Healthier Planet = Healthier Bottom Line
Supply chains have a massive impact on the earth’s air, land, and water ecosystems, accounting for 5.5 times the emissions of a company’s direct operations, according to CDP.
To reduce these effects, companies must expand their focus beyond direct costs and simplistic service metrics and take a broader view to understand the sustainability and risk considerations in their network. This is not only the right thing to do, but it’s also good business. If done properly, the following changes can promote a healthier planet and a healthier bottom line.
1. Shorter supply chains. Air pollution and carbon emissions can be cut drastically by making supply chains shorter and more efficient.
Opportunities to reduce the "length" of a supply chain can fall across several dimensions: physical distance, lead time, and the number of echelons or levels.
The first—distance—is easy to understand. If you drive, fly, and ship each product across a shorter path, expect the emissions impact to go down.
Reducing lead times helps by driving inventory out of the network and reducing the potential for waste. Removing levels or handoffs in a network reduces complexity and has positive impacts on inventory, lead times, and transport mode utilization.
2. Digitization. Supply chain digitization is happening at a rapid pace. Recent advancements in algorithmic intelligence and cloud computing give supply chain practitioners innovative technologies at their fingertips. These developments enable them to maximize supply chain efficiency, therefore creating smarter and more sustainable networks.
To truly make smarter, more sustainable supply chains a reality, companies must be able to look at their whole supply chain from the start to the last mile. Technology such as "digital twins" enables this, as you can replicate and test your supply chain strategy, anticipate demand changes and stock impacts, and understand root causes and bottlenecks.
3. Circular supply chains. To embrace sustainability, companies should move away from traditional linear supply chains to a more circular version. Circular supply chains are based on the economic model of increased productivity and reduced waste by employing methods such as reuse, repair, rental, sharing, refurbishment, remanufacturing, and recycling.
Improving the efficiency of returns processes can only take you so far. For large-scale changes to be made, many industries and product categories need a paradigm shift.
4. Adaptability and resilience. The pandemic has highlighted the need for supply chains to be adaptable and resilient to unforeseen circumstances.
This resilience might take the form of optionality in the network but should start with reducing complexity wherever possible. Fewer echelons/layers in the supply chain mean fewer places for the network to break, and makes it easier to understand where to focus contingency plans and implement them when things inevitably do go wrong.
The ability to understand the tradeoff between cost savings and impacts on complexity and resilience will be an area of increasing importance for businesses across all industries.
Achieving truly sustainable supply chains requires a change in both mentality and practice. It’s time to rethink the standard "take-make-waste" supply chain strategy. Forward-looking businesses that can make their supply chains more sustainable are set to benefit from lower operating costs, increased resilience to unexpected situations, better brand image, and higher customer loyalty, while helping to create a sustainable future for people and the planet.