Driving Green Transformation in Global Supply Chains

11:06:18 AM | 6/25/2024

Businesses at the top of supply chains need to take the initiative to promote green transformation in manufacturing, said Dr. Nguyen Manh Hung, RMIT Senior Program Manager for Logistics and Supply Chain Management.

Customer requirements for green products are pushing manufacturers and suppliers to adopt new standards and adjust their processes

Customer requirements for green products are pushing manufacturers and suppliers to adopt new standards and adjust their processes. Customers, especially in developed nations, are becoming more aware of the environmental impact of their purchasing decisions. In Vietnam, up to 84% of consumers would pay more for sustainable products, according to a survey by Rakuten Insight in 2023.

Among Vietnam’s top export markets, the European Union has implemented stricter environmental regulations and standards for imported products and services. Being green is no longer an option, but an “order winner” factor in exportation.

From a supply chain point of view, the buyers play a crucial role both in the supervision of and collaboration for green efforts. They are those who lead the supply chains and drive the green transformation process to ensure the final products/services fit market demands.

Walmart, H&M, Uniqlo, Unilever, Apple and Nestlé are some of the top supply chain leaders globally. In Vietnam, we can name VinEco, Vinamilk, Viet Thang Textile, Vinatex and Thaco, among others.

A case in point: major clothing retailers like H&M, Zara and Uniqlo have started mandating their suppliers in Vietnam to use organic cotton, reduce water/energy use and implement waste recycling. This has prompted Vietnamese textile manufacturers to invest more heavily in eco-friendly production processes.

Meanwhile, VinEco has invested in farms in Quang Ninh and Ha Nam, improving the capacity of the locals to practice green farming. They now distribute certified “green and clean” vegetables to cities and provinces nationwide.

Such companies play an important role in their supply chains by monitoring green processes, providing necessary knowledge/information, and in many cases, facilitating green financial models.

To monitor the environmental impact of their suppliers, buyers should introduce environmental standards and set clear expectations for environmental performance, covering emissions, waste, water usage and energy consumption.

These buyers can work closely with their suppliers to develop and implement plans to address the environmental challenges they are facing. They can conduct joint workshops to enhance knowledge and build up environmental management capabilities.

Green financing for supply chains in particular deserves more attention, as it can create a financial incentive for suppliers to commit to sustainability. Supply chain leaders are typically large corporations with abundant resources or access to a better investment scheme. Hence, they can assist smaller companies (local manufacturers) to deal with the cost of green transformation. Besides, the corporate reputation associated with the supply chain leaders can facilitate access to green investment, such as green bonds or sustainable development loans.

In a survey of 437 global manufacturers, my RMIT colleagues and I found that businesses can improve their market shares and revenues – thereby enhancing their financial positioning – if they know how to highlight their environmental targets and the methodologies used to attain such goals in their conversations with stakeholders.

It is worth noting that over time, the mutually beneficial relationship between green consumers and manufacturers can trigger process innovation, which could lead to financial and cost improvements.

The more pressure from consumers to go green, the stronger the process improvement in businesses. It would make sense for companies to boost strategic partnerships and collaboration with customers to tackle environmental pressure.

Dr. Nguyen Manh Hung, RMIT University

Source: Vietnam Business Forum