Profit and Planet Two Sides of the Same Supply Chain Coin

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Profit and Planet: Two Sides of the Same Supply Chain Coin

2 Minuto de lectura

A Gartner survey found that more than two-thirds of chief supply chain officers (CSCOs) are still recovering from the last major disruption when the next one comes along. These executives face a continuous barrage of challenges that proves unresponsive supply chains are going to struggle in a state of constant volatility. Businesses must respond proactively to disruptions by implementing processes and technologies that enable them to not only spot risks or disruption much earlier, but also act upon them in the most efficient and sustainable way possible.

The current level of supply chain disruption and complexity represents the culmination of decades of supply chain evolution. New innovations, changing customer expectations and a growing understanding of environmental concerns have added to today’s complexity and volatility.

Supply chain management started with the establishment of long, low-cost supply chains that remain the foundation of most manufacturing and retail business operations to this day. Fast-forward to the global financial crisis. While businesses got their first taste of the volatility that was to come, the basic supply chain model didn’t really change. There wasn’t an air of anticipation that these inherently inflexible supply chains would become operationally, financially and environmentally unsustainable.

However, all three pressures materialized during the COVID-19 pandemic. This unprecedented global event exposed vulnerabilities and led to the realization that organizations needed to adapt their supply chains to become more financially and environmentally resilient.

That magic word “resilience” has been joined by another aspirational word — “agility” — to guide business strategy in the pandemic’s aftermath. The need to balance investment in operational cost efficiency, service improvement, product profitability and growth and environmental sustainability — while simultaneously making supply chains more resilient to disruption — is the new holy grail.

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The growing importance of sustainability

Simultaneously, sustainability has emerged as a strategic priority. But resilience and environmental stewardship are closely aligned. Building a sustainable and resilient supply chain means laying down strategies to predict and respond to disruptions efficiently, with an acceptable impact on both profit and planet.

So far, this has largely involved organizations building knowledge of financial and environmental impacts into their decision-making tools — for example, calculating the carbon outputs and fuel cost savings of various transportation options, including not just the route but also the vehicle itself. Given that road transportation from trucks and vans accounts for 65% of the total emissions from transportation, according to the Organization for Economic Co-operation and Development (OECD), the potential for optimization is enormous.

Waste reduction is another route to addressing both profit and planet. For example, in a highly reactive sector such as short shelf-life foods, predictive artificial intelligence (AI) is being used to develop forecast models based on external variables like weather, seasons, competitor behavior and advertising. This granular level of forecasting improves accuracy, which allows the supply chain to meet demand without creating excess inventory. Forecast accuracy offers the added benefit of maintaining profit margin by minimizing price reductions and clearance events. A study by McKinsey, The Ellen MacArthur Foundation and Google identified that AI can unlock $127 billion per year through food waste reduction.

Finally, enabling the inclusion of CO2 emissions in mid-term planning processes allows a similar optimization of supply chain activities for both environmental and financial advantage. By using optimization capabilities that consider multiple objectives concurrently, companies can achieve balance in their decision-making, where financial performance has traditionally been at the expense of environmental impact.

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Maximizing visibility, connectivity and cultural adoption

This all sounds like healthy progress, and it is. However, the implementation of these technologies and new processes does require a mindset shift. It also means changing existing practices that many organizations have entrenched after decades of the same supply chain model. Some significant challenges must be overcome.

The first challenge is an inherent lack of visibility of the environmental impacts across a company’s supply chains. A lack of reliable data around indirect carbon emissions — known as Scope 3 emissions — makes it difficult to forecast future impacts based on new investments or operational pivots. The answer here is to work with what can be seen and measured, and then allow AI to do what it does best — leverage relevant datasets to develop diagnostics and optimized networks that eliminate waste and carbon emissions.

The second challenge relates directly to the lack of connectivity between commercial and sustainability strategies, causing conflict between environmental aims and functional profit targets. To overcome this, businesses must start aligning and analyzing sustainability metrics alongside traditional supply chain metrics within their company goal-setting and technology-adoption strategies. The relationship between environmental decisions and financial impacts will become clearer if both are tied to corporate goals and digitalization initiatives.

The biggest standalone challenge may be changing longstanding organizational mindsets. Resistance to change is no longer an option when it comes to sustainability. Customers have far more choices than they used to, and they aren’t afraid to make a stand when it comes to sustainability. There is also no hiding place anymore, with regulations forcing both transparency and action. By seeing the relationship between profit and planet more clearly, decision-makers realizing increasing value across the company as they make sustainability investments. They need to get the entire culture on board by communicating that value.

Redefining supply chain optimization

Supply chain sustainability really must be seen as a commercial decision, a profit enabler and a business enhancer. By looking at the relationship between sustainability and supply chain performance, decision-makers can unearth the best roadmap for the entire company.

This more integrated approach is likely to lead companies to embrace more diverse manufacturing networks with alternative sources, make-and-buy optionality, or nearshoring possibilities. Network innovation can help companies more accurately balance service, sustainability and costs.

Optimizing for both cost and more sustainable outcomes might also lead companies to explore a new distribution network with local warehousing and transportation alternatives, or sourcing networks that include alternative local and global suppliers. With a clear context of expected costs and environmental impacts, executives can consider product portfolio rationalization and mass configuration, inventory and capacity buffers, and new collaborations across the partner ecosystem more clearly.

Once profit and planet are intertwined into the same business strategy, the opportunities for optimization become much more diverse and informed.

The game-changing value of AI and cloud computing

Technology’s role in unifying sustainability and supply chain objectives is paramount — specifically artificial intelligence (AI) and digital twins, which can accelerate progress toward sustainability goals.

In addition to improving forecasting and optimization around availability and waste, businesses can also build accurate digital twins of their entire supply chain to align with improved planning and forecasting, while breaking down the siloes where waste and cost usually lurk. An EY study quantified that digital twins can reduce carbon emissions from an existing building by up to 50% and reduce costs by up to 35%.

By using accurate digital twins in conjunction with the power of AI and cloud computing, supply chain optimization can be much more detailed and concerted, evaluating many more variable characteristics across the network. These factors include lead times, demand levels, supply reliability, product quality and yield. Cloud-based cognitive solutions are now able to generate hundreds of scenarios automatically. These advanced solutions optimize scenarios around multiple business objectives — including sustainability — then use AI to pick the ones that will deliver the most desirable business outcomes. All of this analysis takes minutes, while also enriching the workforce and their roles in the process.

Future supply chains will be more resilient and agile when they integrate sustainability decisioning alongside traditional supply chain objectives. By harnessing AI and cloud computing, the future begins now. After years of disruption, the connection between profit and planet can finally be made. Want to learn more? Connect with Blue Yonder today.

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