Sustainability is more than just a catchphrase in today’s economic world. It’s essential for business. A sustainable approach to supply chain design is necessary to thrive in the twenty-first century. It is not only strategically important for business, but also for the environment, to recognize and mitigate greenhouse gas emissions within your supply chain.
In the past, businesses have only considered cost and service when choosing how to develop their supply chains. This indicated that their main concerns were the company’s distribution, profit and cost targets, intended service objectives, shipping practices, and production location.
However, the scope of supply chain design has expanded to include indicators related to sustainability, risk, financials, and services. This implies that scope 1-3 CO2 emissions, water use, electricity sources, recycling flows and landfill effect, fair-trade certified suppliers, etc. may all be taken into account in the current supply chain decision-making process. Because of this, an increasing number of supply chain executives are beginning to put their sustainability criteria into numbers when they’re making crucial choices about supply chain architecture.
Supply Chain Design: What is it?
The practice of building digital models of your supply chain’s future state in order to precisely forecast each design’s performance in terms of risk, financials, and services is known as supply chain designing. Deciding what matters most is a necessary step in creating and redesigning the supply chain. The designer must consider trade-offs between financials, service, risk, and sustainability and choose the design that will best serve the enterprise’s long-term goals.
In a recent poll, the World Economic Forum identified three main obstacles that are affecting supply chain emission reductions today: conflicting corporate goals, a lack of scalable solutions, and a lack of uniformity. It may be difficult to compare and analyze carbon emission rates since there isn’t currently a single standard for reporting emissions, even if many organizations are still obligated to report them in different ways. Furthermore, most large organizations want to scale at a rate that is faster than what legacy technology can provide. These outdated solutions don’t offer a truly scalable framework, so they are frequently unable to take into account significant environmental sustainability impacts. Lastly, persuading a large number of stakeholders who are not knowledgeable about these concerns or actively participating in the organization’s supply chain to invest in sustainable supply chain design may be challenging, if not impossible.
Although many businesses face these obstacles, the good news is that modeling sustainability in any supply chain can be done without a significant time or financial commitment.
Why Does Supply Chain Design Take Sustainability Into Account?
Here are four reasons why future supply chain modeling by organizations should take sustainability criteria into account.
Economic Impact: The National Oceanic and Atmospheric Administration (NOAA) estimates that weather-related and climate-related catastrophes cost the United States more than $165 billion in 2016. Indeed, billions. It was the third-most expensive year ever. Businesses in these areas had to deal with shifted demand, interrupted supplies, decreased output, and higher rebuilding and redeployment costs. By addressing how natural catastrophes might potentially jeopardize their supply chain—and profitability—now, companies can simply prevent supply interruptions caused by these sorts of occurrences in the future.
Customer Demand: A 2021 poll conducted in seven key industrialized nations revealed that 80% of customers value corporate net zero pledges, stating that it is “important or very important” for businesses to completely commit to being net zero. This is much more true for younger generations, according to the same poll. Their propensity to purchase items from a particular firm is significantly influenced by its environmental attitudes, which are a major factor in their buying choices.
Regulatory Compliance: In the United States, organizations such as the Environmental Protection Agency impose heavy penalties on businesses that do not adhere to regulations. For instance, fines for infractions of the Clean Air Act may reach an astounding $37,500 per day, per infraction. Clients will then unavoidably pay these hefty penalties, thereby increasing the cost of doing business with any producers that are sluggish to implement emissions reduction strategies.
Cost reductions: By reducing emissions immediately, businesses may also find undiscovered transportation, distribution, and sourcing cost reductions that might significantly improve their bottom line. Creating new alliances with environmentally conscious vendors and service providers is one method to do this. However, supply chain design modeling may also assist businesses in evaluating several scenarios, which may eventually highlight potential cost savings from shifting distribution hubs, altering transportation routes, or reevaluating raw material sources.
A Look Into Sustainability Aspects of Supply Chain Architecture
Creating a sustainable supply chain requires careful consideration of the following five important factors:
CO2 Emissions: From manufacturing and warehousing to general operations and shipping, measuring and lowering carbon emissions is often the first step in enhancing a supply chain’s overall sustainability.
Measuring the Usage of Critical Resources: Reducing the use (or reusing) of resources that were formerly thought to be plentiful in supply but are now harder to come by, like aluminum, water, copper, steel, and other commodities, is another important step in making a supply chain more sustainable.
Examine Alternative Power Sources: Businesses may increase the sustainability of their supply chains by looking into alternative power sources. Warehouses, factories, and office buildings, for instance, may be powered by solar or wind energy rather than electricity.
Analyze Recycling Flows and Landfill Impact: Analyzing recycling flows and landfill effects in detail is a further strategy for enhancing sustainability. A smart supply chain workflow usually includes both forward and reverse supply chains.
Quantify Internal and External Risk Factors: It’s critical to comprehend the level of risk associated with both internal and external supply chains. By looking at these risk variables, businesses may more quickly find different strategies that lower risk in the supply chain and lessen the effect of major threats, should disruptions arise.
With tools that can assess the long-term financial and environmental effects of different supply chain decisions and model sustainability risk factors, it is now easier than ever to take a truly proactive approach to supply chain design that promotes sustainability and profitability. Companies can assess the risk of their supply chain across multiple metrics and devise a strategy to reduce volatility by analyzing sourcing and manufacturing options based on various risk factors, such as economic resiliency risk and natural and climate-related risk.
By doing this on a regular basis, businesses can gain valuable insights that could lead them to reevaluate their choices regarding suppliers, distribution centers, transportation routes, natural disaster hazards, and recycling and reuse procedures. In the end, this could save them a significant amount of money in terms of avoiding fines and other costs.