Sustainable supply chains: A vision for resilience and competitive advantage
In an era defined by environmental awareness and social responsibility, the concept of sustainable supply chains has emerged as a key driver of change. By exploring the transformative potential of sustainable practices, we should seek to inspire an outlook that not only promotes long-term success but also positions businesses as leaders in their industries and sectors.
The inefficiencies of traditional supply chains
Traditional supply chains have long been plagued by inefficiencies, which result in excessive resource consumption, waste generation, and negative environmental and social impacts. Instances of poor working conditions, human rights violations, and unsustainable sourcing practices have attracted significant public scrutiny. Ethical supply chains are no longer a mere choice but a necessity, as consumers demand transparency, responsible practices, and fair treatment of workers throughout the supply chain. We also have pollution to consider. Global greenhouse gas emissions from supply chains contribute to half of total emissions, according to the United Nations Environment Programme with agricultural and heavy industrial inputs contributing most to embedded emissions.
The combined emissions from eight key supply chains—food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services, and freight—surpass 50% of global greenhouse gas emissions. Collectively, these sectors play a significant role in contributing to environmental impact.
Collaborative efforts have already achieved results, incentivising suppliers and allowing OEMs in the automotive industry to achieve up to 60% emissions reductions at a cost of under €10 per ton of CO2-equivalent. The effective measures included increasing recycled materials, supporting process efficiency, and mandating renewable power. Although “green” steel may cost a car manufacturer more, it adds less than 2% to a car's total cost for consumers. Collaborations between stakeholders are vital game-changers in combating emissions but for many companies, getting started can be overwhelming. The first step is the most confusing and engaging with a fragmented supplier base, dealing with limited data visibility, and navigating conflicting procurement priorities can appear daunting to any planner.
Long and complex supply networks, lack of transparency
Often involving long and complex networks with multiple intermediaries, resulting in extended lead times, increased transportation costs, and a higher risk of disruptions, the supply inefficiencies also lead to delays in product delivery, excess inventory, and unnecessary environmental impacts. Carrying too much stock is dangerous for any business but so is a Just In Time system that isn’t antifragile. In the fashion industry, for example, a garment may go through multiple intermediaries before reaching the end consumer. Each additional step in the supply chain adds time, cost, and potential environmental consequences, such as increased emissions from transportation.
Traditional supply chains often lack transparency, making it challenging to trace the origins of raw materials, assess working conditions, and ensure ethical practices throughout the chain. This opacity can result in poor labour standards, human rights violations, and unsustainable sourcing practices, which can tarnish a company's reputation and lead to consumer backlash. The electronics industry has recently faced fierce criticism for using minerals sourced from conflict zones, where the extraction process often involves child labour and human rights abuses. Even products as seemingly benign as crystals or semi-precious stones intended for “new age” retailers can have a shocking history of abuse when eventually traced back to their source in Madagascar. Without transparent supply chains, it becomes difficult for companies to ensure responsible sourcing and provide assurance to their customers.
Excessive resource consumption
The prioritisation of short-term cost optimisation over long-term sustainability is an approach that leads to overconsumption of resources, energy inefficiencies, and unnecessary waste generation. Inefficient packaging, excessive use of single-use plastics, and poor inventory management contribute to environmental degradation and increased costs. Fast-food chains are notorious for their excessive use of single use packaging materials, contributing to the global plastic waste crisis. These materials often end up in landfills or oceans, causing significant and long-term harm to ecosystems and marine life.
Lack of collaboration and information sharing
The classic characterisation of supply chains includes siloed operations, limited collaboration, and a lack of information sharing among stakeholders. This fragmentation hinders effective communication, coordination, and innovation, leading to missed opportunities for efficiency improvements and sustainability initiatives. In the construction industry, lack of collaboration between architects, contractors, and suppliers can result in inefficient material procurement, excessive waste generation, and delays in project completion. Only by identifying these inefficiencies, can we realise that traditional supply chains are no longer viable in our world. We’ve moved on.
Transformative and sustainable supply chains
The adoption of sustainable supply chains is not a trend; it is an essential strategy for long-term optimisation. The aim is to make sourcing and distribution more adaptable and resilient to disruptions and where possible, to localise supply. As consumer preferences shift towards environmentally and socially conscious products, companies with sustainable supply chains gain a significant competitive edge. Reduced energy consumption, waste reduction, and streamlined processes are invitations to optimise resource utilisation, lower operational costs, and achieve greater efficiency, contributing to improved profitability and financial performance. Here are three examples of enhanced supply chains already in action:
Patagonia: This outdoor clothing company has built its success on sustainability. Patagonia's supply chain focuses on fair trade, recyclability, and waste reduction. By actively engaging in responsible sourcing, they have not only created a loyal customer base but also enhanced their brand reputation and differentiated themselves in the market. This company was also among the first to find a use for the shredded plastic from single use water bottles by using it to make all weather fleeces.
Unilever: As one of the world's largest consumer goods companies, Unilever has set ambitious sustainability goals, implementing programs and initiatives to ensure responsible practices and aiming to source agricultural raw materials sustainably by 2025. Initiating programs to improve livelihoods and promote sustainable agriculture, such as the "Enhancing Livelihoods Fund" will provide financial and technical support to smallholder farmers. The company has also achieved a 47% reduction in CO2 emissions from energy per tonne of production compared to a 2008 baseline through energy efficiency measures, renewable energy sourcing, and low-carbon technologies. The major target is to make all plastic packaging reusable, recyclable, or compostable by 2025, halving the use of virgin plastic in packaging, and increasing the use of recycled plastic.
IKEA: Renowned for its commitment to sustainability, IKEA has embedded its principles throughout the supply chain. From investing in renewable energy to embracing circular economy principles and responsible sourcing of raw materials, IKEA has not only reduced its environmental footprint but also positioned itself as a leader in sustainable business practices by investing in wind and solar power to reduce reliance on fossil fuels and implementing energy efficiency measures throughout the supply chains. The company also sets strict standards for responsibly sourced raw materials, particularly wood, and promoting material efficiency through product design and recycling programs. IKEA also invests in local communities, supporting education, healthcare, and empowerment programs, and focuses on improving the lives of children and families through the IKEA Foundation.
Opportunities for the ideal supply chain
If we can consider an “ideal” supply chain, it would be based on advanced data analytics and predictive modelling, enabling real-time monitoring and optimisation of processes. By leveraging machine learning algorithms, companies can optimise logistics, minimise waste, and reduce carbon emissions by up to 30% (source: McKinsey, 2021). Successfully implementing AI-enabled supply-chain management has helped early adopters to reduce logistics costs by 15 percent, inventory levels by 35 percent, and service levels by 65 percent, compared with slower-moving competitors, according to the same research.
Given the significant value at stake, multiple solutions have emerged. Both incumbent IT vendors and market disrupters are entering the game. New offerings include demand planning (which has been revolutionised by integrating machine learning and harnessing new sources of data); real-time inventory management, thanks to the IoT and connectivity; and dynamic margin optimisation of end-to-end chains with digital twins. For example, retail and e-commerce are at the forefront of demand prediction. Imagine smart sensors embedded throughout the supply chain, providing real-time visibility and traceability. These sensors enable precise monitoring of temperature, humidity, and other critical parameters, ensuring product quality and integrity. Studies conducted by PricewaterhouseCoopers show that this level of visibility can reduce product losses by 20% and enhance customer satisfaction.
Next steps?
To further enhance sustainability, consider the use of autonomous vehicles powered by hydrogen fuel cells, significantly reducing greenhouse gas emissions and improving delivery efficiency. This ideal supply chain also embraces circular economy principles, where products are designed for longevity, ease of repair, and efficient recycling. By adopting technologies such as additive manufacturing (3D printing), companies can produce goods on-demand, reducing waste, transportation costs, and carbon emissions associated with traditional manufacturing processes.
The integration of blockchain technology would also ensure transparency, security, and trust throughout the supply chain. Immutable records enable verification of sustainable sourcing practices, fair trade, and compliance with environmental standards. In this ideal supply chain, technology serves as a powerful enabler, driving sustainability, efficiency, and competitiveness. By embracing these technical advancements, businesses can not only meet the demands of a sceptical audience but also achieve long-term success while preserving our world for future generations.
In the distant future, the perfect supply chain will transcend our current limitations, harnessing advanced technologies and sustainable practices. Quantum computing will enable instantaneous optimisation. Transport systems will be revolutionised with autonomous vehicles, drones, and hyperloop networks, ensuring rapid and precise delivery with minimal energy consumption and zero carbon emissions. Molecular manufacturing will allow for on-demand production of customised products at the atomic level, radically reducing waste, inventory, and transportation costs. Renewable energy harvesting and storage will be widespread, with advancements like solar satellites and efficient energy storage systems. This will power the supply chain with clean energy, reducing environmental impact. Collaboration will be enhanced through advanced communication technologies, enabling seamless information sharing and real-time problem-solving.
“The line between disorder and order lies in logistics…” ~ Sun Tzu
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