Enterprises around the world are under enormous pressure from stakeholders to become more green – reduce emissions, eliminate waste, and increase sustainability. Beyond reducing waste, water, and C02, companies are looking at renewable sources of energy, agricultural practices, and new forms of product packaging as well. With shareholders, customers, employees and community leaders saying, “Prove to me exactly what you’re doing to reduce your impact,” the issue of sustainability is having a real effect on buying decisions, brand perception, and shareholder value.
In recent research on sustainable business, Gartner’s Pam Fitzpatrick notes that supply chain organizations are “perfectly positioned to help the company strike the right balance of growth, profitability and social purpose as it makes its sustainable business shift. To get there, Chief Supply Chain Officers CSCOs must lead end-to-end value networks on a reorientation to corporate social responsibility (CSR). With this approach, decisions account not only for profitability, but also for the environmental and social impacts that result from a company’s choices.” Success here will rely on several factors, according to Fitzpatrick:
- The capacity to collaborate within the supply chain and the end-to-end ecosystem, including other business functions, suppliers, and trading partners. CSCOs must align supply chain’s balanced profitability and sustainability goals with these stakeholders.
- A “systems-thinking” approach that trains the organization to make decisions in the context of ecosystems, not silos. CSCOs must cultivate an ecosystem mindset.
- The capacity for innovation. CSCOs should invest in innovation management capabilities to create lasting value within the supply chain organization and for the world around us.
Disclosure Trends in Corporate Social Responsibility
Further, several CSR trends are driving the demand for supply chain organizations to publicly disclose more about sustainability in the end-to-end supply chain. Since 2010, various jurisdictions have passed laws requiring large companies to disclose information about how they address human rights in their supply chains. For example, Dodd-Frank includes “conflict minerals” requirements for companies to disclose assurances about sourcing practices. In the EU, a conflict minerals reporting law takes effect in 2021 and the EU has also issued regulations for nonfinancial reporting which require companies to disclose information on the way they operate and manage social and environmental challenges.
Expanding voluntary standards, such as the Carbon Disclosure Project, now collects disclosures on supply chain, forest impacts and water use as well. Additionally, the Global Reporting Initiative has introduced new reporting standards with increasing numbers of sector-specific disclosure standards emerging. Regrettably for businesses, these standards often define performance indicators differently, which means that companies must measure and collect data about similar topics (such as water consumption, emissions, or waste volumes) in different ways.
Stock exchange and investor priorities are also causing companies to take action. Twelve stock exchanges now have mandatory disclosure requirements for their listed companies, and institutional investors are increasingly vocal about their interest in environmental, social, and governance (ESG) issues, even using such data in trading decisions. What do these trends have in common? All require a response by businesses that includes new processes, platforms, metrics, reporting, speed, and accuracy. And let’s not forget efficiency is also required, so that the burden of these new obligations remains manageable and cost effective.
Transportation’s Role in Greenhouse Gas (GHG) Emissions
A key part of the sustainability discussion, and maybe the most talked about, is greenhouse gas emissions. Transportation contributes more than any other sector to anthropogenic U.S. greenhouse gas emissions. Within the transportation sector, light duty vehicles and medium to heavy trucks contribute 82 percent of emissions.
Enterprises have only two possible responses when it comes to GHG emissions from transportation fuel consumption. The first is to operate in ways that minimize the overall carbon emissions. Once emissions are reduced to the greatest extent possible, the second response is to offset all or part of their carbon emissions in some fashion so that firms can make the net impact of their operations more carbon neutral and sustainable.
Offsetting Greenhouse Gas Emissions. An offset is a reduction in emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere, as in your transportation network. These offsets are typically measured in tons of carbon dioxide-equivalent (CO2e), with factors for reductions of other greenhouse gases, such as methane, nitrous oxide, or fluorinated gases.
Through governmental and voluntary programs, offsets have become tradeable commodities. They have a cost, a value, are serialized and are created through regulated and certified programs for various types of green projects including:
- Renewable energy, such as wind or solar farms
- Biomass energy projects
- Hydroelectric dams
- Energy efficiency projects
- Destruction of industrial pollutants or agricultural byproducts
- Destruction of landfill methane, a greenhouse gas
- Forestry projects – the permanent planting of trees to sequester carbon
Global enterprises are increasingly moving to offset some or all of their carbon emissions footprint over time. This applies not only to direct fossil fuel consumption in operations or transportation, but also to electricity consumption from the grid. However, since most public power companies now offer green power programs to their customers – where the power company has already purchased renewable energy credits (RECs) on behalf of its consumers – the complexity of managing such programs becomes easier for businesses.
How Your Enterprise Supply Network Supports CSR Objectives
The effective management of an enterprise’s supply network is becoming a huge part of the sustainability and corporate social responsibility answer for many firms, particularly in reducing GHG emissions to the greatest extent possible. Supply chain managers should consider their positive impact in the following areas:
Chain-of-Custody and traceability processes for items, shipments, and origins can be completely tracked, so that all approved sources of raw materials, intermediates and finished products, as well as all their paths thru the supply chain are 100% verified and auditable. This very much supports today’s trends in CSR disclosure related to sourcing practices.
Lowering Inventory while achieving higher service levels means less making, moving, storing, and waste from obsolescence. Some companies have achieved dramatic inventory reductions of 30% or more with improved customer service using network business processes – which offers enormous value for a sustainable business.
Eliminating Waste and Obsolescence can have a huge sustainability impact and is vital in grocery and food service industries, pharmaceuticals, and even consumer goods and manufacturing where tastes and model preferences can change quickly. Not only does waste imply poor stewardship of every resource that went into the wasted product, in some cases there are additional logistics and disposal costs incurred – additional environment penalties related to the material’s ultimate disposition.
Optimizing Transportation & Logistics. Companies can reduce miles traveled (and associated greenhouse gas emissions) for the same or greater freight volumes with optimized processes:
- Route Optimization means fewer miles overall, reduced time sitting in traffic on congested routes, and eliminates empty miles.
- Optimizing Modes – truck vs rail vs ship vs air – helps to mitigate environmental impact, as well as costs.
- Reducing Expedited Freight so that extraneous deliveries are eliminated and more trucks are filled to capacity with fewer exceptions through improved planning and operations.
- Eliminating “Deadhead Loads” (empty trailers) and leveraging backhauls to reduce empty miles allows companies to reduce costs, all while still supporting business growth.
- Dock Door Scheduling to streamline flow-through and minimize congestion in the yard, to dramatically reduce truck idle time.
- Applying Intelligent Agents to resolve supply chain issues quickly across large networks, even enabling continuous, intraday optimization. AI can help identify issues proactively and recommends or autonomously executes the best resolutions before they become major problems that are more difficult and resource-intensive to fix.
- Improving Transportation Partner Management with metrics and tracking means freight volumes can be shifted toward carriers with good environmental and fleet maintenance track records, vs carriers with poor environmental performance.
- Reduce reliance on paper and manual processes, along with the associated manual “back and forth” processes that tie up and consume resources on both ends of planning, tendering, tracking and invoicing.
Reporting & Analytics allow activities and performance to be tracked and reported on a periodic basis in a highly efficient manner – and even in near-real time. Further, administrative overhead related to CSR programs is reduced to a minimum, because end-to-end traceability, accurate real-time visibility, supply chain performance analytics are inherent in today’s business network platforms.
Reduce the Need for Your Own Data Center with cloud solutions that provide network services for thousands of companies around the globe, for a fraction of the cost and energy of each company implementing their own systems on premise, or each in their own data centers.
Effective Management of Your Enterprise Supply Network
Every business can benefit from using resources more wisely and efficiently, doing more with less. It’s good business and reduces negative impacts on the environment. With network platforms, companies and their ecosystem of trading partners are better connected and have total visibility into resources and constraints, enabling them to make better decisions and deploy resources more effectively.
As the World Economic Forum reports: “Two of the most important ‘no-regret’ capabilities are: Companies should improve their collection of data from all along their value chain; and enterprises should ensure they have the capability to analyze big data streams to derive insights that improve operational efficiency and enable the launch of new services, such as last-mile delivery.” Multiparty business network platforms enable this, while helping enterprises optimize supply network operations and achieve their sustainability objectives in the most cost-effective way possible.
About the Author
Reiner Musier, Ph.D. is Chief Marketing Officer at One Network Enterprises, and is a speaker and author on environmental markets and related commodities, including “Emerging Carbon Markets and Fundamentals of Tradable Permits” (Academic Press, 2010). Dr. Musier received his degree in engineering from M.I.T, with a specialty in optimization of planning and scheduling in supply chain operations.