Supply Chain Sustainability and the Rise of Net Zero

Look around the high street or at the swathe of targeted online ads you get this week, and there will be one theme that’s hard to escape …

Sustainability.

Whether it’s shoes made from cactus instead of leather, locally sourced fresh produce in the grocery aisle, or simply the FairTrade coffee on the sign of your local café, the sheer weight of consumer advertising directed at the end user around sustainability would have you thinking that the push for it is driven by those holding the purse strings.

The customer … the one who’s always right … the one who has the power to make or break your company should you fall foul of their increasingly eco-friendly shopping habits.

Only it’s not quite as straightforward as that.

Yes, end consumers want to know that the products they use are cruelty free, sustainable and ethical. But they’re not the only group you need to please.

A recent survey highlighted that 48% of CEOs now see increasing sustainability in the supply chain as a top business priority.

When you consider the potential risk and costs of unsustainable business practices, especially in the supply chain, it’s no surprise that the topic of supply chain sustainability has made its way to the top of boardroom agendas. In fact, the data on sustainability shows that the supply chain accounts for a staggering 90% of the overall impact.

From the raw materials and fuel consumed in the manufacture of your goods, to the emissions created as you store, transport and distribute inventory throughout your network, your supply chain decisions come with a huge cost to both your business and the planet.

As the complexity of your supply chain increases, so does the environmental impact. And therefore, so will the price everyone pays. Consequently, many businesses now find themselves on a new mission to create supply chains, which are both sustainable and ethical, but also competitive.

In this article, we will explore what authentic supply chain sustainability means for businesses like yours, how you can begin to pursue net zero, and how S&OP can transform your boardroom desires into tangible sustainability improvements.

A deeper analysis of supply chain sustainability

How do you define supply chain sustainability? Let’s start with the basics.

How environmentally friendly is your supply chain? Could it be made more so? How do you source raw materials? Is there a better way to manufacture, distribute and dispose of your products? Or better still, to eliminate waste at every step of the supply chain process?

The answers to these questions will define how sustainable your supply chain is. And it’s far more than just the environmental impact of shipping.

A truly sustainable supply chain looks at the environmental, social and economic impacts of the entire operation. Those last two factors are just as important as the environmental effect.

Environmental impact

It’s impossible to improve your environmental impact if you don’t at least know where you stand to begin with.

Assess the size of the carbon footprint created by your supply chain. Once you understand that, you can think about ways to reduce it. From greenhouse gases, waste, spent natural resources and lost energy through inefficiencies, the realities of your own operation might surprise you.

Social responsibility

Do you ensure that the people in your supply chain are employed fairly and ethically? Is it possible for people to slip through the net and work for you or your suppliers without the right protection? Equally, how ethical would you say your sourcing strategy is?

Assessing and actively promoting ethical sourcing strategies can uplift your chances of having a sustainable supply chain, be it from choosing ethically-sourced raw materials, prioritising fair trade suppliers, or avoiding irresponsible mining of conflict minerals.

Equally, providing safe working conditions, fair wages which are in line with inflation, upholding human rights, and promoting diversity, equality and inclusion will create social responsibility rooted in uplifting local communities and those much further away.

Economic responsibility

Without social responsibility, you could be harming the very people you hope will buy or use your products. But without economic responsibility, you could be hurting your company’s success and also your chances of being around to sell to them in the future.

As a pillar of supply chain sustainability, economic responsibility is all about managing the financial obligations that organisations have towards their economic stakeholders, including customers, suppliers and other supply chain partners.

It means negotiating fair deals and delivering on financial promises. But economic responsibility is also about exceeding expectations around social responsibility and environmental impact, while keeping your organisation ‘in the green’.

A lean, green supply chain means that a business is fit for purpose

The chances for you to carve out a leaner supply chain are multitudinous. And the side effects from improving its health are obvious.

But there’s no supply chain silver bullet which will magically change things for you overnight. Like all things worth having, sustainability doesn’t come easy.

The upfront investment can be restrictive in terms of making meaningful change. But where the barriers seem bigger, smaller tasks that create marginal gains can pay off.

Could smaller packaging mean more units per shipment? Could smarter ordering mean fewer shipments overall?

A 1% increase in efficiency doesn’t seem like a lot. But make 20 of them, and all of a sudden you’ll be making huge improvements to your entire business. After all, theoretically at least, you’ll be 20% more efficient.

Some 1.8 billion people are expected to join the global consumer class by 2025, a 75% increase compared to 2010. Taking small steps towards supply chain sustainability now could pay off in a big way. You just need to view it as an opportunity.

Instead of seeing problems, change the ethos from forced, cost-saving measures to strategic, profit-maximisation initiatives.
Let’s delve deeper into what the size of the prize could look like for your business.

How can supply chain sustainability bring value to your business?

There is no shortage of businesses that have successfully pursued improved supply chain sustainability.

Take, for instance, one of the world’s most famous names in furniture. Ikea recently launched sustainable living shops to make environmentally-friendly products more accessible and affordable to customers.

Likewise, Amazon has launched 206 renewable energy projects, making it the most significant corporate buyer of renewable energy sources in Europe.

I know what you’re thinking … “I haven’t got $2 billion spare to give to nature.”
But it’s not just ‘big-ticket projects’ that make a difference. Even seemingly small initiatives can have a huge impact on the world around us.

Imagine just for a second what would happen if you reduced your inventory by just 10%.

The environmental impact from your business alone might not set the world alight, but every business in the world doing so probably would. Or perhaps, in this case, it might prevent it.

The question is: How can you achieve a 10% reduction in inventory, without impacting sales?

Well, even the leanest of businesses have a certain amount of ‘fat’. And there are lots of ways this excess can be trimmed to help the organisation become more shapely.

Could you …

• Establish better stocking policies?
• Improve your forecast accuracy?
• Optimise service levels and your safety stock?

Attaining a 10% reduction is a very achievable goal. It just comes down to effective supply chain decision making.

And that’s made all the easier with the right business partners.

Many of the companies we work with see a 20%, 30% or even 40% reduction in inventory after engaging us. And that’s not an intentional plug. Just a quick stat to prove it’s possible.

But how does a 10% reduction in inventory benefit the environment?

Well, firstly, it can dramatically reduce CO2 Emissions.

The process of reducing inventory levels means tighter constraints on the stock you hold, and a deeper analysis on the stock you need.

It also means closer control on order quantities and hopefully fewer orders being placed.

That means fewer containers, ships and trucks and therefore less CO2 in the world as a result.

But you can also minimise energy consumption. As you know, holding inventory isn’t cheap, especially at the moment. And it’s not just the warehouse space, it’s electricity and heating too.

It’s not like you can just switch the lights off. What on earth would Health & Safety say?

I jest of course. But think about the amount of energy being expended for this process. Cutting inventory levels by 10% could not only diminish your energy bills, but also considerably help the planet.

Let’s quantify the impact of supply chain sustainability

On average, 8% of all inventory ends up as waste … a number which equates to a staggering $163 billion annually.

How much do you send to landfill? Would it be fair to say that some of that waste could be eliminated by cutting stock levels by 10%?

Just by better managing your supply chain, you would see less waste, lower emissions, less space taken up in the warehouse, and far less shipping, too.

By optimising ordering decisions, fine-tuning your assortment and taking steps to align supply more accurately with real demand, you could save thousands of tonnes of stock from ending up in landfill or heading to the incinerator. Now imagine if every business was to take similar steps.

Of course, the move towards sustainability isn’t just good for the planet, it makes great commercial and branding sense too.

There’s a major competitive advantage in branding your business to the increasingly environmentally-minded consumer.

After all, 30% of consumers now prefer to buy brands which embody strong ethical values. More importantly, 28% of consumers have completely stopped buying from businesses they have ethical concerns about.

Of course, the move towards sustainability isn’t just good for the planet, it makes great commercial and branding sense too.

There’s a major competitive advantage in branding your business to the increasingly environmentally-minded consumer.

How can S&OP help you build a more sustainable supply chain?

Supply chain sustainability isn’t attainable unless you start thinking as one whole unit.

Thankfully, S&OP offers the perfect foundation for setting your business up for sustainability.

An effective Sales and Operations Planning (S&OP) organisation ensures alignment between sales forecasts, production capabilities and inventory levels to meet customer demand.

But more importantly, you’ll have the platform in place to allow sustainable processes to be implemented throughout the entire business. Here are a few examples of how S&OP can help you to create a more sustainable supply chain.

Joined-up planning

As the supply chain expert, Tony Wild, once highlighted: “Inventory is the physical consequence of missing data”.

In the context of supply chain sustainability, the physical consequence of this issue is the mountains of waste sent to landfill and the smoke bellowing out of the incinerator chimney.

Yet, many businesses have access to lots of data, often more than they know what to do with. The issue is around gathering, combining and processing the data from across your organisation to help you make intelligent decisions.

By enabling cross-functional cooperation, S&OP ensures that businesses have a structured platform in place to capture supply chain insights and utilise them effectively. But more importantly, S&OP ensures that everyone is ‘singing from the same hymn sheet’.

As a result, the baseline forecasts are far more accurate. But it also means these presumptions of future demand are corroborated through consensus, allowing businesses to align supply with demand with greater precision (and far less inventory).

Collaboration and information sharing

You cannot continue with your current way of working and expect to see noticeable, sustainable improvements. Equally, one department taking steps to improve sustainability will probably not make a dent, unless the whole business toes the same line.

Put simply, to make a difference, everyone must innovate.

A well-developed S&OP process should facilitate collaboration and information sharing, which in turn will better position the entire organisation to challenge the status quo, exchange ideas and share best-practice. And when these initiatives can be linked to profit maximisation, company success and employee happiness – health and wealth – they’re hard not to celebrate.

Risk management

Add sustainability risks like resource scarcity into your S&OP process, and you’ll mitigate the possibility of it affecting your company in a seriously positive way.

The more you do this, the more resilient the business will become.

It might mean you have to diversify suppliers. Or find alternative routes to market. Or even work with different materials.

But the more you know, the better armed you’ll be. The only alternative to this is closing your eyes and hoping for the best. And in the past, that’s proved to be a risky business strategy.

Continuous improvement

However good you are today, you’ll be better tomorrow. The ethos of S&OP: iterative by principle.

If you can monitor and measure your progress towards your sustainability goals by including them in your S&OP process, you’ll be far more likely to consistently improve over time.

Match your sustainability goals with joined-up planning, collaboration, risk resilience and continuous improvement, and there’s almost no chance whatsoever that you won’t see the benefits, whether that’s greater efficiency, happier customers, a better brand, or total world domination … the green, sustainable kind.

Supply chain sustainability takeaways

Sustainability is on everyone’s mind at the moment. If you’re not talking about it at board level yet, you’re one of the few in the world who aren’t.

When you look at the wider setting, it’s easy to think it’s a battle outside your control. But taking small steps can have huge ramifications across the globe.

There are so many reasons why fighting for greater sustainability is good for business; it’s unlikely you’d have to sell it to anyone.

But to make it truly work for you, you need the buy-in from everyone in your business.

A bought-in business is a well-run business. It’s one that prioritises long-term profit over a quick buck. One that will be here in years to come, always one step ahead of the competition. One that cares about the people it serves, and the people it hires.

So why not make this a business-wide priority? Why not put it on the agenda for your next meeting?

Whether you send them this article, or simply save it to memory and look super knowledgeable to others, you need a supply chain organisation that’s willing to challenge the status quo.

Do so, and the future is yours to see.