Please discuss and apply supply chain management learnings from the attached article to one selected company (Walmart) within that industry utilizing supporting information from professional

STATE OF SUPPLY CHAIN

SUSTAINABILITY 2022 Adjustments and Equilibriums

SPONSORED BY:

STATE OF SUPPLY CHAIN SUSTAINABILITY 2022

STATE OF SUPPLY CHAIN SUSTAINABILITY 2022

Copyright © 2022 Massachusetts Institute of Technology

All rights reserved. This publication or parts thereof may not be reproduced or modified in any form, stored in any retrieval system, or transmitted in any form by any means—electronic, mechanical, photocopy, recording, or otherwise—without prior written permission of the publisher, except as provided by United States of America copyright law.

For permission requests, write to the publisher at:

77 Massachusetts Avenue, Room E40-263 Cambridge, MA 02139 or [email protected]

Suggested citation:

David H.C. Correll and Kellen Betts. “State of Supply Chain Sustainability 2022” (Cambridge, Mass. and Lombard, Ill.: MIT Center for Transportation & Logistics and Council of Supply Chain Management Professionals, July 2022).

About the MIT Center for Transportation & Logistics

The MIT Center for Transportation & Logistics (MIT CTL) is a leading research and educational center within the Massachusetts Institute of Technology with almost 50 years of supply chain expertise. More than a decade ago, supply chain sustainability emerged as a key research area at the center. The center has responded with research, education, and outreach to address the continuing growth of supply chain sustainability as a business imperative fueled by the demands and requirements of consumers, governments, and investors. Supply chain sustainability research at the center is focused on enabling research and collaboration on the social and environmental sustainability of supply chain business processes. ctl.mit.edu

About the Council of Supply Chain Management Professionals

Since 1963, the Council of Supply Chain Management Professionals (CSCMP) has been the leading worldwide professional association dedicated to education, research, and the advancement of the supply chain management profession. With more than 9,000 members globally, representing business, government, and academia from 62 countries, CSCMP members are the leading practitioners and authorities in the fields of logistics and supply chain management. cscmp.org

State of Supply Chain Sustainability 2022 | sscs.mit.edu | iii

State of Supply Chain Sustainability 2022 | Contents | sscs.mit.edu | iv

CONTENTS Executive Summary ………………………………………………………………….1

Introduction ……………………………………………………………………………..2

The Challenge of Defining Supply Chain Sustainability ………….3

State of Supply Chain Sustainability 2022 …………………………………5

Changes Over Time ………………………………………………………………..6

Covid-19 and Supply Chain Sustainability: Replication and Explanation ………………………………………………6

Pressures: Turning Up the Heat ………………………………………….8

Supply Chain Sustainability Goals: The Environment Bounces Back …………………………………………9

Put Your Money Where Your Mouth Is: Supply Chain Sustainability Investments ……………………………9

Changes Over Geography ……………………………………………………. 10

Changes in Technology ………………………………………………………. 12

SCS Practices: A Staircase Emerges ………………………………… 12

SCS Disclosures: A Steeper Summit ………………………………… 13

Increasing Involvement Across Business Functions ………… 13

Implications of the State of Supply Chain Sustainability 2022 .. 14

Out of the Covid-19 Crisis Came Opportunity ………………….. 14

A Steadily Increasing Heat with Occasional Flare-Ups …….. 14

Change Is the Only Constant ……………………………………………. 14

Appendices ……………………………………………………………………………. 15

A. Contributors ………………………………………………………………….. 16

B. Translation and Reliability …………………………………………….. 17

C. Results of Global Comparisons ………………………………………. 18

References …………………………………………………………………………. 19

FIGURES AND TABLES Figure 1: Respondents’ age, gender, industry, and business function ……………………………………………………………….4

Figure 2: Change in supply chain sustainability (SCS) commitment in 2021 ………………………………………………………………….6

Figure 3: Change in SCS commitment by region ………………………..7

Figure 4: Firm size by region …………………………………………………….7

Figure 6: Sources of SCS pressure ……………………………………………..8

Figure 5: Level of pressure from top 2021 sources year over year ….8

Figure 7: Goal change from 2019–2021 …………………………………….9

Figure 8: Gap between goals and investments …………………………..9

Figure 9: Environmental SCS goals in the Global North and Global South …………………………………….. 10

Figure 10: Social SCS goals in the Global North and Global South …………………………………….. 10

Figure 11: Environmental SCS investments in the Global North and Global South …………………………………….. 11

Figure 12: Social SCS investments in the Global North and Global South …………………………………….. 11

Figure 13: “Staircase” of SCS practices ………………………………….. 12

Figure 14: “Staircase” of SCS disclosures ………………………………. 13

Figure 15: Respondents by level of engagement with their firms’ SCS efforts …………………………… 13

Table 1: Reliability results for survey translations ………………….. 17

Table 2: Results of regional comparisons of SCS pressure sources/influences, goals, and investments …………………………… 18

If there is one characteristic that sums up the state of supply chains today it is the need to navigate extreme change. Our research over the last three years culminating in the 2022 State of Supply Chain Sustainability Report shows the same can be said for supply chain sustainability (SCS). SCS is a moving target.

For instance, over the last three years consistent pressure to pursue SCS goals has come from various stakeholders, but the relative level of pressure associated with each stakeholder has changed over time. This year, company executives and corporate buyers top the league of advocates. As one of the executives interviewed for this year’s report commented, customers want to buy from companies that are investing in, and are committed to, SCS. Geographically, the Global North and the Global South give different weightings to the components of SCS. For instance, the North shows stronger commitment to climate change mitigation than does the South. This is the first year we have tracked differences between SCS goals across regions of the world—supported by a multilingual survey questionnaire—so it will be interesting to see how these disparities evolve over future years.

While the individual components of SCS may be in a state of flux, overall, the importance of sustainability in supply chains continues to trend upwards. The dimension that showed the most positive change is climate change mitigation. Supply chain circularity also gained favor in 2021. The adoption of technology and practices to support SCS goals also appears to be on the rise. Our latest research suggests that supplier audits, supply chain mapping, and codes of conduct are the most prevalent practices regardless of firm size.

EXECUTIVE SUMMARY

The steady rise of SCS as a corporate issue may come as no surprise to many supply chain professionals. Our research for the 2022 report affirms supply chain’s increasingly important role as a champion of corporate sustainability—a trend we highlighted in last year’s report. Given their key role in supporting sustainability goals, it is incumbent on practitioners to keep abreast of the many agents of change in this area, whether they be inspired by media channels, shifting consumer sentiment, or unexpected disruptions.

However, while SCS may be enjoying more support as a corporate goal, its growing popularity does not necessarily translate into investment dollars. As was the case in previous years, on every dimension SCS goals ranked more highly than investment in 2021. Still, the investment picture is not unremittingly gloomy. There are tentative signs that the gap is closing in some areas, notably in human rights protection.

What does 2022 portend for the future of SCS? We have no reason to doubt that SCS will continue to gain importance in the near term. Even the Covid-19 pandemic and its aftermath did not arrest this trend. For the second consecutive year, about 80% of respondents reported that their firms were undaunted by the global pandemic. Moreover, our research suggests that one of the pandemic’s legacies is to promote new thinking in key supply chain areas such as SCS.

The Rubik’s Cube of SCS components may continue to change, but sustainability practices and capabilities in supply chains appear to be maturing fast while gaining momentum across firms of all sizes.

State of Supply Chain Sustainability 2022 | Executive Summary | sscs.mit.edu | 1

INTRODUCTION

The annual State of Supply Chain Sustainability report is a co- presentation of the MIT Center for Transportation & Logistics and the Council of Supply Management Professionals. This yearlong research effort includes a globally administered survey, semi- structured executive interviews, and a thorough review of the year’s news and media documents related to global sustainability. Each year, the research team has collected and collated those disparate data points into this report, which we hope offers its readers a clear snapshot of the current state of supply chain sustainability worldwide.

In 2019, the first year of data this report studied, we found widespread interest in a broad spectrum of environmental and social dimensions of sustainability among participating supply chain professionals.* We also found that roughly half of respondents reported that they felt their firm was under pressure to improve its sustainability efforts, a finding that has been consistently replicated in subsequent installments of the State of Supply Chain Sustainability report.1 In 2020—the first year where we could make year-over-year comparisons—we expected to find a lagging or decreased focus on supply chain sustainability efforts due to the Covid-19 pandemic. However, to our surprise, we found that global supply chain sustainability (SCS) efforts remained as strong as ever; a whopping 82% of respondents reported that their firms’ commitment to supply chain sustainability had remained constant

* See Figure 8 for a full listing of these supply chain sustainability dimensions.

or increased from 2019, even in the face of the pandemic—especially for larger firms. The notable changes we did observe had to do with who was exerting this pressure on firms’ SCS efforts and how firms prioritized sustainability dimensions. From 2019 to 2020, we saw the most growth among social sustainability dimensions like employee welfare and safety; human rights protection; local community impact; and supplier diversity, equity, and inclusion. And as to who was exerting pressure on firms in these areas, the biggest increase in 2020 came from investors and governmental authorities.2

This year marks the third installment of the annual State of Supply Chain Sustainability report. We are very pleased that the report has collected data from a larger group and wider range of people each year. And this year, we were able to offer the survey in Spanish and Mandarin Chinese in addition to English, allowing for diverse, robust responses from all corners of the world. While in prior years we had collected data from respondents worldwide, these new translations allowed us to reach more people from more regions to enable us to conduct another layer of statistical analysis.

This large undertaking would not be possible without our outstanding team of sponsors, students, and contributors (listed in Appendix A). We hope that readers find our results both interesting, and useful. If you do, there is a large team to thank.

State of Supply Chain Sustainability 2022 | Introduction | sscs.mit.edu | 2

This is an essential read for anyone in supply chain today. Supply chains worldwide are uniquely positioned to be an engine to impact our society positively. The choice of who we choose to do business with, where we do business, and what and how we deliver is essentially in the supply chain’s control. Consumers and businesses alike need—and, in fact, demand—that products we source and deliver meet their environmental and social expectations. You will find in the State of Supply Chain Sustainability 2022 a most important, comprehensive global study that supports your ability to benchmark your company and SCS actions.

–Mark Baxa, President and CEO, CSCMP

The Challenge of Defining Supply Chain Sustainability A motivating premise of this research is that the term supply chain sustainability (SCS) means a range of different things to different people. Specifically, which areas should be included in a firm’s supply chain sustainability efforts? Which opportunities should be prioritized? Should climate change mitigation be included? What about diversity, equity, and inclusion (DEI)? From a scientific perspective, this poses a quandary: How can we ask people about a topic without first defining it? But conversely, how can we define it without unduly influencing their responses?

Since year one, we have chosen to resolve this research quandary by appealing to an especially broad definition from a globally recognized source. We base our definition of supply chain sustainability on the United Nations Sustainable Development Goals.

As defined in previous years: We define supply chain sustainability as the management of environmental and social impacts within and across networks consisting of suppliers, manufacturers, distributors, and customers in line with the UN Sustainable Development Goals. This spans every phase of the supply chain, from raw material sourcing and extraction to product use and end of product life.

This is, admittedly, a very broad definition that allows for difference of opinion. We believe that this dissensus around supply chain sustainability is important—not only academically interesting, but managerially relevant as well. Our work indicates that sustainability pressures, goals, and practices change over time and vary by geography and industry. Consider then that supply chain professionals are responsible for projects that extend across international boundaries and various industry sectors, and for overseeing timelines that span multiple years. As one North American interview subject working in healthcare logistics told us, “As we work with different suppliers and start opening up discussions on their sustainability issues, or [as we have] similar discussions with customers, what we find is that each company’s North Star, per se, is a little bit unique to what they do.” Therefore, knowing where and how supply chain sustainability is interpreted differently is crucial for firms in order to meet their goals as times and contexts change. We hope that our ongoing efforts will help supply chain management professionals to keep abreast of—and even ahead of—these changes, for the good of business, society, and the planet.

Research Approach This year’s online survey was prepared in three languages: English, Spanish, and Mandarin Chinese. The survey was released worldwide on October 25, 2021, and remained open until December 27. The survey yielded more than 3,300 usable responses. Survey responses are completely anonymous; we do not collect

any information that individually identifies respondents or their employers.

To assess the quality of the translations, we ran two tests: one before the survey launched and one after it closed. First, after both the Spanish and Mandarin translation teams completed their first translation, the translation teams walked through their work side by side with the MIT CTL research team. In these sessions, each translated term was discussed and described using other words to make sure the intended meaning was communicated across languages and cultures. Wherever any confusion popped up, we consulted additional native speakers to evaluate the translation and offer suggestions. Secondly, after the survey was closed, we conducted a Cronbach’s alpha test on all responses, testing for statistical reliability within and across translations, which showed acceptable results. When tested both in aggregate and broken down by language, the results passed this reliability test. (For more in- depth discussion of our research approach and methodology, see Appendix B.)

We also conducted 15 executive interviews. These interviews served two purposes: First, insights from these professionals guided the analysis conducted by our research teams. Second, excerpts from those interviews are also included in this text to give practical illustrations of our findings.

When making year-over-year comparisons, we chose to compare only English-language responses from each of the three years. Our reasoning is that we observed statistically significant differences in the responses from the new language groups compared to the English language group such that it would not yield a valid one-to- one comparison. For the same reason, when we compare responses by region, only the data collected in 2021 is included. Geographically, we received enough responses to achieve a viable sample size from employees of firms headquartered in five regions: North America, Latin American & the Caribbean, Europe, Asia, and Africa. Unfortunately, we did not receive a large enough sample of employees from firms in the Middle East or Oceania to reliably analyze and compare their results to other regions. The demographics and geographic locations of our respondent group are shown in Figure 1.

State of Supply Chain Sustainability 2022 | Introduction | sscs.mit.edu | 3

Respondents

3,300+ Survey Respondents

3 Languages

15 Executive Interviews

North America

21%

Latin America & Carib-

bean 44%

Europe 15%

Mediterranean & Middle East

3%

Africa 5%

Asia 10%

Oceania 2%

0% 5% 10% 15% 20% Percent of total

Manufacturing

Other

Transportation and warehousing

Technology

Retail

Health care and services

Wholesale

Construction

Agriculture, forestry, and fishing & hunting

Business consulting

Mining, quarrying, and oil & gas extraction

Academia

Finance and accounting

Utilities

Accommodation and food services

Industry

0% 10% 20% 30% Percent of total

18–24

25–34

35–44

45–54

55–64

65+

† Counts for question scores 1 and 2 were combined to avoid any item showing a count of less than 5, which can compromise the validity of chi-squared tests. For a full discussion of this methodology, see Harvey Russell Bernard, Social Research Methods: Qualitative and Quantitative Approaches (Thousand Oaks, Calif.: Sage, 2000), 563–67.

Age

0% 5% 10% 15% Percent of total

Supply chain

Logistics

Other

Procurement

Sales

Planning

Production/manufacturing

Warehousing/inventory

Design/product development

Sustainability

Marketing

Transportation

Finance

Human resources

Accounting

Business Function

Female 411

Prefer not to say 38

Prefer to self-describe 5

Male 1 149

Figure 1: Respondents’ age, gender, industry, and business function (n = 1,622)

State of Supply Chain Sustainability 2022 | Introduction | sscs.mit.edu | 4

State of Supply Chain Sustainability 2022

Changes Over Time Covid‑19 and Supply Chain Sustainability: Replication and Explanation

For the past two years, we have asked the question “Since the start of Covid-19, my firm’s commitment to supply chain sustainability has…” And for the last two years, we have received almost identical results from the English- language respondents. In 2021, 30% answered that their firms’ commitment had increased, and 47% said it stayed about the same. This means that for the second consecutive year, roughly 80% of respondents reported that their firms were undaunted by the global pandemic.3 This replication of results adds support to our previous conclusion that approximately 80% of firms held fast to their supply chain sustainability goals during the Covid-19 pandemic.

To many, these results were counterintuitive. How could a global pandemic not derail supply chain sustainability (SCS) efforts?4 But this year, our qualitative research offered another interpretation. In our semi-structured executive interviews, we heard several respondents describe how the pandemic actually brought supply chain management—and in particular, supply chain transparency and resilience— to the fore in a way that it never had before. Previously, global supply chains simply ran silently and unseen in the background of business operations and day-to-day life. In 2020, we began to see emerging evidence of firms shoring up—and even accelerating—their SCS efforts as a risk management measure and a way to strengthen their supply chain resilience.5 And in 2021, we see this idea spreading and taking hold more broadly.

In the face of constant disruptions, leading companies worldwide are urgently redesigning their supply networks and ecosystems to not only address business continuity and resilience, but also to improve their supply chain for sustainability, which is a very high priority for internal and external stakeholders alike.

—Hong Mo Yang Senior Vice President for Industry Strategy, Blue Yonder

Decreased 8%

Stayed about the same 47%

Increased 30%

Not sure 14%

In 2021, since the start of Covid-19, my firm's commitment to supply chain sustainability has…

Figure 2: Change in supply chain sustainability (SCS) commitment in 2021 (n = 1,694)

State of Supply Chain Sustainability 2022 | Changes Over Time | sscs.mit.edu | 6

One interviewee from a global electronics manufacturer summed up this driving force: “A tremendous amount of supply chain disruption has challenged us to look at what we can do different, what we can do better.” Similarly, another third- party logistics professional from North America told us, “The visibility and the awareness of the supply chain, and with that the attention that was focused on bringing different solutions to market gives us the ‘air cover’ that we need to offer things like EVs (electric vehicles) and distributed warehousing solutions.” However, we also see that the global commitment to supply chain sustainability has not been as robust in the face of the Covid-19 pandemic as the English-only responses of past years would suggest. When reconsidering this

same question regionally, we see differences in the impact of Covid-19 by the region where respondents’ firms are headquartered. Notably, a smaller percentage of respondents working for firms headquartered in Latin America & the Caribbean reported their firm’s commitment to SCS increased since the start of Covid-19. As one respondent from Latin America said, “The pandemic stopped these agendas for the last two years.”

Our previous reports highlighted that firm size is an important factor in commitment to supply chain sustainability, and that proved true again this year.

State of Supply Chain Sustainability 2022 | Changes Over Time | sscs.mit.edu | 7

Figure 4: Firm size by region (n = 305)

North America

Europe Africa Asia Latin America & Caribbean

11% 12%

21%

15% 17%

44%

15%

53%

10%

52% 46% 23%

34%

53%

34% 34%

7%8%

9%

How has your firm's commitment to supply chain sustainability changed since the start of Covid-19?

Not sure Decreased Stayed about the same Increased

Figure 3: Change in SCS commitment by region (n = 1,533)

How many employees does your firm have?

10,000+

31%

500–9,999

34%

0–499

34%

North America

35%

26%

0–499

40%

Europe

10,000+

500–9,999

19%

31%

0–499 48%

Africa

10,000+

500– 9,999

7%

30%

0–499

63%

Latin America & the Caribbean

10,000+

500– 9,999

23%

29%

0–499

47%

Asia

10,000+

500– 9,999

Pressures: Turning Up the Heat

Since 2019, we have asked survey respondents to rank the level of pressure that their firm faces to increase supply chain sustainability from 10 different potential sources along a 5-point Likert scale. Those responses typically cluster around the 3–4 (“high” to “very high”) range. However, some pressure sources show significant changes over time. To see where there were meaningful shifts in responses over time, we compared the average response for each year in Figure 5.

Figure 5 shows how sources of pressure change over time. We see that almost every source of pressure shows an increase over three years of observation, with pressure from investors rising most dramatically, followed by pressure from corporate buyers. This sentiment was also captured in this year’s executive interviews. An interviewee from a global electronics manufacturer explained, “I think we’re seeing more and more that our customers—both our direct customers and our indirect customers—are expecting

it, or in some cases demanding it. They are looking to only purchase from companies that are investing in sustainability and are committed to being leaders in that space. I think there is a much stronger pull from the customers for it.” And another respondent from a North American logistics firm told us, “I think pressure

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