Profitable Sustainability Solutions for Supply Chains
As the world comes together for Earth Day April 22, 2021, it’s a good reminder for supply chain leaders to take a closer look at their supply chain sustainability initiatives. Recent disruptions in the global economy and rising costs are leading many supply chain leaders to see a direct correlation between sustainability and risk reduction, business continuity, and the bottom line.
Due to the heavy amount of transportation involved in the global movement of goods, supply chains continue to produce a significant amount of the world’s growing carbon emissions. However, because the supply chain has such an outsized impact on sustainability, even seemingly minor improvements can have a significant positive influence on the environment by reducing the carbon footprint of the supply chain.
Organizations that obtain the right data and refine their decision-making processes with supply chain analytics often find that new sustainable supply chain techniques not only positively impact the planet and our quality of life but also their bottom line.
The Bottom Line on Sustainability
NOAA’s Annual Greenhouse Gas Index (https://research.noaa.gov/News/ArtMID/451/ArticleID/2359/NOAA%E2%80%99s-greenhouse-gas-index-up-41-percent-since-1990), which tracks the warming influence of greenhouse gases, has grown by 41% since 1990. In response to growing environmental threats, many organizations have made bold sustainability commitments in the past year. Apple announced goals to have a 100% carbon-neutral products and supply chain by 2030. Microsoft pledged to be carbon negative by 2030 and to address its legacy emissions by 2050. And cosmetics manufacturer L'Oréal said by 2030, all its packaging will be made from recycled or bio-based sources.
Approximately half of companies now have some type of corporate supply chain sustainability goals, according to MIT’s 2020 State of Supply Chain Sustainability report. However, most of these goals revolve around reducing child labor and ensuring fair trade. Less than a quarter of these companies said their top focus was on reducing carbon emissions or energy management issues related to their supply chain.
Often, businesses don’t see the importance of supply chain design for sustainability until it hits the balance sheet. The COVID-19 pandemic was an eye-opener to the risk of long-undiversified supply chains. A recent report by Accenture found that 94% of Fortune 1000 companies experienced supply chain disruptions due to COVID-19, and three-quarters experienced negative business impacts. The blockage of the Suez Canal in March 2021 put even greater pressure on global supply chains, costing the global economy up to $400 million per hour in lost trade, according to Lloyd’s List.
Reduce, Reuse, Recycle
Making products on one side of the planet to sell to consumers on the other side will always come with risk and require significant amounts of energy. Companies are now evaluating or implementing nearshoring activities, and there is growing consensus that supply chains must become shorter, smarter, and more circular.
As a guiding compass for Earth Day, the Reduce, Reuse, Recycle concept can be applied to supply chain planning and operations to reduce waste, increase efficiencies with circular economic models, and even boost the bottom line.
Reducing transportation and waste can have a significant impact on supply chain sustainability. Refined inventory management strategies can significantly improve our planet's health. Optimized facility placement can decrease supply chain mileage and the use of petroleum. Properly managing inventory can also cut down on a supply chain’s consumption of nonrenewable energy for wasteful heating and cooling systems — and decrease product expiry and waste from a supply chain.
Reuse of materials is another way to help drive sustainability in the supply chain. The old supply chain model was one-directional, where products went from sourcing to manufacturing to distribution and then ended up in a landfill. Recently, companies have unveiled more circular economy goals like end-of-life management of products, plastic reduction goals, and zero-waste operations. Supply chain executives should expect a greater focus on creating input/output loops within the supply chain, and many will need to adapt and pioneer changes to support things like reverse logistics, product-as-a-service (PaaS) business models, or the sell-off of spent inputs. For example, Nissan now makes the 2021 Rogue with a closed-loop recycling system for aluminum parts, reducing C02 emissions.
Recycling packaging, products, and other materials can reduce a supply chain’s carbon footprint. Specific means of resource extraction, waste disposal, and re-use of products can also reduce carbon emissions. Whether it’s returning things like printer cartridges, coffee capsules, or old electronics, consumers are increasingly willing to lend a hand. One-third of consumers say they have been recycling more during the pandemic, according to a national survey by the Carton Council of North America.
Intelligence for Sustainable Decision Making
While sustainability initiatives were typically driven by corporate social responsibility (CSR) or other parts of the organization, many companies now realize that their supply chain is a key enabler for achieving their sustainability goals.
There are many paths to more sustainable supply chains. Geography, industry, regulatory environments, and financial markets can influence the commitment and pace of change. As supply chains seek to make sustainability a greater part of their long-term plans, data and algorithmic intelligence can help organizations understand the footprint and implications of their changes. Decision-makers can implement these complex initiatives more successfully when they can test possible outcomes using a digital supply chain twin.
With extensive experience in supply chain and procurement, Coupa is excited to bring stakeholders together to discuss sustainability initiatives. Coupa’s supply chain modeling and scenario planning tools enable companies to build a digital twin of their network to conduct extensive and detailed “what-if” analysis and scenarios to see how decisions impact all areas in terms of cost, service, risk, and sustainability.