When it comes to supply chain management, sustainability is one of the areas that is only getting more complicated.
Indeed, supply chain sustainability software has garnered renewed interest, in part because of new regulations aimed at increasing accountability, such as the U.K. Modern Slavery Act and the Paris Agreement. The first mandates that companies prove they are not buying goods or services from entities that practice or support slavery or child labor, and the latter is a global push toward a net-zero carbon future that spurs companies to take steps to ensure sustainability throughout their supply chains. But it is this expanding breadth of the definition of sustainability -- and the efforts to account for it -- that is ultimately reshaping both the movement and the software.
Supply chain sustainability expands
The broadening of the meaning of sustainability led to industry analyst firms, like Gartner, to stop covering this software category as a stand-alone market. "That's in part because 'sustainability' no longer means [just] 'environmental,'" said Pam Fitzpatrick, principal research analyst on supply chain at Gartner. "The term is inclusive of the social and governance issues that play out in business. These issues and any related IT tools may be used by different people throughout the organization. The range of buyers and sellers is too broad to include in a single market."
There were also problems in marketing software aimed specifically, if not exclusively, at sustainability.
"It's such a specialist niche that it's hard for a software vendor to find the right person within a company to whom to pitch their solution," said Duncan Jones, an analyst at Forrester. "Many enterprises are very siloed in their approach to supply chain [management], with one group looking at cybersecurity, another at labor laws, and sustainability being a) another silo and b) a lower priority."
Even so, the issues of transparency and accountability continue to rate high on many companies' and consumers' priority lists.
Changes to supply chain sustainability software
"It's obvious that consumer pressure can drive enterprises, and enterprises can drive improvement down the supply chain. Regulation helps, but it tends to follow consumer demand rather than lead it," Jones said. "But consumers may see through you if you are only pretending to do corporate social responsibility for monetary gain. A 2017 Forrester survey found that 40% of consumers class themselves as environmentally conscious and like to know how the products they buy have been made."
Increasingly, shareholders are also demanding corporate social responsibility (CSR), be that with a focus on environmental, human rights or both. The study "Demand for CSR: Insights from Shareholder Proposals" found that "shareholders can be relatively intense in their requests for CSR, with the majority of the firms in our sample being targeted with more than one proposal annually."
Corporations are addressing the combined pressures from consumers, shareholders and regulations, largely by passing the responsibility to companies in their supply chain.
"For example, so that no manufacturers of parts for high-tech companies have to prove to their customers that they comply with conflict minerals legislation, they pass the burden down to their suppliers," Jones explained.
"The early initiatives relied on spreadsheet questionnaires emailed out by someone and manually collated and analyzed," he added. "Selfish egocentric [corporate] buyers thought they would be the only ones asking for the data and/or didn't think about the workload they were imposing on their supply chain. Now, there is greater realization that we need a … community approach, so suppliers prove compliance once and that is syndicated out to all their customers."
New drivers continue to evolve; the latest being the issue of trust -- or rather the lack thereof.
"The big driver is this: Regulators, institutional investors and consumers are redefining what it takes for companies to earn their trust," Fitzpatrick said. "All three groups have greater expectations for companies to be more transparent about their operating practices and to assume greater responsibility for the well-being of people -- including consumers and workers in the supply chain -- and the environment."
New tech to boost CSR, supply chain sustainability
The growing need to develop and maintain trust is spurring interest in technologies and features that can be added to supply chain sustainability software to meet the demand.
"Our latest hype cycle for chief supply chain officers notes that blockchain technologies offer promising opportunities to address issues such as trade finance and product traceability by ensuring the integrity of transactions," Fitzpatrick said.
However, Gartner warned that the terminology surrounding blockchain is also in flux, making it difficult for buyers to find blockchain software that matches their specific needs. And it's not the only analyst firm sounding the alarm.
"All the vendors of supply chain and purchasing software are talking about blockchain because it's trendy, but I'm not yet convinced that that will be a key part of the solution. It may help prove provenance," Jones said.
Pam FitzpatrickPrincipal research analyst on supply chain, Gartner
Blockchain may also defeat the purpose of ensuring supply chain sustainability, even as it potentially offers value in tracking and validating sustainability efforts from a product's inception, be that in an agricultural field, a mineral mine or on a manufacturing floor.
A World Economic Forum white paper wrote that the process of hashing, which sends pending transactions through the secure hash algorithm 256 (SHA-256) to validate them and solve a block, uses an enormous amount of electricity. "Estimates liken the bitcoin network's energy consumption to the power used by nearly 700 average American homes at the low end of the spectrum and to the energy consumed by the island of Cyprus at the high end. That's more than 4.409 billion kilowatt-hours, a Godzilla-sized carbon footprint," according to the paper.
Jones sees more promise and practicality in machine learning and AI being added to supply chain software, rather than blockchain.
"I see a greater role for AI to analyze social media, for example, so an anonymous whistleblower can tweet about a wrongdoing they've witnessed and that will alert the supply chain manager to a potential problem," Jones said. "I also see a greater role for video streaming to capture working practices on a frequent basis, without costly on-site audits."
Complexity of the supply chain
Feedback on the current iteration of supply chain sustainability software as a category finds it is falling short of its original promise.
"The current supply chain systems are incredibly opaque. No amount of research can determine just how much slave labor, environmental destruction and violence goes into what we buy," said Simona Pop, who at the time of this interview was head of expansion at InstaSupply, a spend control and supply chain intelligence platform using blockchain. (She has since moved to blockchain-focused software company ConsenSys.) "The consequences of this lack of control and transparency in the supply chain are not only detrimental but catastrophic."
"Fragmentation and offline processes make it so. Even sustainability software built five to 10 years ago is not serving the intended purpose because its capabilities are limited. The lack of real-time tracking and a global system of record makes sustainability software sustainable only by name," Pop said.
Industry analysts also note supply chain sustainability software's shortcomings, particularly in achieving scale.
"The technology is still immature. We need the software to have advanced AI, to analyze data such as company policies and social media feeds, but right now, there is still too much human intelligence required," Jones said.
But that is not to say that the current iteration of supply chain sustainability software is useless. It can be used to achieve some sustainability goals.
"It is common for organizations at the beginning of their sustainability journey to pursue some low-hanging fruit projects that allow them to save money and promote an environmental benefit. Technologies that support energy efficiency are a typical example," Fitzpatrick said.
Experts say several supply chain software vendors are considering tackling sustainability as features rather than as a stand-alone product in the next iterations of their products for aforementioned reasons -- namely, addressing a broader set of issues and clarifying the targeted buyer within companies. The recent introduction of the ISO 20400:2017 sustainable procurement standard establishes an important global framework for vendors to work by and for companies to follow. In any case, supply chain sustainability continues to be a hot issue, and thus, the software continues to evolve.