The Popularity of Sustainability
Sustainability has become popular with consumers, employees and an imperative of large companies. After all, who wouldn’t want to participate in saving the planet? In fact, I was interviewed for an Earth Day special “Our Changing Climate” (you’ll see me featured in a few segments around 20 minutes in). From a corporate perspective, according to IBM Institute for Business Value, 51% of CEOs now rank sustainability as their greatest organizational challenge.
If Only It Were Easy
A BIG first step is to understand reality and start thinking about your carbon footprint. That is far trickier than it might seem. Think about these examples:
As a consumer…
We think about recycling, driving electric cars, and participating in environmentally-friendly initiatives. But, do we think about our contributions to pollution? For example, we might love the inexpensive products we can purchase from Amazon, largely produced in China (which uses mainly coal in production which emits twice the amount of greenhouse gas than natural gas), transported across the world in trucks, container ships, airplanes, and more.
To make matters worse, who doesn’t want the order to be delivered to your doorstep? Unfortunately, shipping truckloads of products to one location (store) to pick up when you are already out is far more energy efficient than packaging 1 product (like a toy) in a box (definitely not green) and then shipping that box direct to your front door. That truck will go door to door all day long.
If you are an electric car fan, you should be concerned about world events because lithium batteries are mainly manufactured in China. Also, mining raw materials like lithium, cobalt, and nickel is labor-intensive, requires chemicals and enormous amounts of water—frequently from areas where water is scarce—and can leave contaminants and toxic waste behind. There is much to consider if you are thinking about the end-to-end supply chain. And that is before considering that we have electricity shortages in many US states.
As a manufacturer….
We think about saving costs, meeting Board expectations and customer pricing targets. That might lead us to source from places like China. The pollution is so bad in China that the government shuts down sections of the country prior to big events so that visitors aren’t engulfed in deadly air. China also has shortages of electricity and water, and so will turn to more to coal than they already are (with the majority of manufacturing dependent on coal). On the other hand, the US has advanced manufacturing practices, frequently producing with the lowest emissions in the world.
However, if manufacturers are producing in the US, energy costs can be significant. For example, California is has one of the highest energy costs in the US, and in some cases, it is double the price. Of course, customers do not care about manufacturers problems; instead, they care about the cost , quality and service. Thus, manufacturers will migrate to where they can survive, and the best companies innovate to thrive.
As a supply chain organization….
We think about serving customers on-time to customers’ expectations with quality products in the most environmentally efficient manner. Of course, customer expectations have evolved to immediate delivery with the ability to change our mind as conditions change. Of course, to serve customers with immediate delivery, we attempt to navigate inventory stockpiles, expediting requirements, more frequent deliveries, last minute changes across extended distances with a far greater proportion of last mile deliveries to support e-commerce needs.
As part of a food supply chain….
The world needs to eat. On the other hand, the food supply chain navigates the complexities of sourcing to production, and transportation to packaging and accounts for 26% of global greenhouse gas emissions according to the United Nations Food and Agriculture Organization. The global packaging emissions is hard to imagine at 1.34 billion tonnes by 2030.
All Is Not Lost: Manufacturers are On Top of It
Several segments of the end-to-end supply chain have been working hard to improve sustainability. For example, US manufacturers have implemented factory floor improvements, lean principles and technological advancements that allow them to reduce energy loads, material and water waste. They have also transitioned to using more natural gas and renewable sources of energy. Smart factories of the future are already here, and the strong will keep getting stronger. Inventories are being managed tightly to minimize waste while ensuring appropriate supply of key materials and products with best practice planning processes.
The Global Logistics Network Has Invested Heavily
There are lofty goals from decarbonizing marine operations to hydrogen rail to autonomous trucks to electric vehicles to wind powered container ships. Vast progress is being made although not necessarily quick enough to keep up with California laws, leaving heaps of frustration among logistics professionals. IoT, artificial intelligence, blockchain, and a host of other technologies are supporting the quick pace of change in the logistics industry. Renewable technologies are coming along and progress is being made. And, distributors already focus keenly on optimizing transportation routes, minimizing shipping costs and efficient warehousing and keep searching for opportunities for improvement.
Standouts Exist In Every Sector
Progressive companies are taking bold stands. For example, Tetra-Pak’s ambition is to deliver the world’s most sustainable food package.They have already reduced greenhouse gas emissions by 36% from 2019 to 2021 largely due to their quest to find the world’s most sustainable food package. What is impressive is that they are setting a global standard for aluminum packaging and paying attention to the end-to-end supply chain. That isn’t easy if you have to worry about what’s happening with everyone before you in your supply chain.
Innovation to the Rescue
Alaska has been promoting a potential new renewable energy source largely unique to a geographic section of Alaska. The Alaska governor is encouraging investment in harnessing Cook Inlet tides to produce a reliable energy source, particularly “green hydrogen. This is one of the most energy rich places on the planet – onshore wind, offshore wind, coalfields, oil, gas, tidal, geothermal.
Let’s Not Get Ahead of Ourselves
As much progress as is occurring, we have to remember a few critical factors:
- If we want to have a net positive impact, we cannot ignore the full equation. We should consider the end-to-end supply chain carbon footprint and not get stuck in a narrow vision of what helps 1 aspect of the supply chain but causes a worse situation for the total supply chain. Think end-to-end supply chain footprint.
- If we harness energy sources, we must have a way and place to store energy.
- If we want to succeed, we cannot throw out the old sources (which might be far greener than the current alternatives) before we have new sources that will support our needs at scale and reliably. Remember the Texas storms causing issues for the power grid because wind turbines freeze? Or California’s brownouts and blackouts?
How Can SIOP Help?
SIOP (Sales, Inventory and Operations Planning, also known as S&OP) is a process that aligns demand with supply and all stakeholders on a single vision and path forward on a monthly cadence to incorporate changing conditions, customer needs, and improvements in the end-to-end supply chain. SIOP starts with customer demand and translates that demand into products, materials, engineering and manufacturing requirements, logistics needs, and much more. Similar to calculating high level manufacturing and labor requirements and comparing to available capacity so that you can reallocate and expand capacity, offload and/or insource products, and find alternative suppliers and partners, you can do the same for sustainability requirements. Would it be interesting to “see” your carbon footprint across your end-to-end supply chain?
Start with what you know, build on your information until it is directionally correct, and sustainability becomes simply another potential element of your SIOP process. Incorporating this segment into your process, you will have another data point to incorporate into your strategic decisions and tactical action plans. At a minimum, you are participating in understanding your current state in terms of sustainability and further engage your stakeholders in the SIOP process.
Refer to our blog for volumes of articles on these topics and read more about these types of strategies in our eBook, Thriving in 2022: Learning from Supply Chain Chaos. If you are interested in talking about how to roll out a meaningful SIOP process to support profitable growth while starting and/or upgrading your sustainability journey, contact us.
Did you like this article?Continue reading on this topic:
Getting Ahead of Inflationary and Deflationary Pressures Using S&OP