS has 360 virtual showroom function which helps buyers worldwide source online, check manufacturing facilities online and have an open and transparent sourcing channel. This reduces the sourcing community’s carbon footprint and provides a better online sourcing experience.