ESG Software Could See Strong Demand Due to US Manufacturing Reshoring Trend

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Just when businesses thought supply chain woes caused by COVID-19 couldn’t get any worse, a new set of challenges has emerged.

Based on a survey by SAP, 51% of United States manufacturing companies believe that supply chain issues will prevail in 2023. Thirty-four percent believe problems will last until summer, while 17% believe they will persist until the end of 2023. Surprisingly, only 31% cited inflation as a major contributor to their supply chain dilemmas. Manufacturers see global political unrest (58%), lack of raw materials (44%), and rising energy costs (40%) as the top issues contributing to major disruptions in the sourcing, production, and inventory of businesses.

Consequently, lessons learned from the pandemic and current geopolitical rifts are pushing businesses to look for suppliers closer to their production facilities; thus fueling the US supply chain reshoring trend. China is no longer the cheapest option as companies have to contend with the rising costs of sourcing and producing goods in the country. To address the problem, some companies are choosing to relocate to other Asian countries like Vietnam, Thailand, or Malaysia, while others opt to relocate manufacturing and sourcing from Asia back to US states or the US-Mexico border.

Reshoring to Create Sustainable Supply Chains

US manufacturing reshoring doesn’t only mean building a resilient supply chain but also having one that has sustainability credentials. As the SAP survey revealed, nearly half of respondents said they want to deal with businesses that have an ESG agenda. They see environmental, social, and governance performance as a crucial element of their supply chain improvements moving forward.

As climate change worsens and governments, investors, and customers demand transparency on sustainability efforts, it becomes increasingly important for manufacturers to monitor and reduce environmental impacts throughout their supply chain. To be successful, sustainable sourcing needs a holistic approach that looks at the full value chain (upstream and downstream supply chain). This is a complex process that would require more than manual monitoring and spreadsheets. That’s why manufacturing companies could be more open to adopting purpose-built ESG software or upgrading to supply chain management technology like warehouse management software that includes ESG reporting and compliance capabilities. Using these cloud-based apps can make it more efficient to collect critical supply chain data and measure ESG KPIs.

In the agriculture industry, for example, farmers are already using environmental software to achieve smart farming goals. Companies in manufacturing can do the same and leverage technology to create sustainable supply chains. Suppliers, on the other hand, can rely on ESG software to reduce their environmental impact and meet regulatory standards that could make them the top-of-mind choice for manufacturers.

Important Sustainability Features

With emission reporting, government regulations, and sustainability initiatives on the rise, businesses have more reasons to abide by the ESG imperative. As a result, vendors in this software niche could see strong demand for ESG software as more companies across industries integrate the solution into their tech stacks.

Features that would specifically be important to manufacturing include carbon accounting for Scope 3 emissions and product lifecycle assessments (LCAs). Scope 3 emissions measurement will be highly beneficial to manufacturers as it calculates a company’s total “indirect” or value chain emissions. Scope 3 can include a long list of potential greenhouse gas (GHG) sources like capital goods, waste generated in operations, and leased assets. This is why Scope 3 is also one of the most challenging categories to measure in carbon accounting.

Meanwhile, LCAs provide sustainability data on specific products, services, or materials being produced. This measurement focuses on the environmental impact of resources, systems, processes, and end-of-life destinations used to manufacture goods and services. LCA data can help manufacturers better understand how their products impact the environment and make adjustments to their designs and materials to make them more environmentally friendly.