How SMBs Are Creating More Sustainable Supply Chains in 2021

Millennials are becoming the top consumer group and largest presence in the U.S. workforce. They have a focus previous generations didn’t give much thought to: They demand that companies take action on sustainability. From sustainable sourcing of products to being socially responsible, younger generations want to support businesses invested in green practices across their supply chains.

Corporate giants aren’t doing a great job at meeting this expectation, creating an opportunity for small businesses—who tend to be more nimble—to jump in and gain market share. But what exactly does supply chain sustainability mean, and how can small companies work toward it?

We’re here to help leaders of small and midsize businesses, like you, figure it out.

In this report, we share the current trends, concerns, and business impact of sustainability measures taken in small and midsize business supply chains in the past 18 months.

We surveyed over 500 supply chain professionals working at companies with 500 or fewer employees to find out what efforts they’re taking to be more sustainable as well as understand the benefits and challenges they’re facing. We’ve also sprinkled in our advice throughout the report.

What does sustainability in supply chains mean?

For our research, we defined supply chain sustainability measures as: Sustainability encourages businesses to frame decisions in terms of human and environmental impact for long-term rather than short-term gains. Examples of sustainable actions include reducing the use of plastic and carbon dioxide, sourcing raw materials from sustainable partners, and supporting ethical work and pay practices.

Investment in environmental sustainability is the most popular among SMBs

Sustainability in clothing and food supply chains has been a consumer focus for years; our survey results highlight continued focus on the environmental impact of the products we consume regularly.

Before the pandemic, 86% of respondents had some type of sustainability effort in place at their business, with environmental sustainability being the most common type.

We also asked about other categories of sustainability efforts, including societal and economic. Here’s a roundup of the survey responses. In the next section, we discuss each of these sustainability categories in detail.

Environmental sustainability

Environmental sustainability measures focus on replacing harmful, unsustainable energy sources with renewable, sustainable ones to create healthier communities and a greener earth.

Over half of the respondents (54%) report increasing their efforts in environmental sustainability in the past 18 months. And all, but one respondent, have plans to keep or increase their environmental sustainability efforts after the pandemic.

Reducing production or manufacturing waste, preventing pollution, adopting clean energy, using sustainable materials, and designing sustainable products are some examples of environmental sustainability efforts.

Social sustainability

Social sustainability efforts work to create a better society that promotes inclusion, diversity, and equality for everyone across all aspects of life.

Before the pandemic, 60% of respondents invested in social sustainability practices, and in the past 18 months, 42% have increased these measures. And, as with environmental sustainability efforts, almost 99% plan to maintain or increase their social sustainability practices after the pandemic—only four respondents say they plan to eliminate current efforts.

Supporting social equity and fair labor rights and wages is an example of social sustainability efforts. Common actions taken by SMBs include working with ethical supply chain partners who pay workers fair wages and use fair-trade products (e.g., food, coffee).

Unfortunately, the global supply chain is still overrun with modern slavery, child labor, conflict minerals, and unhealthy emissions standards—climate change isn’t the only major issue facing sustainable supply chain management. We all need to push for continuous improvement in how we treat each other.

Economic sustainability

Economic sustainability initiatives focus on creating long-term economic growth that doesn’t have a negative social, environmental, or cultural impact on the community.

Before the pandemic, 49% of respondents invested in economic sustainability efforts, and in the past 18 months, 24% have increased their efforts. These again are long-term investments, as only 2% plan to decrease their efforts once the pandemic subsides.

Offering employees incentives for sustainable practices within the workplace and establishing key sustainability performance indicators and metrics are actions SMBs can take to boost economic sustainability.

Here’s a breakdown of sustainability efforts our survey respondents reported taking across all categories:

The top four types of investment are directly related to environmental sustainability, which is in line with that category having the highest reported number of businesses committed to it. Over half of the respondents are sourcing from sustainable manufacturers (54%) and working with eco-friendly partners (53%). Sustainable product design and eco-friendly logistics planning come in third and fourth with 49% and 42%, respectively.

Our advice:
Evaluate your product design—ask yourself if there’s more that can be done to offer a sustainable product. You can, for instance, run an email survey to get customer feedback and make product updates or changes to deliver more value to your customers. Posting the updates made can also increase customer loyalty and help attract new customers.

Cost saving and better brand reputation are the top benefits SMBs are seeing from sustainability investment

Now let’s get into the benefits SMBs are reaping by investing in supply chain sustainability. Wanting a healthier planet and community is a great motivator, but your business also needs to have benefits that increase your bottom line.

Here’s a breakdown of the benefits of sustainability investment, as reported by our survey respondents:

Cost savings taking the top spot is encouraging, as it means businesses are able to reduce expenses while improving their sustainability efforts. Potential cost-saving areas include negotiating for better prices when switching to a new, more eco-friendly supplier and redesigning your product offering to be not only more sustainable but also less costly.

The whole point of prioritizing sustainability is to ensure a positive impact for stakeholders across the supply chain. The next four reported benefits show the improvements businesses, as part of the supply chain, are witnessing due to their sustainability efforts:

• Positive change in brand reputation (43%)
• Increased employee morale (43%)
• Higher customer retention (38%)
• Reaching new customers (33%)

Each of these benefits highlights that people value working for and buying from businesses that have eco-friendly practices in place.

Our advice:
Share your sustainability efforts with your customers via social media posts, your website, and/or marketing emails. Doing the work is important, but getting the message out is how you’ll get to see the benefits mentioned above.

High cost is the top challenge for SMBs working toward sustainable supply chains

Unfortunately, cost is always going to be a challenge for any business making any type of change. In our survey, 58% of respondents say high costs, both direct (e.g., buying more expensive materials) and indirect (e.g., longer process/workflow time), are the biggest downside to investing in supply chain sustainability.

But we should also note that once the initial investment is done, cost savings is the most common benefit of sustainability investment, as reported by 46% of our survey respondents.

Here’s a breakdown of the reported downsides to investing in sustainability efforts:

Software is contributing to supply chain sustainability

Per our survey results, 83% of SMBs use software to support their sustainability efforts. The top three types of software used are supply chain management software (48%), project management software (44%), and enterprise resource management software (39%).

Software solutions help manage sustainability in supply chains in a multitude of ways. Here’s a breakdown of the benefits reported by our respondents:

Saving time (60%) and money (48%) are arguably the best benefits we can see. On the other hand, high direct costs (31%) and high indirect costs (27%) are the top two reported challenges of investing in sustainability. So if these two are also your top challenges, software can likely help counter the increased costs.

Here’s a matrix of other reported benefits of using software and the sustainability investment challenges they can help address for SMBs. Here, they are with the corresponding percentages in parentheses.

Reported software benefit	Challenge it can help address
Helps with compliance and reporting (45%)	Difficulty keeping up with regulations (13%)
Helps with measuring results (29%)	Difficulty measuring success (21%)

Software also helps communicate to your teams the successes and challenges you’re seeing with your sustainability investments. This not only improves employee awareness of the effort but also increases engagement—and maybe someone on the team will come up with a solution to further improve the measures you’ve taken.

The takeaway here is that if your business isn’t using software to manage supply chain sustainability projects, it probably should. Using software will help alleviate some of the most common challenges seen by other businesses.

SMBs struggle to see the incentive for sustainability

Only 5% of respondents say their company doesn’t invest in any sustainability measure. Though it’s a very small percentage, we wanted to understand why they wouldn’t invest and what their future plans were.

Note: The survey title may have encouraged people investing in sustainability to participate but not those who aren’t investing. Therefore, we’re not saying 5% of all SMBs aren’t committed to supply chain sustainability, only that 5% of our survey respondents aren’t.

Here’s a breakdown of the top reasons these respondents say their company doesn’t currently invest in supply chain sustainability:

A majority (54%) of respondents say lack of financial incentive is the top reason, and the number makes sense when we look at the survey demographics—the majority (75%) work at very small businesses, i.e., companies with annual revenue of $10 million or less. Smaller businesses tend to have less money to spend on noncritical efforts such as replacing diesel delivery trucks with electric ones or redesigning the product line to be more eco-friendly.

The next two reasons for not investing go hand in hand: insufficient buy-in from leadership (29%) and not knowing where to start (also 29%). If this describes your situation, here’s what we suggest.

Our advice:
Appoint a sustainability captain, or a similar role, to take the lead on working with senior leadership to identify where and how to start. This should help address both challenges. With leadership involved in the effort design, their buy-in and engagement in the project will increase.

Survey results also suggest that many businesses plan to invest in supply chain sustainability in the near future—33% are planning to do so within the next year. However, 29% say they have no plans to invest, and 32% don’t know their future plans.

Who should lead the sustainability effort in a business?

Even if sustainability is at the core of your business’s mission statement, you still need to have someone leading the effort. Our survey found that 46% of SMBs have a supply chain manager and 29% have a sustainability team responsible for leading the effort.

Move toward a greener supply chain

Now that you know what actions other SMBs are taking toward sustainability in their supply chains, along with their benefits and challenges, hopefully, you feel ready to take your business toward a more eco- and community-friendly direction.

Here’s a quick recap of the advice we shared throughout this report. We also recommended some reading resources below if you’d like to learn more about sustainability and supply chains.

Survey respondents’ demographic breakdown

For those of you interested in more details about the types of supply chain workers we surveyed for this report, here’s a breakdown of the demographics of all respondents, including the size of their business and the industry they work in.

Note: The “Other” category comprises industries with 4% or fewer of the total respondents. Those industries, in descending order of number of respondents, are agriculture, engineering, energy/utilities, education, healthcare/medicine, telecommunications, wholesale, entertainment/media, services (IT services and software), transportation, advertising, investment services, marketing/PR, hospitality, nonprofit, insurance, other, real estate, property management, and services (other business, consulting, or consumer services).

---

Survey methodology

Software Advice conducted the Sustainability in Small Business Supply Chains Survey in August 2021 among 564 U.S.-based professionals in the supply chain field to learn more about how their companies are investing in supply chain sustainability. Respondents were screened for employment status (full-time) at a small business (2 – 500 employees), with a supply chain job function (logistics, inventory/warehouse management, manufacturing, or procurement).

Note: Percentages have been rounded to the nearest whole number.