Scaling Responsible Retail Supply Chains

By Joe Carpenter 

The growing public concern around climate change has pushed businesses to transition to more sustainable business models, utilizing new strategies to not only respond to their customer demands but also to reduce their overall climate impact. It is a common challenge for a small business to have little-to-no leverage when it comes to discussions about sourcing renewable energy, buying biodegradable chemical components, or using organic produce. The reasons that many small businesses are not motivated to “go green” are plenty.

Sustainable retail is defined by sellers of goods that have long-term financial, social, and environmental awareness embedded into their business model. This broad terminology can be used to represent product design, sourcing of raw materials, labor practices and working conditions, transportation and distribution methods, educational strategies, branding and marketing, and internal energy use reduction initiatives.

Procurement and sourcing consciousness has grown as firms are beginning to scrutinize their supply chains, and hold suppliers accountable to higher social and environmental standards.

Suppliers tend to charge a premium for all things “sustainably sourced” or “organic," and when you don’t have a bottomless credit line with a bank, it’s hard to keep the prices competitive. Generating renewable energy on-site usually requires a large up-front investment, and saving for that takes time. So, how does a small company approach doing business with these constraints in mind?

It’s not just about the sale. It’s about how your business fits into your community, your environment and your personal values. Small business owners have a much better understanding of this than a big-box retailer does.

Artisan’s Trading is a furniture company based out of Cambridge, Massachusetts, that sustainably sources all of its hardwood furniture from Indonesia, using local fair-trade labor. At the same time, the company keeps its prices at least at a third less than the market average. Its supply chain is international, yet it is as short as it is transparent.

“There is a major problem with deforestation around the globe and where the companies are sourcing the wood from. We found that in trying to be sustainable, it is difficult to know where it comes from, since wood doesn’t get a serial number,” said Baylor Bennett, the business development manager for Artisan’s Trading. “Most of the companies we work with are family-based operations. Some of them are second- and third-generation furniture makers that are now studying business and doing their own exports. All of these company owners invited us out to see their factories and meet their workers.“

Today’s world is moving toward more responsible, awareness-based supply chains by applying principles of longevity and sustainability on to traditional business models. For many retailers, sustainability is becoming a core consideration for their business.

Bennett says it isn’t too difficult to build up a responsible supply chain in today’s world. “Now that we have such reliable suppliers, and because of the technologies such as Skype, we can have all the necessary conversations online. They can show us videos of all the pieces and samples, so we don’t need to travel there every year.”

Climate Action Business Association developed a new series of reports, Local Emerging Market Reports (LEMR), to offer a spotlight on quickly growing industries that are transforming business-as-usual. There’s a large and growing market opportunity for an economy based around local enterprises and sustainable supply chains.

By evaluating supply chain operations, retailers are uncovering cost-savings and workforce-enhancing opportunities. For retailers, reducing direct environmental and social impacts like energy and water usage, waste generation, and land use provide opportunities to streamline business operations and cut costs.

The Retail Industry Leaders Association (RILA) conducted a survey, representing more than 65,000 locations and $1 trillion in global revenue, which found five primary benefits of sustainability programs: reduced costs, enhanced reputation, risk management, employee enthusiasm, and proactive regulatory strategies. Nearly 90 percent of respondents said their sustainability efforts are lowering costs, primarily by improving business and resource efficiency.

Increasing energy and fuel efficiency, reducing waste, and partnering with suppliers may uncover resource efficiencies that also translate to lower costs, whether by reducing energy, water, material, or waste. The retail industry consumes close to $20 billion worth of energy per year, making the opportunity for energy savings immense. The combined savings potential across the retail industry equates to $3 billion annually. Most retail companies that invest in sustainability measures in operations can expect to generate a two- to three-year payback.

Sustainability as a business strategy is increasingly seen as a way of differentiating a company to appeal to both employees and consumers, and a platform for new market development. It is clear that the industry is changing, adapting itself to consumer demand and preferences. In a 2013 green market survey, “75 percent of small business respondents who sell green products or services saw an increase in sales of those products and services during the down economy from 2008 to 2011."

Further, retail companies have discovered that showing responsibility for their workforce (through education or improved workers’ treatment) gives them more credibility in the eyes of media and customers.

Changing consumption habits and emergence of closed-loop product design will continue to influence the way retail companies evolve. New manufacturing practices give leading companies the opportunity to create new industry norms. The new global awareness about issues like body image, human rights, and environmental pollution instigate a more responsible growth trend for companies small and large.

To get a glimpse of the future, refer to the Local Emerging Market Reports (LEMR) collection, and see how powerfully (and positively) sustainable retail is going to change the balance in your 401(k).

Image credits: 1) Pexels; 2) Artisan’s Trading Co.