What are the latest trends related to sustainable supply chains? This year, a group of LBS students came together to explore this topic in more detail (read more about us). We have brought together the insights we gleaned from our networks, the LBS student and alumni community, the guidance of faculty and staff, and our own research in a series of posts that we hope drive further conversation and engagement in supply chain sustainability. Following our first two posts about what sustainable supply chains are and how we can measure their impact , we here highlight the latest trends in this space, which are related to eco-efficiency, technology, and resilience.
Improving eco-efficiency in the supply chain
Eco-efficiency is about reducing the negative impact of economic activity on the environment. Within this, green logistics drives eco-efficiency in the supply chain by consuming less non-renewable energy, reducing GHG (greenhouse gas) emissions, and minimising waste. To achieve that, companies are focusing on:
- Reducing distances via local sourcing and decentralised hubs wherever possible, which decreases GHG emissions associated with transportation.
- Changing to cleaner modes of transportation. In terms of CO2 emissions, using a plane is by far the most impactful, followed by truck, rail, and finally, boat.
- Using cleaner equipment, such as switching from diesel vehicle fleets to hybrid or electric.
- Improving load planning, by redesigning, for instance, the product packaging to maximise conveyance utilisation, which reduces the number of trips and associated GHG emissions.
- Focusing on operational excellence in terms of environmental impacts, by developing an environmentally aware logistics culture using KPIs, targets, and incentives.[1]
Companies can also apply the concept of circular economy to their supply chains. The circular model aims at “increasing the share of renewable or recyclable resources while reducing the consumption of raw materials and energy”, enabling a closed-loop supply chain. Products have to be designed with considerations for how to extend their lifetime, refurbish them, recover the materials at end-of-life, and remanufacture them. Reverse logistics are a key piece of the puzzle and include collecting and transporting goods, as well as sorting, refurbishing, recycling, and redistribution of products.[2]
Almost 30 years ago, Hewlett-Packard (HP) started its product return and recycling Planet Partners Program, which is now available in 47 countries. As part of HP’s circular economy initiatives, this programme allows to use post-consumer plastic to manufacture new products, keeping that waste out of oceans and landfills. To get a sense of the scale, in 2018, HP produced over 4.2 billion ink and toner cartridges using recycled plastic coming from 830 million used cartridges, 101 million apparel hangers, and 4.4 billion used plastic bottles.[3]
Using technology for supply chain transparency and sustainability
Consumers not only expect more environmentally friendly products but also more transparency and traceability across the supply chain. To tackle this challenge, some companies are starting to look at new technologies, such as (buzzword alert!) blockchain, Internet-of-Things (IoT), and Artificial Intelligence (AI).
We have been hearing a lot about how blockchain will be the next big thing in the world of supply chains, which are very complex, multi-parties, and significantly paper-based ecosystems. According to its defenders, blockchain technology can be a great solution as it allows recording of peer-to-peer digital transactions in a “secure, transparent, highly resistant to [fraud], auditable, and efficient” way, with fewer intermediaries and higher trust among stakeholders (producers, logistics providers, and consumers).[4]
A few companies are starting to test blockchain solutions on selected pilot projects, but there are still many questions to be answered. It is still unclear whether the technology will be able to work across organisations, industries, and networks, as it would need, for instance, supporting regulation and standards, the right balance between confidentiality and transparency, and buy-in and investment in infrastructure from all parties across the supply network.[5] Therefore, before making any decision, firms should analyse carefully this new option and compare it “against other, possibly simpler, and less costly technologies” that already exist.[6]
What about IoT? Proponents of blockchain argue that it should be supported by IoT technology, which links the physical world to the digital world. It collects and communicates data from physical objects through sensors that are connected to a network. For example, an RFID (radio-frequency identification) chip can be attached to a parcel to track it moving through a distribution centre and all the way to the end customer. Also, sealed smart devices can be used on a product or material to help authenticate it and even detect if there is any attempt to tamper with the object during transit. This would significantly reduce fraud risks in many industries, and especially in luxury and art.[7]
Finally, linking technology with eco-efficiency that we mentioned earlier, AI can help optimise routes to reduce the environmental impact of supply chains. First, AI can predict customer demand more precisely so companies do not ship more products than what customers will buy, while also replenishing its inventory accordingly. Second, as not all deliveries have the same urgency, AI can adapt in real time to changes in delivery priorities. The algorithm can then choose the most efficient and sustainable transportation method at any time. Third, AI can help different organisations collaborate by sharing a shipping method to maximise the load, thus reducing costs and emissions holistically. H&M, for instance, started using AI in 2018 to forecast demand and adjust shipping orders accordingly, so that supply chains only use the minimum resources required. The result is not only fewer emissions from transportation, but also less clothes wasted at the end of the season, which is a critical sustainability issue in the fashion industry.[8]
Developing resilient supply chains
The last trend we identified is the urgent need for more agile and resilient supply chains to cope with external factors that have the potential to disrupt the whole ecosystem, and this challenge calls for stronger risk management.
First, climate change adaptation will play a larger role as most companies participate in global value chains.In simple words, climate adaption or climate resilience means preparing in advance to reduce risks and identify opportunities coming from climate change and to react quickly when unexpected events occur. While most organisations mostly focus on climate mitigation initiatives, such as reducing GHG emissions, only leading companies have prioritised the long-term benefits and started focusing on adaptation. We may unfortunately be more familiar with supply chains disruptions caused by extreme weather events, but more permanent changes in climate have devastating long term impacts as well. Hurricanes, floods, droughts, and wildfires, as well as temperature changes, rising sea levels, and water-stress, all can harm the availability of certain raw materials and impact distribution systems, generating huge financial losses.
What are companies doing to reduce these risks? As usual, there isn’t a one-size-fits-all solution, but companies can start following the Task Force on Climate-related Financial Disclosures[9] (TCFD) recommendations to identify climate risks and opportunities. The company Mars Inc. is leading the way in climate resilience. It has a team of meteorologists who analyse weather patterns and help identify potential disruptions in the supply chain. As mentioned by one of its managers, “anticipating what the climate will be like 10, 20, or even 100 years from now is difficult, though the better we can understand what the different climate scenarios and risks to our supply chain are, the more prepared we can be in the future.”[10] If you want to learn more about these topics, you can start by reading the BSR report[11] about climate and supply chain management and the Guidehouse article[12] about climate resilience in corporates.
This approach of risk management and scenario-planning should also be applied to other sources of risks that have been widely discussed recently, including tariffs, global trade wars, geopolitical issues, and of course, pandemics such as COVID-19. All of these issues have strongly affected the availability and costs of raw materials and will continue to do so. To tackle this, EY[13] has produced recommendations on how to start building resilient supply chains, such as conducting an end-to-end supply chain risk assessment, partnering with suppliers and logistics service providers for more agile planning, and diversifying supplier networks.
Conclusion
The world is changing fast and supply chains have become so global that they are constantly at risk of disruption, either from shifting customer demands or from external threats such as climate change, pandemics, and trade wars. Eco-efficiency, technology, and resilience are only some of the opportunities that supply networks should consider to tackle those challenges. Of course, some of them are still to be proven, but there are already plenty of options available and more to come. If you are interested in this topic, we invite you to read the other posts from the LBS Sustainable Supply Chains cohort and continue the conversation with your network. Remember that every action, regardless of how small you think it is, makes a difference!
[1] Yann Bouchery, Charles J. Corbett, Jan C. Fransoo, and Tarkan Tan. 2017. Sustainable Supply Chains, A Research-Based Textbook on Operations and Strategy.
[2] The Ellen MacArthur Foundation. 2016. Waste Not, Want Not. Capturing the Value of the Circular Economy through Reverse Logistics. Accessed 22/06/2020. Available at: https://www.ellenmacarthurfoundation.org/assets/downloads/ce100/Reverse-Logistics.pdf
[3] Amy Brown. 2019. “HP Takes the Circular Economy to the Next Level.” Accessed 26/06/2020. Available at: https://www.triplepundit.com/story/2019/hp-takes-circular-economy-next-level/84091
[4] Deloitte. 2017. Continuous interconnected supply chain Using Blockchain & Internet-of-Things in supply chain traceability. Accessed 23/06/2020. Available at: https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/technology/lu-blockchain-internet-things-supply-chain-traceability.pdf
[5] Deloitte. 2017.
[6] McKinsey. 2017. “Blockchain technology for supply chains—A must or a maybe?” Accessed 25/06/2020. Available at: https://www.mckinsey.com/business-functions/operations/our-insights/blockchain-technology-for-supply-chainsa-must-or-a-maybe
[7] Deloitte. 2017.
[8] Jenna Tsui. 2020. “AI Can Help Make Supply Chains Sustainable.” Accessed 26/06/2020. Available at: https://www.supplychainbrain.com/blogs/1-think-tank/post/31047-how-ai-can-help-make-supply-chains-sustainable
R. Boute & J. Gijsbrechts. 2019. “How AI can make supply chains more sustainable.” Accessed 26/06/2020. Available at: https://www.supplychaindigital.com/technology/how-ai-can-make-supply-chains-more-sustainable
Emma Cosgrove. 2020. “H&M’s AI operation helps make its supply chain more sustainable”. Accessed 26/06/2020. Available at: https://www.supplychaindive.com/news/HM-AI-supply-chain-sustainable/570400/
[9] TCFD website. Available at: https://www.fsb-tcfd.org/
[10] Kate Taylor. 2016. “The smart reason the world’s largest candy maker is hiring meteorologists”. Accessed 17/06/2020. Available at: https://www.businessinsider.com/mars-chocolate-hires-meteorologists-to-deal-with-climate-change-2016-9?r=US&IR=T
[11] BSR. 2018. Climate and Supply Chain. Accessed 25/06/2020. Available at: https://www.bsr.org/en/our-insights/report-view/climate-change-and-supply-chain-the-business-case-for-action
[12] Guidehouse Insights. 2019. Corporations Must Build Climate Resilience and Adapt to Climate Change. Accessed 25/06/2020. Available at: https://guidehouseinsights.com/news-and-views/corporations-must-build-climate-resilience-and-adapt-to-climate-change
[13] EY. 2020. “COVID-19: how to build supply chains resilient to disruption”. Accessed 25/06/2020. Available at: https://www.ey.com/en_gl/advisory/how-to-build-a-supply-chain-thats-resilient-to-global-disruption
The Wheeler Institute is seeking to understand, illuminate and offer solutions to the challenges faced by the developing world, with an aim to identify the role of business in addressing these challenges and a focus on the implications and actions for those in developing countries. In support of our students, we approach this blog section as a reflective platform and a space where individuals can generate debate as long term agents of positive change.
The Sustainable Supply Chain Cohort was an initiative of the Student-led Learning team which creates experiential learning opportunities through student leadership, in addition to their other initiatives such as the Student Leadership Incubator and Project Aasha. Contact the Student-led Learning team for more information about student leadership roles within the LBS community.