This article was originally written for and published by Fast Company.
As climate impact evolved from a broad, socio-political conversation to a tangible factor that influences business operations and consumer spending, CEOs have put sustainability on their radar as either a big opportunity or an existential risk. This evolution gained steam as the push to be more eco-friendly gathered momentum in recent decades. There is an increased awareness from consumers and a deep demand for companies to prioritize this effort.
We have now reached an inflection point where governments worldwide are adding teeth to these efforts by paying much closer attention to climate change. The Net Zero Coalition, in concert with the United Nations, has a goal to reduce greenhouse emissions by 45% in 2030 and reach net zero by 2050.
If governments start to impose more stringent regulations, they will need to be adhered to by business leaders. Those who lean in to this effort will have an advantage over those who do not. They will be the leaders who are more likely to increase brand loyalty, see global acceptance of their product or service, and ultimately profit from long-term revenue growth.
Countries putting a spotlight on carbon-neutral efforts will continue to shut their doors to products that do not meet new regulatory requirements. This can be a massive hit to a company’s bottom line—and a massive opportunity for companies that can meet those requirements and continue to access those customers.
If government sustainability mandates are the stick, then consumer satisfaction is the carrot. Creating sustainable products can build revenue and increase customer loyalty. Consumers turn to brands that share their social responsibility views, and when given two choices, many will select the brand aligned to their social and environmental beliefs and goals. A 2020 McKinsey study on U.S. consumer sentiment found that consumers are putting an emphasis on ethically sustainable products. The study reported that more than 60% of surveyed consumers would pay more for a product made from sustainable packaging.
Subscription-Based Products Create More Efficient Supply Chains
Many people are familiar with sustainable business practices companies are adopting to reduce waste, such as optimizing manufacturing processes, using net zero suppliers, improving logistics, and using environmentally sustainable packaging. But fewer are aware of the sustainability improvements that subscription-based products can deliver.
Apple is a good example of this. It is committed to producing high-quality, durable products using recycled materials to reduce its carbon footprint. Not only does it offer a trade-in program for Apple products in exchange for credit, but it also recycles and refurbishes those products. Last year, the company was reported to be working on a hardware subscription service for its iPhones.
Subscription-based product portfolios center on the lifetime value of a customer rather than solely on creating a product with a one-time purchase and planned obsolescence. Having a longer-lasting product translates to greater customer value—and more revenue to sellers—over a longer period of time. It shifts the discussion from securing a one-time purchase to achieving long-term product and customer value.
This long-term relationship can have a profound effect on sustainability. Subscription-based product companies often have a longer-standing relationship with customers because they are using the product or service on a recurring basis. Therefore, companies can receive detailed feedback from customers, either through customer testimonials or conversations with customer service, over a longer period of time. This helps a company better understand demand and usage patterns. It also allows them to optimize new product development, which results in a more efficient supply chain and manufacturing process.
Another sustainability angle is the increased shelf life of subscription products, especially with connected devices. Product companies can update software and improve the user experience with over-the-air updates, which keeps the original hardware purchase up to date and relevant as customer expectations change. Here again, customer usage patterns are used to understand market trends and help optimize product updates.
Yet another sustainability improvement comes from technology that helps develop more accurate demand signals and connects them directly to the supply chain. For instance, technology solutions can help establish more accurate supply chain orders where the exact number of components needed is available in real time, and that specificity results in less waste. Likewise, technology can help dictate order lead time to prioritize short- and long-term shipment delivery needs. This prevents the need for rush orders and decreases the need to ship via air freight.
Technology also provides a clear, digitized record of every aspect of the development and supply chain of a product—from concept, to packaging, to delivery—making it easier for businesses to measure their efforts to cut the carbon footprint. Addressing sustainability at the supply chain level gives companies a full view of how and where their partners and suppliers do business.
Making a Difference Today for the Future
Technology can help companies manage sustainability efforts in a quick and adaptable way. If disruptions impact the supply chain of a product that is marketed as sustainable, businesses need to quickly find new suppliers, update designs and produce the product using sustainable practices elsewhere. Technology can aid in this effort. Supply chains are dynamic and being able to respond quickly has transformed procurement and supply chain professionals’ focus from supply chain efficiency to sustainable, resilient supply chain partnerships.
Product, supply chain, and procurement professionals need to ask themselves how their products have been designed and built, how they’ve been commercialized, and what markets they’re being sold to. They need to eliminate business process silos so that vital ESG product information is accessible both within the company and with external suppliers. Only then can they analyze product information with an operations and strategy approach that meets and exceeds some of the corporate environmental goals and initiatives outlined.
By examining product information holistically, they can have easy access to valuable data that can have a significant impact on their bottom line—from a product and customer loyalty perspective.
Today, many companies view these mandates and initiatives as a burden and tax to their businesses. CEOs have two choices when it comes to sustainability efforts: embrace them or hide from them. The ones who choose the latter should beware that it will eventually create some unintended consequences. While the ones who embrace sustainability as an opportunity will more likely be rewarded with brand-loyal customers and open markets for years to come.
Click here to watch a conversation led by Ray with two leaders in supply chain sustainability, Kevin O'Marah (Co-Founder, Zero100) and Ralph Loura (Board, SustainableIT.org).