Sustainability has been one of the biggest buzzwords in the supply chain arena for years now. The push towards sustainable product development and manufacturing increases each year, with frequent surveys conducted to determine if consumers will pay more for goods that are produced with the environment in mind. Economists call it “willingness to pay,” and it may finally be reaching the point where it makes sense for a company’s bottom line.
Barraco Says... |
 |
| Translating consumer willingness to pay more for green products into business decisions must encompass more than the product itself. |
 |
What do you say? |
 |
| Click here to send us your comments |
|
|
|
Going Green Takes Time
In a 2011 Forbes article, author Dr. Gregory Unruh said, “Consumers will consistently tell surveys that they are willing to pay more for socially and environmentally superior products. But when they are alone in the shopping aisle and it’s just them and their wallet, they rarely fork out more for ‘green.’”
A 2015 Nielsen report concluded that consumers across the board would be willing to pay more for sustainably produced products – especially millennials. "Despite the fact that Millennials are coming of age in one of the most difficult economic climates in the past 100 years, they continue to be most willing to pay extra for sustainable offerings—almost three-out-of-four respondents," said Nielsen.
Years later, more and more companies are working to cash in on consumers’ increasing willingness to pay more for green products, and not just the typical retail brands like Patagonia, Timberland, and North Face. Just look at the latest micro-site from the Footwear Distributors of America (FDRA) – FootwearInnovation.com – and you see multiple articles about eco-product development initiatives in this single industry. Shoes made from recycled plastic, reclaimed fly leather (leather that would otherwise be scrapped), or plant-based running shoes made from cotton and corn. Companies doing their best are often recognized first by NGOs, and then by the consumers who are willing to pay more at checkout.
Translating consumer willingness to pay more for green products into business decisions must encompass more than the product itself. Sustainable sourcing doesn’t stop at reducing the impact of your products and supply chain on the environment; it includes consideration of social and ethical performance indicators when selecting suppliers. As supply chains expand globally, it is tempting to fall into the “lowest cost” trap where green best practices (and social responsibility) seem too expensive to put in place. However, smart companies will strive to meet the growing expectations of stakeholders—including customers, shareholders, employees, NGOs, trade associations, labor unions, government observers, etc.—and do the “right” thing.
Sustainability Goes Global
Consumers aren’t the only ones driving change. A new wave of 21st century free trade agreements are taking shape across the globe, as trade negotiators recognize the importance of including strong sustainability provisions in new FTAs.
Vietnam has taken serious actions to boost green supply chain initiatives, setting up an equitable and sustainable response to climate change and what seems a looming migrant crisis by including environmental and worker rights stipulations in the EU-Vietnam Free Trade Agreement (EVFTA). While EVFTA will bring huge benefits to all of the trading parties, those benefits come with conditions that will add to the work of supply chains. The FTA emphasizes sustainable development, environmental protection, and labor rights, requiring supply chains to establish and expose their practices in each of these areas.
A primary chapter in the FTA is dedicated to labor and environmental matters relevant to trade relations between Vietnam and EU countries. It outlines specific provisions aiming to promote “mutual supportiveness between trade and investment, labor, and environmental policies”i, while also dictating that the anticipated boom in trade doesn’t come at the expense of workers and the environment. Specific to climate change and environmental impacts, the FTA includes commitments for each party to implement additional multi-lateral environmental agreements.
Technology Leads the Way
Improving performance in environmental, social and ethical issues is now a major part of supply chain transformations. Working toward this goal has become an extension of companies’ commitment to corporate responsibility, and as such becomes a part of the overall business structure and supply chain operations.
Digital, collaborative technology solutions help companies increase supplier collaboration and visibility, support greater supplier accountability, and provide a conduit for broader, proactive supplier management activities. The best technology solutions offer the functionality to fulfill the end-to-end, develop-to-shelf needs of both retailers and suppliers, while facilitating the sustainability initiatives that today’s consumers have begun to expect.
Without a crystal ball, it’s difficult to predict when consumers will make the biggest leap to avoid purchasing from companies whose products are not produced with environmental sustainability and social responsibility in mind. But new regulations and trade pacts are also driving the push in this direction, and companies can’t afford to be left behind and face potential backlash and noncompliance. Digital supply chain solutions enable companies to transform their operations to meet expectations and standards around the globe, ushering in a new era of good governance.
i “Guide to the EU-Vietnam Free Trade Agreement”, Delegation of the European Union to Vietnam, June 2017.
Any reaction to this Expert Insight column? Send below.
Your Comments/Feedback
|
