A new study found that 90% of organizations are planning to enhance their ESG investments over the next three years, with a significant focus on improving data management systems using artificial intelligence. This surge in ESG investment reflects an acute market response to regulatory pressures and a consumer base that’s increasingly vocal about their preferences for sustainable products.
Despite the clear demand for more sustainable goods, most brands and retailers are struggling to mitigate the greatest contributor to their social and environmental footprint: their supply chains. Supply chains account for up to 90% of a company’s environmental impact, yet brands and retailers are still mostly in the dark about the origins of the very products they sell. To guarantee sustainability, companies must be able to map their supply chains to the Nth tier, down to the raw material-level suppliers that form the backbone of their products. By creating a comprehensive digital record that traces each step in the manufacturing process, retailers can ensure that every component of a product meets the highest standards of sustainability and compliance.
Of course, for many enterprises, that’s easier said than done. To achieve this goal, retailers need not only greater visibility, but also better data management. Brands and retailers are caught in a dichotomy of either drowning in data without effective tools for analysis or grappling with a scarcity of critical information, especially regarding the origins of raw materials. On one side, businesses are inundated with data at the Tier 1 and Tier 2 supplier levels, and that overabundance can lead to paralysis, where having ample data does not necessarily equate to having actionable insights. On the other side, the industry faces significant gaps in early-stage data — insights into the origins of materials like cotton or wood for apparel companies, for example, remain elusive, impeding retail’s ability to ensure the ethical integrity of products.
To use apparel as an example, documenting the intricate mosaic of farmers, mills, factories, warehouses, and shipping facilities involved in product creation demands a level of data management and visibility far beyond the current capabilities of many organizations. Digitalization dramatically simplifies the process and reduces the amount of work involved. The right multi-enterprise supply chain platform allows businesses across any retail sector to sift through key data, identifying risks, drawing connections, and enabling more strategic sourcing. These tools are now indispensable for managing the vast amount of information involved in global supply chains.
Keeping Pace with Changing ESG Compliance Requirements
Digitalization has long presented a strategic advantage for global retailers and brands – a powerful strategic option to create cost savings by automating processes, creating efficiencies, and reducing lead times. In the wake of new global supply chain regulations rapidly passing across the world, however, digitalization is no longer a nice-to-have but an indisputable necessity. From the European Union’s new Corporate Sustainability Reporting Directive to the United States’ Uyghur Forced Labor Prevention Act and the German Supply Chain Act, these laws demand meticulous scrutiny of supply chains to ensure ethical practices and environmental stewardship.
Navigating the complexities created by this fragmented regulatory landscape is increasingly only possible with a multi-enterprise platform’s sophisticated data management tools. A platform like this serves as an intelligent connector of data from ERP systems, supply chain partners, NGOs, and sustainability databases, offering brands and retailers a unified view of their supply chain while tying external data to specific SKUs and purchase orders.
The ideal platform’s supply chain maps illustrate the relationships between vendors and factories, and even visualize key performance and scorecard metrics such as audit results, certifications, and risk levels, so compliance managers can see at a glance any vulnerabilities in their supplier base. By centralizing key supplier data, this technology is also instrumental in helping businesses meet their requirements, including their Scope 3 carbon reduction goals, allowing them to collect and assess emissions data, efficiently implement improvement plans, and track and measure their progress.
Increasingly, this technology is leveraging artificial intelligence to introduce greater transparency and traceability into supply chains. AI can now prepare chain of custody documentation for every order retail businesses face, and instantly identify any gaps in documentation, saving time and reducing the potential of costly detainments at ports. In addition to allowing businesses to more efficiently map their supplier bases, the AI can sift through large historical datasets and rapidly identify vendors and practices that pose potential ethical and environmental concerns. AI-driven analysis can pinpoint anomalies and draw connections to areas of risk, providing an early warning system to protect brand reputation and ensure ethical operations.
It’s no wonder why 58% of organizations report they plan to improve ESG data collection with artificial intelligence. This technology has already proven extremely efficient in its ability to simplify and automate data collection and compliance processes. By embracing digitalization and artificial intelligence, retailers can ensure compliance while meeting the evolving sustainability demands of an increasingly eco-conscious market.
About the Author
Eric Linxwiler is Senior Vice President of TradeBeyond. He has over 30 years of experience in enterprise software and cloud-based platform companies with a specialty in supply chain optimization and workflow management. Contact him at eric.linxwiler@tradebeyond.com.
