9 Key Sustainability KPIs for a Sustainable Supply Chain

A business’s supply chain impacts the environment more than its other operations. The global shipping industry accounts for nearly 90% of all goods traded and emits around 940 million tons of CO2 annually, which is more than 2.5% of the global CO2 emissions. Worse, emissions are expected to rise by as much as 50% by 2050 without a strategy to reduce them.

With markets continuing to grow by leaps and bounds, procurement and supply chain leaders are seized with the problem of how to meet the demand while moving toward carbon neutrality and net-zero emissions goals.

A Better Approach to Sustainability KPI 

Developing a sustainability strategy is the first step. Focusing on a set of actions to achieve an objective ensures the necessary investment, stakeholder engagement and performance. 

Decide sustainable strategy first 

• Identify the sustainable issues dogging the organisation and select a few that align with the organization’s vision, mission and values.
• Inputs of stakeholders (customers, partners, employees, local communities and regulators) are vital to finalizing an effective strategy. 
• Ensure senior management buy-in by presenting the benefits and value proposition for the business from the sustainable strategy being adopted.
• Implement and monitor performance through targets and KPIs.

Add relevant performance measures

Here is a way to measure a business’s sustainable performance, first proposed by Elkington in 1998, called the triple bottom line approach:

Environmental:

The negative or positive impact of a business responsibly using natural resources and the amount of waste and emissions generated or recycled.

Social:

How impactful on the stakeholders a business is – that is, on customers, partners, suppliers, employees and the local communities where it has a presence.

Economic:

How impactful the business has been on the economy through generating employment, promoting innovations, adhering to compliance and creating wealth responsibly.

Necessary Sustainability Key Performance Indicators (KPIs) for Businesses 

Once the business has decided its focus on specific sustainability issues, baselining and benchmarking are carried out, and the KPIs to measure performance are fixed. Here are a few sustainability KPI examples that businesses may track to get insights on sustainability:

Supply chain waste 

A business must consider the waste generated from the raw materials produced for its manufacturing of the finished goods to the delivery of the product to the end-user and how best to reduce it and, where possible, to recycle it. It is measured by the amount of waste generated, type, and disposal method.

Evaluate recycling rates 

An organisation must assess the recycling rate for materials used in its production and the warehousing process. A recycling rate is defined as the amount of municipal solid waste recycled, reused or repurposed and composted of the total generated divided by the total amount of MSW recycled, reused or repurposed; composted, landfilled, or incinerated.

Measuring greenhouse gas emissions and carbon footprint 

A business may use the following three ways to track GHG:

Scope 1:

This GHG is from an organization’s vehicles and facilities.

Scope 2:

These gases are generated by an organisation’s indirect consumption of purchased electricity, steam, heating, and cooling.

Scope 3:

Businesses generate these gases indirectly from purchased goods and services, employees travelling to and from work, and waste generated in supply chain operations.

Tracking energy consumption 

The energy used, such as the electricity consumed, the energy used for producing goods, or the energy used to extract resources, can all be measured. 

Streamline transportation processes 

By adopting technologies such as AI & ML, companies may reduce the GHG to a large extent by acting on the insights provided, such as identifying suppliers closer to the production facilities, adopting alternative-powered vehicles, route optimization and the like.

Impact on ecological system 

Circularity through innovation is the new mantra being adopted by businesses. By using biodegradable materials, such as recycled paper or using eco-friendly products made out of bagasse (sugarcane waste), companies are helping the ecological systems to grow rather than harming them.

Track Products at Each Level 

By deploying advanced supply chain and procurement software , products have a unique ID that companies may track through the value chain. Businesses can track the product’s development, usage and resale and how it is recycled. These provide valuable insights for innovations.

Water consumption 

Consuming water responsibly and avoiding polluting the various water sources is one of the critical ways to impact the earth’s biological system.

Sustainable key performance indicators include:

• Total water consumed
• Amount of recycled water consumed
• Amount of water wasted
• Amount of water reused
• Amount of water treated before returning it to the ecosystem

Material quality check for future value creation 

Quality assurance systems reduce resource consumption – material, money and energy consumption and waste creation. It promotes continuous improvement and innovation in the value chain through benchmarking, thus ensuring a better quality of products and sustainability while reducing costs across the supply chain.  

Conclusion 

In addition to delivering positive environmental impact, sustainable supply chains  also enhance business impact by driving efficiency in supply chain processes besides reducing operating costs.

Businesses wishing to establish a sustainable supply chain must ensure that the benchmarks evolve, metrics are fine-tuned, and continuous employee engagement and training; all these activities go through repeated iterations.  

Frequently Asked Questions